competitive advantage

Creating Creating Competitive Competitive

AdvantageAdvantage

Chapter 18Chapter 18

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Objectives

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

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Has dominated the Has dominated the chip industrychip industrySuccess is directly Success is directly related to Intel’s related to Intel’s competitive strategycompetitive strategyStrategy focuses on Strategy focuses on superior value and superior value and product leadershipproduct leadership

Heavy focus on product Heavy focus on product and advertising and advertising innovation and R&D innovation and R&D investmentsinvestmentsChanging market needs Changing market needs have challenged Intel to have challenged Intel to adaptadaptIntel is capitalizing on Intel is capitalizing on the Internet nowthe Internet now

cIntel

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Definition

Competitive Competitive AdvantageAdvantage An advantage An advantage

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

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Definition

Competitive AnalysisCompetitive Analysis The process of identifying key The process of identifying key

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

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Figure 18-1:

Steps in Analyzing Competitors

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Competitor Analysis

Firms face a wide Firms face a wide range of competitionrange of competitionBe careful to avoid Be careful to avoid “competitor myopia”“competitor myopia”Methods of Methods of identifying identifying competitors:competitors: Industry point-of-viewIndustry point-of-view Market point-of-viewMarket point-of-view

Competitor maps Competitor maps can helpcan help

Identifying Identifying CompetitorsCompetitorsAssessing Assessing CompetitorsCompetitorsSelecting Selecting Competitors to Competitors to Attack or AvoidAttack or Avoid

Steps in the Steps in the Process:Process:

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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.

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Figure 18-2:

Competitor Map

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Create a competitor Create a competitor map for one of the map for one of the following: following:

• WalMartWalMart• McDonald’sMcDonald’s• NikeNike• StarbucksStarbucks• GoogleGoogle

Discussion Question

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Competitor Analysis

Determining Determining competitors’ objectivescompetitors’ objectivesIdentifying competitors’ Identifying competitors’ strategiesstrategies Strategic groupsStrategic groups

Assessing competitors’ Assessing competitors’ strengths and strengths and weaknessesweaknesses BenchmarkingBenchmarking

Estimating competitors’ Estimating competitors’ reactionsreactions



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Competitor Analysis

Strong or weak Strong or weak competitorscompetitors Customer value analysisCustomer value analysis

Close or distant Close or distant competitorscompetitors Most companies compete Most companies compete

against close competitorsagainst close competitors

““Good” or “Bad” Good” or “Bad” competitorscompetitors The existence of The existence of

competitors offers several competitors offers several strategic benefitsstrategic benefits



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Basic Winning Competitive Basic Winning Competitive Strategies: PorterStrategies: Porter Overall cost leadershipOverall cost leadership

Lowest production and Lowest production and distribution costs distribution costs

DifferentiationDifferentiation Creating a highly Creating a highly

differentiated product line differentiated product line and marketing program and marketing program

FocusFocus Effort is focused on serving Effort is focused on serving

a few market segments a few market segments

Competitive Strategies

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

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Basic Competitive Strategies: Basic Competitive Strategies: Value DisciplinesValue Disciplines Operational excellenceOperational excellence

Superior value via price and convenienceSuperior value via price and convenience Customer Customer intimacyintimacy

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

Product leadershipProduct leadership Superior value via product innovationSuperior value via product innovation

Competitive Strategies

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Figure 18-3:

Hypothetical Market Structure

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Competitive Strategy

Expanding the total Expanding the total demanddemand Finding new usersFinding new users Discovering and Discovering and

promoting new product promoting new product usesuses

Encouraging greater Encouraging greater product usageproduct usage

Protecting market shareProtecting market share ManyMany considerationsconsiderations Continuous innovationContinuous innovation

Expanding market shareExpanding market share Profitability rises with Profitability rises with

market sharemarket share

Market LeaderMarket LeaderMarket Market ChallengerChallengerMarket Market FollowerFollowerMarket NicherMarket Nicher

Competitive Competitive PositionsPositions

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

What other brands have adopted a similar strategy?

WD40

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Option 1:Option 1: challenge the challenge the market leadermarket leader High-risk but high-gainHigh-risk but high-gain Sustainable competitive Sustainable competitive

advantage over the leader advantage over the leader is key to successis key to success

Option 2:Option 2: challenge firms challenge firms of the same size, smaller of the same size, smaller size or challenge size or challenge regional or local firmsregional or local firmsFull frontal vs. indirect Full frontal vs. indirect attacksattacks



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

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Follow the market Follow the market leaderleader Focus is on improving Focus is on improving

profit instead of profit instead of market sharemarket share

Many advantages:Many advantages: LearnLearn from the from the

market leader’s market leader’s experienceexperience

Copy or improve on Copy or improve on the leader’s offeringsthe leader’s offerings

Strong profitabilityStrong profitability



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Dial Corporation successfully uses a market follower strategy

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Serving market Serving market nichesniches meansmeans targeting targeting subsegmentssubsegmentsGood strategy for Good strategy for small firms with small firms with limited resourceslimited resourcesOffers high marginsOffers high marginsSpecialization is keySpecialization is key By market, customer, By market, customer,

product, or marketing product, or marketing mix linesmix lines



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Companies can become so Companies can become so competitor centered that they competitor centered that they lose their customer focus.lose their customer focus.Types of companies:Types of companies: Competitor-centered companiesCompetitor-centered companies Customer-centered companiesCustomer-centered companies Market-centered companiesMarket-centered companies

Balancing Customer and Competitor

Orientations

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Game playing industry

a.a. NintendoNintendoa.a. Wii Wii hyperlinkhyperlink

b.b. MicrosoftMicrosofta.a. Xbox 360Xbox 360

c.c. SonySonya.a. Play StationPlay Station

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Threat of New Entry

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

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

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

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

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Threat of Substitution

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

competitive advantage

Marketing

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