Creating Competitive Advantage Chapter 18 Objectives Learn how

Creating Competitive Advantage Chapter 18

Objectives Learn how to understand competitors as well as customers via competitor analysis. Learn the fundamentals of competitive marketing strategies based on creating value for customers. Realize the need for balancing customer and competitor organizations in order to become a truly market-centered organization. 1

c Intel Has dominated the chip industry Success is directly related to Intel’s competitive strategy Strategy focuses on superior value and product Heavy focus on product and advertising innovation and R&D investments Changing market needs have challenged Intel to adapt Intel is capitalizing on 2

Definition Competitive Advantage § An advantage over competitors gained by offering consumers greater value than competitors offer. 3

Definition Competitive Analysis § The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid. 4

Figure 18 -1: Steps in Analyzing Competitors 5

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 v Competitor can help maps 6

230 -year-old Encyclopedia Britannica viewed itself as competing with your publishers of printed encyclopedias. Big mistake! Its real competitors were software encyclopedias and the Internet. 7

Figure 18 -2: Competitor Map 8

Discussion Question Create a competitor map for one of the following: • • • Wal. Mart Mc. Donald’s Nike Starbucks Google 9

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 10

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 11

Competitive Strategies Basic Winning Competitive Strategies: Porter § Overall cost leadership v Lowest production and distribution costs § Differentiation v Creating a highly differentiated product line and marketing program § Focus v Effort is focused on serving a few market segments 12

Hohner has successfully implemented a focus strategy to capture an 85% share of the harmonica market. 13

Competitive Strategies Basic Competitive Strategies: Value Disciplines § Operational excellence v Superior value via price and convenience § Customer intimacy v Superior value by means of building strong relationships with buyers and satisfying needs § Product leadership v Superior value via product innovation 14

Figure 18 -3: Hypothetical Market Structure 15

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 16

Competitive Strategy WD-40 has a knack for developing new uses for its product. What other brands have adopted a similar strategy? WD 40 17

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 18

Pepsi is an example of market challenger that has chosen to use a full frontal attack 19

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: v Learn from the market leader’s experience v Copy or improve on the leader’s offerings v Strong profitability 20

Dial Corporation successfully uses a market follower strategy 21

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 22

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 23

Game playing industry a. Nintendo a. Wii hyperlink b. Microsoft a. Xbox 360 c. Sony a. Play Station 24

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Threat of New Entry the existence of barriers to entry economies of product differences brand equity switching costs capital requirements access to distribution absolute cost advantages learning curve advantages expected retaliation government policies 26

Competitive Rivalry number of competitors rate of industry growth intermittent industry overcapacity exit barriers diversity of competitors informational complexity and asymmetry brand equity fixed cost allocation per value added level of advertising expense 27

Supplier. Power supplier switching costs relative to firm switching costs degree of differentiation of inputs presence of substitute inputs supplier concentration to firm concentration ratio threat of forward integration by suppliers relative to the threat of backward integration by firms cost of inputs relative to selling price of the product 28

Buyer Power buyer concentration to firm concentration ratio bargaining leverage buyer volume buyer switching costs relative to firm switching costs buyer information availability to backward integrate availability of existing substitute products buyer price sensitivity price of total purchase 29

Threatof Substitution buyer propensity to substitute relative price performance of substitutes buyer switching costs perceived level of product differentiation 30