MARKET DEFENDER STRATEGIES
Understanding the successful strategies used during each stage of the service life cycle is only half of the key to success. The other half is for a firm to defend its current market share from its competitors and from new firms entering the market.
A) BLOCKING STRATEGIES
The best defense strategy against competitors is to stop new firms from entering the market. Entry can be blocked by increasing the cost of success or reducing the anticipated rewards. Companies enter new markets bcoz they believe they can make a profit. If the cost of entering a new market becomes too high or the anticipated return is too low, the desire to enter is lessened. Blocking strategies available to service firms include performance guarantees, intensive advertising, controlling location or access, high switching costs, and satisfied customers.
A performance guarantee does two things. First, it says to customers that their current service provider will stand behind their promises. Second, it forces any new entrant into the market to immediately meet the same standard of performance.
Another method of blocking new entrants is an intensive advertising campaign that promotes brand name, brand awareness, and brand equity. Large service firms have the money to fund large scale promotions. Bcoz of the experiential nature of services, many consumers will choose a firm with which they are familiar. Customers are leery of unknown service firms. Building the brand awareness necessary to capture a significant portion of a market may be seen as too costly for some prospective entrants.
Controlling location or access is another method of blocking entry. It is the spatial preemptive competitive advantage discussed earlier. Firms that are first to get the prime retail locations will create a barrier to other firms desiring to enter that market. Firms that sign contractual agreements with their clients or customers make it harder for a new firm to enter. Any method a firm can use that will make it more difficult for a new competitor to have access to customers will discourage a new firm‟s entry.
Increasing switching costs will make a market less attractive bcoz as customer switching costs go up, customers become less willing to try a new company.
The best blocking strategy, however is to provide the service customers want and expect. Satisfied customers are reluctant to try a new service. This reluctance is especially true for services operating in the service quality and customization operational position.
B) RETALIATION STRATEGIES
It is not always possible to prevent new firms from entering a market, especially during the growth stage of the service life cycle. Once they have entered the market, then firms who are already in the market will have to switch to retaliation strategies. The goal of these strategies is to deny the new entrant the opportunity to make their anticipated or desired profit level. If profits are too low or the market potential does not appear to be attractive, the new firm will withdraw from the market. Retaliation strategies include reducing service trial, fighting aggressively to maintain market share and developing a reputation for being aggressive.
One retaliation strategy is to discourage customers from trying the new service company. Manufacturers of goods can do this by offering special promotions that encourage customers to stock up on their merchandise. Because services are perishable, this strategy is not as readily available to services. Instead, service firms must look for ways to develop long term contracts with their customers. Formal contracts are the best, but are not always possible.
Another strategy is to reduce a new entrant‟s forces the new entrant to spend more time and money, which makes the market less attractive to the new
entrant. Having a reputation of being aggressive may cause some companies to discontinue their market entry plans or be content with a smaller share of the market. Citibank demonstrated aggressive retaliation when AT&T launched their universal card. Citibank cancelled its AT&T long distance service, added price protection, and tried to block other nonbank entities from entering the credit card industry. Although Citibank‟s retaliation did not s the pay back period AT&T had anticipated when they entered the market. It was two full years before AT&T realized any profit and even then the profit earned was lower than anticipated.
C) ADAPTATION STRATEGIES
Adaptation strategies are used when a firm must accept that attempts to block or force out the new entrant have failed and the new firm is in the market to stay. Citibank was forced to use adaptation strategies when AT&T universal card penetrated the market. Among the adaptation strategies used to
keep the new entrant from eroding a firm‟s ma can match the new entrant‟smontheir ownoffersturf.Thisstrategyandmay attemptrequire
adding new services or modifying current services to ensure that at every level they have equivalent offerings. As new firms try to develop a competitive advantage, incumbents can work to prevent the competitive advantage from being established.
A second strategy is to expand the service package to discourage customers from switching to the new entrant. By offering the customer everything, the need to switch is decreased. The danger with this approach is that in offering multiple services, the quality and expertise may be diminished. Firms that are more specialized may be able to offer a higher level of service quality and take away market share.