Transcript Beating the Competition - Stevens Institute of Technology

Today’s topic:
Analyzing and Beating
the Competition
How companies (beneficially)
distinguish themselves
from their competitors
in order to generate
superior revenues & earnings
Second Course Module

Market/customer analysis
(DLJdirect case – online brokerage)

Competitive analysis --- today
(Airborne Express case – package delivery)

Making product decisions
(Techsonic case – depthsounders/fishfinders)

Midterm exam on making product decisions
(THINK case – electric cars)
What we’re learning…...

(previously) Differentiation of the “whole
product” from competitors is the key
driver of success……

(last week) …..which differentiators to
choose depends on what the target
customers value…..

(this week) ….and what competitors offer
to those customers
Course Concepts (13)
Definition of
product success
 Whole product
 Product plan: key
success factors
 Differentiation
 Market
attractiveness
 Target customers

Competitive
advantage
 Marketing mix
(C+4P)
 Product positioning
 Sales functions
 Channel options
 Channel valueadded
 Operations balance

Course Methods/Tools (13)
Income statement
analysis
 Financial
benchmarks
 Target customer
description
 Target customer
selection
 5 Forces analysis
 Competitive
analysis (10
dimensions)

Identifying
competitive options
 Decision criteria
 Product decisions
 Product
competitive
positioning
 Channel economics
 Process dimensions
 Product
development best
practices

Today’s Agenda
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Sustainable competitive advantage:
understanding, developing and using it
Analyzing competitive position, and
making subsequent business decisions
(Airborne Express case)
Next week’s case (Techsonic): making
decisions about products --- financial,
market and competitive considerations
Today’s Learning Objectives
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Competitive advantage, and its
relationship to differentiation
Performing a competitive analysis
Identifying competitive options and
making business decisions based on
competitive analysis results
Inter-Industry Differences
Operating Income/Assets (%)
 High
(15-30%) : Pharmaceuticals,
Packaged software, Semiconductors
 Medium
(8-15%) : Restaurant
chains, Petroleum/natural gas,
Engineering services

Low (2-7%) : CATV service, Motor
vehicles, Airlines
Market/Industry Attractiveness:
Porter’s “Five Forces” Model
 Threat
from substitute products
 Degree of competitive rivalry
 Bargaining power of buyers
 Bargaining power of suppliers
 Ease of entry (and exit)
Statistical analysis of
profit variation across firms…..



10-20% explained by differences between
industries (market, industry rivalry, gov’t
regulation,…)
30-45% explained by measureable
differences within industry (size, share,
cost position,…)
remainder “explained” by other factors
Conclusion: Impact on
Earnings/Profits

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The firm’s industry has a noticeable but not
dominating effect (market, rivalry, assets)
The largest differences stem from performance
relative to a firm’s industry competitors
Therefore, some “competitive advantage” (vs.
other participants in the industry) is key to
achieving superior revenue and earnings
performance
A company’s competitive
advantages allow it to
create differentiators,
the key drivers of success
Example:
success = high earnings/growth
differentiation = best product features
comp adv = best market research
(best understanding of customers
and their needs)
How the concepts relate…...
Competitive
Advantage(s)
Differentiators
Success
(superior
earnings)
Definitions


Differentiator = a dimension of the “whole
product” that is unique or best compared to
competitive offerings (whole product
differentiation; as measured by the value
assessed by the targeted end-customers)
Competitive advantage = a capability,
competency, process, skill or position of a
company that enables creation of one or more
differentiators
Core Competencies
vs.
Competitive Advantages
Core
Competencies
Competitive
Advantages
- capability
- process
- skill
- position
Competitive Advantage and
Differentiators: Examples
Company
FHP Wireless
Comp adv’s Differentiators
-lowest lifecycle
?
cost
-fastest/cheapest
installation
DLJdirect
?
Airborne
Express
?
-best finc’l analysis
-best website
performance
?
From the Customer’s Perspective…

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Customers identify their options/choices
amongst: like-products, substitute
products and doing nothing
For each option, they compare
their assessment of the value (to them)
of each whole-product
to
its price (or lifecycle cost)
So, companies create
“economic value” …
Define a whole product that customers
value highly (market/customer analysis)
 Design the whole product to minimize cost
to produce (design and operations engineering)
 Produce the whole product at minimum
acceptable cost (manufacturing and opns

engineering)

Efficiently promote, sell, deliver and
support the product (marketing, sales, service
operations)
Creating Economic Value
Create a (whole) product that
provides potential customers
a better ”value minus price” proposition
than competitors
while managing costs and expenses
so as to make profits (earnings)
Competitive Advantage
Valuable things that a company
does/knows better than its rivals
 Opportunities for competitive advantage
are numerous (but often
temporal/replicable)
 Possibilities can be identified via
analysis of the value chain
 Sustaining/renewing/evolving an
advantage is critical

A Firm’s Value Chain
How the firm’s activities can lead to the
creation of value (and added value)
 Primary
activities: design/development,
inbound/ outbound logistics,
operations/manuf, marketing, sales,
service
 Support
activities: procurement, IT/
technology development, HR, legal,
finance/accounting, quality office, …..
Sustaining Advantage
Most advantages are temporal/replicable,
so they must be
sustained/strengthened/evolved/changed
 Size:
scale/scope economics,
experience effects, customer base
 Access: know-how, inputs, markets
 Competitors’ options: public policy,
competitors’ defense, response lags
Airborne Express: Case Summary
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The timeframe is 1997
The market is the $16-17B U.S. express mail
delivery (letter, package) market
Airborne is the smallest of the three major
competitors with 16% market share (FedEx 45%;
UPS 25%)
It is recently the fastest growing, but historically
the least profitable, of the Big 3
The US Postal Service is threatening to enter the
market
Assignment Questions


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Perform a Five Forces analysis of the US express mail
industry
Perform a competitive analysis of FedEx, UPS and
Airborne in the 10 dimensions shown on the next slide
(display as a 3 x 10 matrix)
Based on the competitive analysis, what are
Airborne’s competitive strengths vis-à-vis FedEx and
UPS?

How is Airborne’s “whole product” differentiated ?

What does Airborne need to do to assure that it
survives and thrives in the future?
Market/Industry Attractiveness:
Porter’s “Five Forces” Model
 Threat
of substitutes
 Degree of rivalry
 Bargaining power of buyers
 Bargaining power of suppliers
 Ease of entry/exit
Competitive Analysis
Dimensions

Products offered

Target customers



Competitive positioning
(incl. price & cost)
Financial performance
Culture & human
resource management
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Operations: pickup &
delivery

Operations: air & hub
operations

Marketing & sales

Customer service

Information technology
Airborne’s Target Customer
(list of target customer descriptors)
Identifying Airborne’s Options
Opportunities

?
Challenges

?
Identifying Competitive Options
Products
Current
products
Current
Position
Current
target
customers
Customers
Today’s Learning Objectives



Competitive advantage, and its
relationship to differentiation
Performing a competitive analysis
Identifying competitive options and
making business decisions based on
competitive analysis results
Course Concepts (13)
Definition of
product success
 Whole product
 Product plan: key
success factors
 Differentiation
 Market
attractiveness
 Target customers

Competitive
advantage
 Marketing mix
(C+4P)
 Product positioning
 Sales functions
 Channel options
 Channel valueadded
 Operations balance

Course Methods/Tools (13)
Income statement
analysis
 Financial
benchmarks
 Target customer
description
 Target customer
selection
 5 Forces analysis
 Competitive
analysis (10
dimensions)

Identifying
competitive options
 Decision criteria
 Product decisions
 Product
competitive
positioning
 Channel economics
 Process dimensions
 Product
development best
practices

Topic for Next Class:
Making Product Decisions
Pulling together the things we’ve
learned so far to make decisions about
product definition and product
priorities……
this is also the topic for the
mid-term exam
What are we “pulling together”?
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Financial: income statement analysis,
objectives and constraints, growth
challenges
Market: market attractiveness (5 forces),
target customers, needs/value analysis
Competitive: competitive analysis,
strengths/weaknesses, competitive
advantage, differentiation
Product decisions: whole product
concept, differentiation sources,
opportunity assessment
Making Product Decisions
Financial
Analysis
(health,
challenges)
Market Analysis
(customers, needs,
market trends)
Competitive
Analysis
(strengths,
weaknesses)
Objectives and Constraints (mkt, finc’l)
Competitive Adv Decision
Target Market Decision (C)
Product Decisions
(4P’s)
“Product decisions” case:
Techsonic:
Humminbird and New Products
Techsonic: case summary
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Private company in 1989
Market leader in depth sounders/fish
finders under the Humminbird brand
Growing and profitable until…..
Recent industry-wide downturn in new
boat sales
Three new products at various stages of
development:
next-gen depth sounder (901),
VHF marine radio, and
navigation product (“GPS”)
Which one(s) to pursue…..?
Homework Questions - 1
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
Calculate Techsonic’s absolute and relative
operating income for 1987, 1988, and 1989; are
these operating results “good”? Why did
operating income fall between 1988 and 1989?
Identify both financial and market reasons.
What are the decision criteria Techsonic should
use in making decisions at this point? (I.e., what
are the outcomes a “good” decision would achieve?)

Perform a 5 forces analysis of the U.S. market for
depthsounders/fishfinders
Decision Criteria are
desired outcomes for……
 Revenues
 Market
share
 Gross margins or cost position
 Expenses (by category)
 Operating income (or cash)
 Timeframes for these outcomes
 Level of risk tolerance
Homework Questions - 2
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What are Techsonic’s competitive advantages?
What are the 901’s differentiators? What are the
potential differentiators of the navigation
product?
Who are Techsonic’s current target customers
(provide at least eight descriptors) ?
Separately, identify the positives-and-negatives
of focusing primarily on: (1) 901, (2) VHF marine
radio, (3) GPS-based navigation product.