Changes in the business environment and moves by competitors erode the competitive position of organisations which, in turn, respond by counter-moves. Competition moves through cycles and any competitive advantage is temporary. Consider the interactions between Francotop, the highly profitable dominant player in a French consumer goods niche, and Deutschespitze, a German company with a similar product that was wishing to become a significant European-wide player. Deutschespitze's first competitive move was to target a consumer age group where consumption and brand awareness in France were both low. Francotop had limited its marketing efforts to the over-25 age groups - the Germans saw possibility of extending the market into the 18-25 group and aimed their promotional efforts at the group with some success. This first move was ignored by Francotop as it did not impact on its current business. However, from this bridgehead Deutschespitze's second move was to attack Francotop's key older market. This triggered Francotop to launch an advertising campaign reinforcing brand awareness in its traditional segments, hoping to confine the German company to its initial niche. Deutschespitze responded by counter- advertising and price reductions- undermining the margins earned by its French rival. Competition then escalated with a counter-attack by Francotop into the German market. This wider competitive activity played itself out resulting in the erosion of both of the original strongholds and a progressive merger of the French and German markets. It is possible at this stage that this whole cycle of competition could have repeated itself in an adjacent market, such as the UK. However, what happened was that Deutschespitze saw an opportunity to move away from this cost/quality basis of competition by adapting the product for use by businesses. Its core competences in R&D allowed it to get the adapted product to market faster than its French rival. It then consolidated these first-mover advantages by building and defending barriers. For example, it appointed key account salespeople and gave special offers for early adoption and three-year contracts. Nevertheless, this stronghold came under attack by the French firm and a cycle of competition similar to the consumer market described above was triggered. However, the German firm had built up enough financial reserves to survive a price war, which it then initiated. It was willing and able to fund losses longer than the French competitor - which was forced to exit the business user market. Questions 1 Could the French firm have slowed down the cycle of competition? 2 How could the French firm have prevented the German firm escalating competition, to its advantage, in the business user market?

Changes in the business environment and moves by competitors erode the competitive position of organisations which, in turn, respond by counter-moves. Competition moves through cycles and any competitive advantage is temporary. Consider the interactions between Francotop, the highly profitable dominant player in a French consumer goods niche, and Deutschespitze, a German company with a similar product that was wishing to become a significant European-wide player. Deutschespitze's first competitive move was to target a consumer age group where consumption and brand awareness in France were both low. Francotop had limited its marketing efforts to the over-25 age groups - the Germans saw possibility of extending the market into the 18-25 group and aimed their promotional efforts at the group with some success. This first move was ignored by Francotop as it did not impact on its current business. However, from this bridgehead Deutschespitze's second move was to attack Francotop's key older market. This triggered Francotop to launch an advertising campaign reinforcing brand awareness in its traditional segments, hoping to confine the German company to its initial niche. Deutschespitze responded by counter- advertising and price reductions- undermining the margins earned by its French rival. Competition then escalated with a counter-attack by Francotop into the German market. This wider competitive activity played itself out resulting in the erosion of both of the original strongholds and a progressive merger of the French and German markets. It is possible at this stage that this whole cycle of competition could have repeated itself in an adjacent market, such as the UK. However, what happened was that Deutschespitze saw an opportunity to move away from this cost/quality basis of competition by adapting the product for use by businesses. Its core competences in R&D allowed it to get the adapted product to market faster than its French rival. It then consolidated these first-mover advantages by building and defending barriers. For example, it appointed key account salespeople and gave special offers for early adoption and three-year contracts. Nevertheless, this stronghold came under attack by the French firm and a cycle of competition similar to the consumer market described above was triggered. However, the German firm had built up enough financial reserves to survive a price war, which it then initiated. It was willing and able to fund losses longer than the French competitor - which was forced to exit the business user market. Questions 1 Could the French firm have slowed down the cycle of competition? 2 How could the French firm have prevented the German firm escalating competition, to its advantage, in the business user market?

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Hi, could you please read the case study in the image attached. and answer the question

Transcribed Image Text:Cycles of competition Changes in the business environment and moves by competitors erode the competitive position of organisations which, in turn, respond by counter-moves. Competition moves through cycles and any competitive advantage is temporary. Consider the interactions between Francotop, the highly profitable dominant player in a French consumer goods niche, and Deutschespitze, a German company with a similar product that was wishing to become a significant European-wide player. Deutschespitze's first competitive move was to target a consumer age group where consumption and brand awareness in France were both low. Francotop had limited its marketing efforts to the over-25 age groups - the Germans saw a possibility of extending the market into the 18-25 group and aimed their promotional efforts at the group with some success. This first move was ignored by Francotop as it did not impact on its current business. However, from this bridgehead Deutschespitze's second move was to attack Francotop's key older market. This triggered Francotop to launch an advertising campaign reinforcing brand awareness in its traditional segments, hoping to confine the German company to its initial niche. Deutschespitze responded by counter- advertising and price reductions- undermining the margins earned by its French rival. Competition then escalated with a counter-attack by Francotop into the German market. This wider competitive activity played itself out resulting in the erosion of both of the original strongholds and a progressive merger of the French and German markets. It is possible at this stage that this whole cycle of competition could have repeated itself in an adjacent market, such as the UK. However, what happened was that Deutschespitze saw an opportunity to move away from this cost/quality basis of competition by adapting the product for use by businesses. Its core competences in R&D allowed it to get the adapted product to market faster than its French rival. It then consolidated these first-mover advantages by building and defending barriers. For example, it appointed key account salespeople and gave special offers for early adoption and three-year contracts. Nevertheless, this stronghold came under attack by the French firm and a cycle of competition similar to the consumer market described above was triggered. However, the German firm had built up enough financial reserves to survive a price war, which it then initiated. It was willing and able to fund losses longer than the French competitor - which was forced to exit the business user market. Questions 1 Could the French firm have slowed down the cycle of competition? 2 How could the French firm have prevented the German firm escalating competition, to its advantage, in the business user market?

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