As important as the dimensions of rivalry is whether rivals compete on the same dimensions. When all or many competitors aim to meet the same needs, or compete on the same attributes, the result is zero-sum competition.
– Michael E. Porter, HBR’s 10 Must Reads on Strategy
Several competitive strategies are short-sighted because they do not adequately define the competitive landscape facing a firm. All products should not aim to be alike. Imitating and matching rivals in your immediate sphere of competition does not create value for your customers. Value is created when your product is innovative and unique, thereby providing customers with a real choice and creating a winning marketing strategy for business.
A cola such as Diet Pepsi is competing directly with Diet Coke. Its physical attributes (calories, carbonation, cola taste, etc.) are closest to this rival drink. This is the narrowest form of competition based on proximity of physical attributes and is called product form competition. These brands appeal to similar customers: those looking for a cola taste with low calories. It would, however, be dangerous for Diet Pepsi to disregard a wider competitive set as it is also competing with other regular colas and aerated drinks such as Sprite or Fanta. A customer may, at times, be indifferent between Diet Pepsi and Sprite. All these soft drinks form a market. This traditional style of defining competition, also based on product features, is called product category competition and is slightly broader than product form competition although still taking a short run view of describing the market.
The third level of competition to be kept in mind while creating a marketing strategy for business is called generic competition. This is a longer term and is based on substitutable product categories. The market is defined as consisting of those products that satisfy the same customer need. Diet Cola 1 should not lose sight of the fact that it is also competing with orange juices, iced teas and hot beverages to quench the customer’s thirst. Product form and product category competitors are defined by those products that look alike and is looking inward into the firm. Generic competition looks outside the firm to the customer. An even more general level of competition is budget competition which is the broadest form of competition. It considers all products or services competing for the same customer rupee as forming a market and the list of competitors is infinite. A customer’s discretionary disposable income could be spent buying Diet Cola 1. However, it could also be spent on buying a cone of ice cream, buying a new pair of shoes or buying tickets to a movie. This form of competition, although conceptually useful, is difficult to implement strategically due to the countless competitors.
The definition of the competitive set determines what strategy is pursued and the definition can be too narrow or too broad depending on the market environment. The timely entry of Cola companies into the health drink and health food market is a positive example of a company recognizing competitors outside its immediate product category and meeting changing customer needs. Misidentification of the competitive set can have a negative impact on the success of a marketing strategy for business, especially in the long run, as overlooking an important competitive threat can be ruinous.