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.

18- 1

Has dominated the chip industry Success is directly related to Intel’s competitive strategy Strategy focuses on superior value and product leadership Heavy focus on product and advertising innovation and R&D investments Changing market needs have challenged Intel to adapt Intel is capitalizing on the Internet now 18- 2

Definition

Competitive Advantage



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

18- 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.

18- 4

Figure 18-1:

Steps in Analyzing Competitors

18- 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



Competitor maps can help 18- 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.

18- 7

Figure 18-2:

Competitor Map

18- 8

Discussion Question

Create a competitor map for one of the following:

•

WalMart

•

McDonald’s

• • •

Nike Starbucks Google 18- 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 18- 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 18- 11

Competitive Strategies

Basic Winning Competitive Strategies: 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 18- 12

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

18- 13

Competitive Strategies

Basic Competitive Strategies: Value Disciplines



Operational excellence



Superior value via price and convenience



Customer intimacy



Superior value by means of building strong relationships with buyers and satisfying needs



Product leadership



Superior value via product innovation 18- 14

Figure 18-3:

Hypothetical Market Structure

18- 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 18- 16

Competitive Strategy

WD-40 has a knack for developing new uses for its product.

What other brands have adopted a similar strategy?

WD40

18- 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- 18

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

18- 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:



Learn from the market leader’s experience



Copy or improve on the leader’s offerings



Strong profitability 18- 20

Dial Corporation successfully uses a market follower strategy

18- 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 18- 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 18- 23

Game playing industry

a.

a.

Nintendo

Wii hyperlink b.

a.

Microsoft

Xbox 360 c.

a.

Sony

Play Station 18- 24

18- 25

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 18- 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 18- 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 18- 28

Buyer Power

buyer concentration to firm concentration ratio bargaining leverage buyer volume buyer switching costs relative to firm switching costs buyer information availability ability to backward integrate availability of existing substitute products buyer price sensitivity price of total purchase 18- 29

Threat of Substitution

buyer propensity to substitute relative price performance of substitutes buyer switching costs perceived level of product differentiation 18- 30