GTA5

Highlighting some industrial economics strategies

In today’s most competitive markets, companies play marketing strategies such as puppy dog or fat cat strategies in case of complements goods and top dog or lean and hungry dog strategies in case of substitutes. Having said this one can generalize these 4 strategies to both complements and substitutes on a less stricter note.

In the theory of industrial economics Jean Tirole has added these principles in analysing oligopoly. 

Top dog strategy is when incumbent company thinks that if he raises production the rival will too raise its production. It is similar  to be big, look big. Lean and hungry dog strategy is when incumbent thinks that if it plays soft the rival won’t play soft. It is like be small, look big. 

Fat cat strategy is when incumbent plays soft thinking rival will play soft. It is like be big look soft.

Puppy dog strategy is when incumbent plays soft thinking that the rival will play tough if former plays tough. It is like be small look soft.

Let’s discuss ITC and Hindustan Unilever or HUL.

Both are FMCG majors and deal with substitutes goods. Last 5 years sales growth of both players was 6.5% and 6% while net profit grew by 8% and 12% respectively. So in this race of substitutes HUL is the top dog and not lean dog as ITC has played soft.

Easier said than done, similarly we can do interesting analysis of various companies from this angle.

Now let’s have on the radar, 2 complements goods companies such as Asian Paints and  real estate player DLF.

Sales growth of the 2 players are 33% and 8% while net profit grew by 210% and 40% respectively. So in this analysis Asian Paints is a fat cat strategist.

In the banking sector, mid cap banks like Union Bank have lean and hungry dog strategy because of its aggressive profit earning ability despite its relative small size. 

Again, comparing 2 behemoths– ICICI Bank and SBI gross income stand at Rs 1.5 lakh crore and Rs 3.5 lakh crore while net profit margin are 11.5% and 7%. So the $ 200bn private player bears lean, hungry dog strategy despite the fat cat number 1 bank.

Which of these strategies have the highest payoff?

The answer to this question requires a long term as well as a short-term perspective. For example, the short-term pay-off of ‘Top Dog’ strategy may be comparatively less than that from ‘Lean And Hungry Look’. ‘Top Dog’ means higher investments and higher all round costs in the near term, however, in the long run, the ‘top dog’ strategy will have higher payoff from increased market share. So, if this vendor is looking for short term pay-off in the enterprise software market, play ‘Lean and Hungry Look’ (stay low-key but do not commit to be soft so that the competitors do not have a free reign, and reap the benefits that accrue out of low losts). For long-term benefits, this vendor should plan to play ‘Top Dog’ and concentrate on expanding its market penetration.

Hence for businesses to thrive CEOs brainstorm these strategies in the boardrooms to beat their rivals and rake in moolahs. To increase prices or sales to maximize profits and conjecturing the rivals decisions by forming suitable reaction functions plays center stage in this field. 

Linkedin


Disclaimer

Views expressed above are the author’s own.



END OF ARTICLE



Tags
Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button
Close
Close