Post on 21-Apr-2015
Spectrum of Competition and Niche Markets
Shoaib Ul-HaqLUMS
FIGURE 7-1 The Spectrum of Competition
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
• Reconfiguring the value chain: - Benetton and Zara in clothing - Southwest & Ryanair in
airlines - Dell in PCs
• Redefining markets and products - Swatch in watches - Starbucks
in coffee shops - Barnes & Noble in book
retailing
• Innovative approaches to - Virgin Atlantic in air travel
differentiation - Sephora in cosmetics retailing Who are the strategic innovators?• New entrants - CNN in news broadcasting
- Nucor in the U.S. steel industry• Existing firms on the periphery -Sun Records in rock ‘n roll music • Firms from adjacent industries - Apple in consumer electronics
Why not leading incumbents?• They are constrained by “industry recipes,” relationships with existing customers, investments in resources & capabilities linked to past strategies.
Sources of innovation in mature industries
LEADERSHIP Establish dominant market position-encourage exit of rivals
-buy market share through acquisition
-acquire capacity
-demonstrate commitment
-dispel optimism about the industry’s future
-raise the stakes
NICHE Identify an attractive segment and dominate it.
HARVEST Maximize cash flow from existing sources
DIVEST Get out while there is still a market for industry assets
Strategy options in declining industries
Characteristics of a NICHE
• Low volume of sales• High unit costs• Therefore high prices• (Highly) Differentiated products• Targeted promotion
An ideal niche is…
• Large enough to be profitable• Sufficiently differentiated• Small enough to avoid the attention of the big
boys.• We have the competence to take advantage of
the opportunities offered.• Can build up goodwill, to keep customers
Advantages
• Less direct competition• Clear focus• Builds up specialist skills/knowledge• Cheaper to set up• Able to charge premium prices• Build up strong brand image/loyalty
Disadvantages
• Lack of Economies of Scale• Dependent on a small market• If successful, will attract competition• Small numbers make vulnerable to changes in
consumer spending (as does premium pricing)
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Description of Consumer Preferences
Consumer Preferences tell us how the consumer would rank any two basket of goods, assuming these allotments were available to the consumer at no cost.
baskets or bundles is a collection of goods or services that an individual might consume.
Figure 4.10: Indifference Curves and Consumer Tastes
4-10
FIGURE 7-2 Consumer Preference for Cereal “Crunchiness”
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
Consumer preferences
FIGURE 7-3 Location of Cereal Brands
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
Mapping consumer tastes
FIGURE 7-4 Mapping the U.S. Automotive Market
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
Perceptual map - Auto
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Horizontal and vertical product differentiation
• Horizontal product differentiation: two products are differentiated
horizontally if, when they are offered at the same price consumers
do not agree on which is the preferred product.Example: pine washing-up liquid and lemon-washing up liquidSoft-drinks, shampoos
• Vertical product differentiation: two products are differentiated
vertically if, when they are offered at the same price consumers
agree on which is the preferred product. – Example: washing-up liquid with and without product moisturizing add-
up.
FIGURE 7A-1 Monopoly Firm
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
FIGURE 7A-2 Competitive Firm
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
FIGURE 7A-3 The Market for Cheerios When It Faces No Nearby Competitors
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
FIGURE 7A-4 Effects of Differentiation on Sales
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
FIGURE 7A-5 Cheerios Monopoly Charging a Price = p
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
FIGURE 7A-6 Cheerios Charges Price = p When Its Competitors Charge Price = 0
Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.