Creating Competitive Advantage

Two Major Goals of Marketing*

1. Design and Manage a Superior Value-Delivery System to Reach and Satisfy Target Customer Segments. 2. Gain and Sustain Competitive Advantage.
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Defining Customer Value

Total Customer Benefit
(Product, Service, Personnel, & Image Values) (Monetary, Time, Energy, & Psychic Costs)
(Profit to the Consumer)

Total Customer Cost

Customer Delivered Value

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Value Chain Analysis**

Support Activities
Firm Infrastructure Human Resource Management Technology Development Procurement
Inbound Logistics
Operations Outbound Logistics Marketing and Sales Service

Primary Activities

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Definition
Competitive Advantage
An advantage over competitors gained by offering consumers greater value than competitors offer.

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Benefits of Competitor Analysis

Understanding current competitors strategic strengths and weaknesses can suggest opportunities and threats that will merit a response. Insights into future competitor strategies may help predict future opportunities and threats. Decisions about strategic alternatives might hinge on the ability to forecast likely reaction of key competitors. May help identify strategic uncertainties that will be worth monitoring over time.

Competitor Analysis
Identifying Competitors Assessing Competitors
Determining Objectives Identifying Strategies Assessing Strengths and Weaknesses Estimating Reaction Patterns

Selecting Competitors to Attack and to Avoid

Competitor Analysis
Steps in the Process:
Identifying Competitors Assessing Competitors Selecting Competitors to Attack or Avoid Firms face a wide range of competition Be careful to avoid competitor myopia Methods of identifying competitors:
Industry point-of-view Market point-of-view

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Industry Concept of Competition

An industry is a group of firms that offers a product or class of products that are close substitutes for one another.

Market Concept of Competition

The market concept of competition reveals a broader set of actual and potential competitors. According to this concept, competitors are companies that satisfy the same customer need.

Levels of Competition
Beer Ice cream

Tea

Regular colas

Diet lemon limes

Wine

Diet-Rite cola Diet Pepsi

Product form competition: Diet colas Juices

Fast food
Fruit flavore d colas

Diet Coke

Bottled water

Lemon limes

Product category competition: Soft drinks

Video rentals

Baseball cards

Coffee

Generic competition: Beverages Budget competition: Food and entertainment

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230-year-old Encyclopedia Britannica viewed itself as competing with other publishers of printed encyclopedias. Big mistake! Its real competitors were software encyclopedias and the Internet.
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Competitor Analysis
Potential Competitors
Market expansion

Product expansion
Backward integration competitive customers Forward integration competitive suppliers Export assets or competencies mergers/acquisitions Retaliatory or defensive strategies

Competitor Analysis
Steps in the Process:
Identifying Competitors Assessing Competitors Selecting Competitors to Attack or Avoid
Determining competitors objectives Identifying competitors strategies
Strategic groups

Assessing competitors strengths and weaknesses

Benchmarking

Estimating competitors reactions

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Analyzing Competitors
Objectives
Strategies

Competitor Actions

Reaction Patterns

Strengths & Weaknesses

Competitor Analysis
Successful strategists take great pains in scouting competitors Understanding their strategies Watching their actions Evaluating their vulnerability to driving forces and competitive pressures Sizing up their resource strengths and weaknesses and their capabilities Trying to anticipate rivals next moves

ANALYZING COMPETITORS

Once a company identifies its primary competitors, it must ascertain their objectives, strategies, strengths, and weaknesses. Competitors strive to maximize profits. Monitor three variables when analyzing competitors: Share of market. Share of mind. Share of heart. Companies that make steady gains in mind share and heart share will inevitably make gains in market share and profitability.
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Customer Value Analysis (for Competition)

Identify Attributes Customers Value Assess Attribute Importance Assess Company and Competitor Performance Examine Segments on Attribute-byAttribute Basis Monitor Customer Values Over Time

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Six competitive positions in the target market

1. 2. 3. 4. 5. 6.

Dominant- Controls the behavior of other competitors Strong- The firm can take independent action without
endangering its long-term position

Favorable-

has exploitable strength and more than average opportunity to improve its position

Tenable- performing at a satisfactory level Weak- unsatisfactory performance but opportunity exists for
improvement

Nonviablefor improvement

unsatisfactory performance but no opportunity

Reaction Patterns
1. 2.

The laid-back competitorreact quickly

that does not that reacts to

The selective competitoronly certain type of attacks

3.
4.

The tiger competitorstrongly to any assault exhibit a predictable reaction pattern

that react swiftly and

that does not

The stochastic competitor-

Competitor Analysis
Steps in the Process:
Identifying Competitors Assessing Competitors Selecting Competitors to Attack or Avoid
Strong or weak competitors
Customer value analysis

Close or distant competitors

Most companies compete against close competitors

Good or Bad competitors

The existence of competitors offers several strategic benefits

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Developing Competitive Marketing Strategies

Basic Competitive Strategies

Overall Cost Leadership Differentiation

Focus Middle of the Road

Competitive Strategies*
Basic Winning Competitive Strategies: Michael Porter
Overall cost leadership Lowest production and distribution costs Differentiation Creating a highly differentiated product line and marketing program Focus Effort is focused on serving a few market segments
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Five Forces Determining Segment Structural Attractiveness

Potential Entrants (Threat of Mobility)

Suppliers (Supplier power)

Industry Competitors (Segment rivalry)

Buyers (Buyer power)

Substitutes (Threats of substitutes)

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Threat of New Entrants

Economies of Scale

Barriers to Entry

Product Differentiation Capital Requirements

Access to Distribution Channels

Cost Disadvantages Independent of Scale Government Policy

Exit Barriers

Legal or moral obligations. Government restrictions. Low asset salvage value. Lack of alternative opportunities. High vertical integration. Emotional barriers.

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Barriers and Profitability

Exit barriers
Low High Low, risky returns

Entry Barriers

Low

Low, stable returns

High

High, stable returns

High, risky returns

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Suppliers are likely to be powerful if:
Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Supplier industry is dominated by a few firms Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product

Suppliers products are differentiated

Suppliers products have high switching costs Supplier poses credible threat of forward integration

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Bargaining Power of Buyers

Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to sellers sales Purchase accounts for a significant fraction of suppliers sales Products are undifferentiated Buyers face few switching costs Buyers earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information

Buyers compete with the supplying industry by:

* Bargaining down prices * Forcing higher quality * Playing firms off of each other

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

Threat of Substitute Products

Keys to evaluate substitute products: Products with similar function limit the prices firms can charge

Products with improving price/performance tradeoffs relative to present industry products

Example: Electronic security systems in place of security guards Fax machines in place overnight mail delivery of

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:

Using price competition

Staging advertising battles Increasing consumer warranties or service

Making new product introductions
Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors

Rivalry Among Existing Competitors

Cutthroat competition is more likely to occur when:

Numerous or equally balanced competitors Slow growth industry

High fixed costs

High storage costs Lack of differentiation or switching costs Capacity added in large increments

High exit barriers

Hypothetical Market Structure

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Competitive Strategy
Competitive Positions Market Leader Market Challenger Market Follower Market Nicher
Expanding the total demand
Finding new users Discovering and promoting new product uses Encouraging greater product usage

Protecting market share

Many considerations Continuous innovation

Expanding market share

Profitability rises with market share
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Expanding the Total Market

The dominant firm normally gains the most when the total market expands. Every product class has the potential of attracting buyers who are unaware of the product or who are resisting it because of price or lack of certain features. Search for new users among three groups: Those who might use it but do not (marketpenetration strategy). Those who have never used it (new-market segment strategy). Those who live elsewhere (geographical-expansion strategy).
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Expanding the Total Market

New Users

Converting potential customers New-market segment strategy (e.g. Rural segments by banks) Geographical-expansion strategy (E.g., Northeastern markets, B-class towns by Mercedes Benz)

New Uses (e.g., Vaseline petroleum jelly) More Usage (More Cricket, More Pepsi, Sunday
ke Sunday, Medikar)

More Usage

Usage can be increased by increasing the level of quantity of consumption or increasing the frequency of consumption. Increasing the amount of consumption can sometimes be done through packaging or product design. Increasing frequency of use involves identifying additional opportunities to use the brand in the same basic way or identifying completely new and different ways to use the brand.
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Additional Usage Opportunities

Communicate the appropriateness and advantages of using the brand more frequently in new or existing situations. Identify completely new and different applications. Product development can spur new uses.

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Expanding Market Share

Market leaders can improve their profitability by increasing market share. Gaining increased share in the served market does not automatically produce higher profits. A company should consider four factors before pursuing increased market share: The possibility of provoking antitrust action. Economic cost. Pursuing the wrong marketing-mix strategy. The effect of increased market share on actual and perceived quality.
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Defending Market Share

Dominant firm must continuously defend its current business.
What can the market leader do to defend its terrain? continuous innovation developing new product and customer services, distribution effectiveness, and cost cutting it keeps its competitive strength and value to customers.

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Defending Market Share

In satisfying customer needs, distinguish between

Responsive marketer > find a stated need and fill it; Anticipative marketer latent needs ; > discover

Creative marketer > creates totally new markets

Defense Strategies
Position Defense > occupy the most desirable market

space, make the brand unconquerable Nescafe, Maggi

This involves setting up fortifications such as barriers to market entry around a product, brand, product line, market, or market segment. This could include increasing brand equity, customer satisfaction, customer loyalty, or repeat purchase rate. It could also include exclusive distribution contracts, patent protection, market monopoly, or government protected monopoly status.

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Defense Strategies
Flank Defense > Guard the weak fronts by erecting outposts and use them for invasion also.
Wheel, Coke

Preemptive Defense > attack before enemys offence, preannounce and introduce new products, expand distribution rapidly and widely
Jet airways -Times of India

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Defense Strategies
Counteroffensive Defense counterattack when attacked,
Attack the front or the flank Jet Vs King fisher on routes Pincer attack from two sides

Invade competitors main territory and force him to be defensive Subsidized product under attack by profits from other products Preannounce product upgrades to make customers wait than switch over Lobby with legislatures

Defense Strategies
Mobile Defense
market broadening shifts focus from current product to underlying generic need market diversification
This involves constantly shifting resources and developing new strategies and tactics. A mobile defense is intended to create a moving target that is hard to successfully attack, while simultaneously, equipping the defender with a flexible response mechanism should an attack occur. This would entail introducing new products, introducing replacement products, modifying existing products, changing market segments, changing target markets, repositioning products, or changing promotional focus. This defense requires a very flexible organization with strong marketing, entrepreneurial, product development, and marketing research skills.

Defense Strategies
Contraction Defense Strategic withdrawal

TOMCO, LAKME

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OTHER COMPETITIVE STRATEGIES

Firms that occupy second, third, and lower ranks in an industry are often called runner-up, or trailing firms. These firms can adopt one of two postures. Each can attack the leader and others in an aggressive bid for further market share (market challengers), or they can play ball and not rock the boat (market followers).

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Competitive Strategy
Competitive Positions Market Leader Market Challenger Market Follower Market Nicher
Option 1: challenge the market leader
High-risk but high-gain Sustainable competitive advantage over the leader is key to success

Option 2: challenge firms of the same size, smaller size or challenge regional or local firms Full frontal vs. indirect attacks
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Market-Challenger Strategies

Many market challengers have gained ground or even overtaken the leader. A market challenger must first define its strategic objective. The challenger must decide whom to attack:
It can attack the market leader. It can attack firms of its own size that are not doing the job and are underfinanced. It can attack small local and regional firms.
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Market Challenger Strategies

Must define opponents(s) strategic objective and

Must choose a general attack strategy

frontal or head on flank or blind side encirclement or blitz bypass or attacking easier markets to broaden resource base guerrilla or small, intermittent attacks

Choosing a Specific Attack Strategy

Price discount. Lower price goods. Prestige goods. Product proliferation. Product innovation. Improved services. Distribution innovation. Manufacturing-cost reduction. Intensive advertising promotion.
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Pepsi is an example of market challenger that has chosen to use a full frontal attack

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Competitive Strategy
Competitive Positions Market Leader Market Challenger Market Follower Market Nicher
Follow the market leader
Focus is on improving profit instead of market share Many advantages:
Learn

from the market leaders experience Copy or improve on the leaders offerings Strong profitability
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Market Follower Strategies

Counterfeiter
duplicates leader

Cloner
emulates leader

Imitator
copies some features

Adapter
improves on leader

Market-Follower Strategies

A market follower must know how to hold current customers and win a fair share of new customers. Each follower tries to bring distinctive advantages to its target marketlocation, services, and/or financing.

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Competitive Strategy
Competitive Positions Market Leader Market Challenger Market Follower Market Nicher
Serving market niches means targeting subsegments Good strategy for small firms with limited resources Offers high margins Specialization is key
By market, customer, product, or marketing mix lines
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Market-Nicher Strategies

Firms with low shares of the total market can be highly profitable through smart niching. Such companies tend to offer high value, charge a premium price, achieve lower manufacturing costs, and shape a strong corporate culture and vision. The market nicher ends up knowing the target customers so well that it meets their needs better than other firms selling to this niche. The nicher achieves high margin, whereas, the mass marketer achieves higher volume.
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Market Niche Strategies

Niche specializations include:
end user vertical-level customer size specific customer geographic product/product line/product feature quality/price service/channel

Competitor-Centered Companies

A competitor-centered company sets its course based on reactions to its competitors. This kind of planning has some pluses and minuses. On the positive side, the company develops a fighter orientation. On the negative side, the company is too reactive. Rather than formulating and executing a consistent, customer-orientated strategy, it determines its moves based on competitors moves.

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Customer-Centered Companies

A customer-centered company focuses more on customer developments in formulating its strategies.

The customer-centered company is in a better position to identify new opportunities and set a course that promises to deliver long-run profits.

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Balancing Customer and Competitor Orientations

Companies can become so competitor centered that they lose their customer focus. Types of companies:
Competitor-centered companies Customer-centered companies Market-centered companies
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Evolving Company Orientations

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Latest thinking on Competition

Competitive Approach

Monopolist

Cooperative Approach

Co-opetition

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Balancing Customer and Competitor Orientations

Competition-Centered Customer-Centered
No Yes

No

Product Orientation Competitor Orientation

Customer Orientation

Yes

Market Orientation