Chapter 18: Creating Competitive Advantage

Competitor Analysis (Definition)

identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid

Market Leader Strategies

- Expand total market - Protect market share - Expand market share

Market Follower Strategies

- Follow closely - Follow at a distance

Market Follower Strategies (expanded)

- Follow closely - Follow at a distance 1)Play along with competitors and not rock the boat 2)Copy or improve on leader's products and programs with less investment 3)Bring distinctive advantages 4)Keep costs and prices low or quality and services high -Not all runner-up companies want to challenge the market leader. The leader never takes challenges lightly. If the challenger's lure is lower prices, improved service, or additional product features, the market leader can quickly match these to defuse the attack. The leader probably has more staying power in an all-out battle for customers. Thus, many firms prefer to follow rather than challenge the market leader using the strategies shown in this slide.

Market Challenger Strategies

- Full frontal attack - Indirect attack

Market Nicher Strategies

-By customer, market, quality, price, service - Multiple niching The key to market niching is specialization: -Market -Customer -Product -Marketing mix -Instead of pursuing the whole market or even large segments, these firms target subsegments. Nichers are often smaller firms with limited resources. But smaller divisions of larger firms also may pursue niching strategies. Firms with low shares of the total market can be highly successful and profitable through smart niching. -Nichers try to find one or more market niches that are safe and profitable.

Assessing Competitors

-Competitors Objectives -Competitors' strategies -Competitors' strengths and weaknesses -Estimating competitors' reactions

Selecting Competitors to Attack and Avoid

-Customer value analysis -Close or distant competitors -Good or bad competitors -Finding Uncontested Market Spaces -A company has already largely selected its major competitors through prior decisions on customer targets, positioning, and its marketing-mix strategy. Management now must decide which competitors to compete against most vigorously. -A company can focus on one of several classes of competitors. Most companies prefer to compete against weak competitors. This requires fewer resources and less time. But in the process, the firm may gain little. You could argue that a firm also should compete with strong competitors to sharpen its abilities. And sometimes, a company can't avoid its largest competitors, but even strong competitors have some weaknesses, and succeeding against them often provides greater returns. A useful tool for assessing competitor strengths and weaknesses is customer value analysis. -The key to gaining competitive advantage is to examine how a company's offer compares to that of its major competitors in each customer segment. The company wants to find the place in the market where it meets customers' needs in a way rivals can't.

Functions of a Competitive Intelligence System

-Identifies competitive information and the best sources of this information -Continually collects information -Checks information for validity and reliability -Interprets information -Organizes information -Sends key information to relevant decision makers -Responds to inquiries about competitors

Competitors Objectives

-Profitability -Market share growth -Cash flow -Technological leadership -Service leadership -Each competitor has a mix of objectives. Knowing a competitor's mix of objectives reveals whether the competitor is satisfied with its current situation and how it might react to different competitive actions. -For example, a company that pursues low-cost leadership will react much more strongly to a competitor's cost-reducing manufacturing breakthrough than to the same competitor's increase in advertising. -A company also must monitor its competitors' objectives for various segments. If the company finds that a competitor has discovered a new segment, this might be an opportunity. If it finds that competitors plan new moves into segments now served by the company, it will be forewarned and, hopefully, forearmed.

Competitors' strengths and weaknesses

-What can our competitors do? -Benchmarking -As a first step, companies can gather data on each competitor's goals, strategies, and performance over the past few years. Admittedly, some of this information will be hard to obtain. -Companies normally learn about their competitors' strengths and weaknesses through secondary data, personal experience, and word of mouth. They can also conduct primary marketing research with customers, suppliers, and dealers, and they can check competitors' online and social networking sites.

-Competitors' strategies

Strategic group offers the strongest competition -The more that one firm's strategy resembles another firm's strategy, the more the two firms compete. In most industries, the competitors can be sorted into groups that pursue different strategies.

Market Nicher Strategies

- By customer, market, quality, price, service - Multiple niching

Companies can identify their competitors from which points of view?

-industry point of view. -Market Point of View

Designing a Competitive Intelligence System

-information about competitors must be collected, interpreted, distributed, and used. -Gathering competitive intelligence can cost much money and time, so the company must design a cost-effective competitive intelligence system. -With this system, company managers receive timely intelligence about competitors in the form of reports, phone calls, emails alerts, bulletins, and newsletters. --Managers can also connect with the system when they need to interpret a competitor's sudden move, know a competitor's weaknesses and strengths, or assess how a competitor will respond to a planned company move. -Smaller companies that cannot afford to set up formal competitive intelligence offices can assign specific executives to watch particular competitors. -Thus, a manager who used to work for a competitor might follow that competitor closely, becoming the "in-house expert" on that competitor. -A manager needing to know the thinking of a given competitor could contact the assigned in-house expert.

Industry Point of View

-must understand the competitive patterns in its industry if it hopes to be an effective player in that industry.

Identifying Competitors Competitors can include

1) All firms making the same product or class of products 2) All firms making products that supply the same service 3)All firms competing for the same consumer dollars

Approaches to Marketing Strategy

1) Entrepreneurial marketing 2)Formulated marketing 3)Intrepreneurial marketing

Market Challenger Strategies (expanded)

1)Challenge the leader with an aggressive bid for more market share. 2)Second mover advantage: Challenger observes what has made the leader successful and improves on it. A market challenger must first define which competitors to challenge and its strategic objective. The challenger can attack the market leader, a high-risk but potentially high-gain strategy. Its goal might be to take over market leadership. Or the challenger's objective may simply be to wrest more market share. Challengers often have what some strategists call a "second-mover advantage."challengers often become market leaders by imitating and improving on the ideas of pioneering predecessors. Alternatively, the challenger can avoid the leader and instead challenge firms its own size or smaller local and regional firms. How can the market challenger best attack the chosen competitor and achieve its strategic objectives? •Full frontal attack - PepsiCo challenges Coca-Cola in this way. •Indirect attack - Red Bull tackled the leaders indirectly, entering the U.S. soft drink market with a niche product.

Market Leader Strategies Protect current market by

1)Fixing or preventing weaknesses that provide opportunities to competitors 2) Maintaining consistent prices that provide value 3)Keeping strong customer relationships 4)Promoting continuous innovation 4) best defense is a good offense, and the best response is continuous innovation. The market leader refuses to be content with the way things are and leads the industry in new products, customer services, distribution effectiveness, promotion, and cost cutting. It keeps increasing its competitive effectiveness and value to customers. And when attacked by challengers, the market leader reacts decisively.

Market Leader Strategies Expand market share by:

1)Increasing profitability with increasing market share in served markets 2)Producing high-quality products 3)Creating good service experiences 4)Building close relationships -In many markets, small market share increases mean very large sales increases. -profitability increases as a business gains share relative to competitors in its served market. For example, Lexus holds only a small share of the total car market, but it earns a high profit because it is the leading brand in the luxury-performance car segment. -Companies must not think, however, that gaining increased market share will automatically improve profitability. Much depends on their strategy for gaining increased share. There are many high-share companies with low profitability and many low-share companies with high profitability. -The cost of buying higher market share may far exceed the returns. Higher shares tend to produce higher profits only when unit costs fall with increased market share or when the company offers a superior-quality product and charges a premium price that more than covers the cost of offering higher quality.

Michael Porter's Four Basic Competitive Positioning Strategies

1)Overall cost leadership 2)Differentiation 3)Focus 4)Middle of the road

Competitor Analysis: Steps in Analyzing Competitors

1. Identifying the Company's competitors 2. Assessing competitors' objectives, strategies, strengths and weaknesses, and reaction patterns 3. Selecting which competitors to attack or avoid

Overall cost leadership strategy

A company achieves the lowest production and distribution costs and allows it to lower its prices and gain market share.

Differentiation strategy

A company concentrates on creating a highly differentiated product line and marketing program so it comes across as an industry class leader. - Most customers would prefer to own this brand if its price is not too high. Nike and Caterpillar follow this strategy in sports products and heavy construction equipment, respectively.

Focus strategy

A company focuses its effort on serving few market segments well rather than going after the whole market. Ex.Ritz-Carlton focuses on the top 5 percent of corporate and leisure travelers.

Middle-of-the-Roader

A company that pursues a clear strategy will achieve superior performance. A company without a clear strategy, "a middle-of-the-roader", will not succeed. Middle-of-the-roaders do not stand out as the lowest in cost, highest in perceived value, or best in serving some market segment. Middle-of-the-roaders try to be good on all strategic counts but end up being not very good at anything.

Finding Uncontested Market Spaces

Blue-ocean strategy:

Market orientation

Competitor Centered and customer centered

Balancing Customer and Competitor Orientations (4)

Competitor orientation Market orientation Product orientation Customer orientation

Benefits of Competitors

Competitors may share the costs of market and product development and help legitimize new technologies. They may serve less attractive segments or lead to more product differentiation. Finally, competitors may help increase total demand.

Blue Ocean Strategy

Direct-to-consumer (DTC) brands have staked out new competitive space by selling and shipping directly to consumers through online and mobile channels. --Companies have long engaged in head-to-head competition in search of profitable growth. They have fought for competitive advantage, battled over market share, and struggled for differentiation. Yet in today's overcrowded industries, competing head-on results in nothing but a bloody "red ocean" of rivals fighting over a shrinking profit pool. In their book Blue Ocean Strategy, most companies compete within such red oceans, the strategy isn't likely to create profitable growth in the future. Rather than competing head to head with established competitors, many companies seek out unoccupied positions in uncontested market spaces. They try to create products and services for which there are no direct competitors. Called a "blue-ocean strategy," the goal is to make competition irrelevant.

Market Leader Strategy: Expand Total Market

Expand total market demand by developing: 1) New users 2)New uses 3)More usage -The leading firm normally gains the most when the total market expands. -encourage more usage by convincing people to use the product more often or use more per occasion.

good or bad competitors

Good competitors play by the rules of the industry. Bad competitors, in contrast, break the rules. They try to buy share rather than earn it, take large risks, and play by their own rules. Ex. traditional newspapers face a lot of bad competitors these days. Digital services that overlap with traditional newspaper content are bad competitors because they offer for free real-time content that subscription-based newspapers printed once a day can't match

Competitive Positions

Market Leader (40% of market) Market Challenger (30%) Market Follower (20%) Market Nicher (10%)

Close or Distant Competitors

Most companies will compete with close competitors—those that resemble them most—rather than distant competitors. - the company may want to avoid trying to "destroy" a close competitor. For example, market leader Bausch & Lomb moved aggressively against other soft contact lens manufacturers with great success. However, this forced weak competitors to sell out to larger firms and as a result, Bausch & Lomb then faced much larger competitors. success in hurting a close rival brought in tougher competitors.

multiple niching

Niching carries some major risks. For example, the market niche may dry up, or it might grow to the point that it attracts larger competitors. That is why many companies practice multiple niching. By developing two or more niches, a company increases its chances for survival.

Basic Competitive Strategies

Overall cost leadership strategy Differentiation strategy: Focus strategy

Why is Niching Profitable?

The main reason is that the market nicher ends up knowing the target customer group so well that it meets their needs better than other firms that casually sell to that niche. As a result, the nicher can charge a substantial markup over costs because of the added value. Whereas the mass marketer achieves high volume, the nicher achieves high margins.

Estimating competitors' reactions

What will our competitors do? -A competitor's objectives, strategies, and strengths and weaknesses go a long way toward explaining its likely actions. They also suggest its likely reactions to company moves, such as price cuts, promotion increases, or new-product introductions. -In addition, each competitor has a certain philosophy of doing business and marketing managers need a deep understanding of a competitor's mentality if they want to anticipate how that competitor will act or react. -Each competitor reacts differently. Some do not react quickly or strongly to a competitor's move. Other competitors react swiftly and strongly to any action. In some industries, competitors live in relative harmony; in others, they fight constantly.

Customer-centered company (Definition + Advantage)

a company that focuses on customer developments in designing its marketing strategies and delivering superior value to its target customers -Provides a better position than competitor-centered company to identify opportunities and build customer relationships. -better position to identify new opportunities and set long-run strategies that make sense. -By watching customer needs evolve, it can decide what customer groups and what emerging needs are the most important to serve. Then it can concentrate its resources on delivering superior value to target customers.

Market-Centered Company

a company that pays balanced attention to both customers and competitors in designing its marketing strategies

Competitor Centered Company (Definition + Advantage + Disadvantage)

a company whose moves are mainly based on competitors' actions and reactions -An advantage is that the company is a fighter. -develops a fighter orientation, watches for weaknesses in its own position, and searches out competitors' weaknesses. -A disadvantage is that the company is reactive. -Rather than carrying out its own customer relationship strategy, it bases its own moves on competitors' moves. -may end up simply matching or extending industry practices rather than seeking innovative new ways to create more value for customers.

Market Nicher (definition)

a firm that serves small segments that the other firms in an industry overlook or ignore

Strategic Group (Definition + More)

a group of firms in an industry following the same or a similar strategy - members of that group become its key competitors and the company can succeed only if it develops strategic advantages over other group members -Although competition is most intense within a strategic group, there is also rivalry among groups. First, some strategic groups may appeal to overlapping customer segments.

Market Challenger (definition)

a runner-up firm that is fighting hard to increase its market share in an industry

Market Follower (definition)

a runner-up firm that wants to hold its share in an industry without rocking the boat

Competitive advantages (Definition + More)

an advantage over competitors gained by offering consumers greater value - require delivering more value and satisfaction to target consumers than competitors.

Customer Value Analysis (Definition + More)

an analysis conducted to determine what benefits target customers value and how they rate the relative value of various competitors' offers -Identification of major attributes that customers value and the importance of these values -Assessment of the company's and competitors' performance on the valued attributes

Intrepreneurial marketing

attempt to reestablish an internal entrepreneurial spirit and refresh marketing strategies and approaches. - Many large and mature companies get stuck in formulated marketing. They pore over the latest Nielsen numbers, scan market research reports, and try to fine-tune their competitive strategies and programs. These companies sometimes lose the marketing creativity and passion they had at the start.

Benchmarking

benchmark themselves against other firms, comparing the company's products and processes to those of competitors or leading firms in other industries to identify best practices and find ways to improve quality and performance thereby increasing a company's competitiveness.

An ideal market niche is

big enough to be profitable with high growth potential and has little interest from competitors.

Three Strategies or "Value Disciplines"

companies can gain leadership positions by delivering superior value to their customers in three strategies or "value disciplines." 1) Operational Excellence 2)Customer intimacy 3)Product leadership - leading companies focus on and excel at a single value discipline, while meeting industry standards on the other two. Such companies design their entire value delivery network to single-mindedly support the chosen discipline. -Some companies successfully pursue more than one value discipline at the same time. However, such companies are rare; few firms can be the best at more than one of these disciplines. By trying to be good at all value disciplines, a company usually ends up being best at none. Thus, most excellent companies focus on and excel at a single value discipline, while meeting industry standards on the other two. Such companies design their entire value delivery network to single-mindedly support the chosen discipline.

Product leadership

company providing superior value by offering a continuous stream of leading-edge products or services. Product leaders are open to new ideas and solutions and bring them quickly to the market. -state-of-the-art products and services, regardless of the costs in terms of price or inconvenience. -Examples include Samsung and Apple.

Customer intimacy

company providing superior value by segmenting markets and tailoring products or services to match the needs of the targeted customers. -specializes in satisfying unique customer needs through a close relationship with and intimate knowledge of the customer. -empowers its people to respond quickly to customer needs. - Customer-intimate companies serve customers who are willing to pay a premium to get precisely what they want. - They will do almost anything to build long-term customer loyalty and to capture customer lifetime value.

Operational excellence

company providing value by leading its industry in price and convenience by reducing costs and creating a lean and efficient value delivery system. -reliable, good-quality products or services but want them cheaply and easily. -Examples include Walmart, Costco, and Southwest Airlines.

Competitor orientation

competitor centered :) not customer centered

customer orientation

customer centered (not competitor centered)

Market Point of View

define competitors as companies that are trying to satisfy the same customer need or build relationships with the same customer group.

Formulated marketing

developing formal marketing strategies and following them closely. -As small companies achieve success, they inevitably move toward more-formulated marketing.

Product Orientation

not customer-centered & not competitor centered

competitor myopia

refers to a firm focusing too narrowly on what it considers to be its direct competition and not being aware of indirect or new competitors -A company is more likely to be "buried" by its latent competitors than its current ones

Competitive marketing strategies (Definition + More)

strategies that strongly position the company against competitors and give it the greatest possible competitive advantage -how companies analyze their competitors and develop value-based strategies for profitable customer relationships.

Market Leader (definition)

the firm in an industry with the largest market share

Entrepreneurial marketing

visualizing an opportunity and constructing and implementing flexible strategies. -Most companies are started by individuals who live by their wits. Until only a few years ago, he built his company with virtually no formal marketing.