Creating Competitive Advantage

1. Creating Competitive Advantage Chapter 18

2. Objectives • Learn Major Goals of Marketing • 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.

3. 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 c Intel

4. Two Major Goals of Marketing* 1. Design and Manage a Superior Value-Delivery System to Reach and Satisfy Target Customer Segments. • 2. Gain and Sustain Competitive Advantage.

5. Total Customer Benefit (Product, Service, Personnel, & Image Values) Total Customer Cost (Monetary, Time, Energy, & Psychic Costs) Customer Delivered Value (Profit to the Consumer) - = Defining Customer Value

6. Firm Infrastructure Human Resource Management Technology Development Procurement Value Chain Analysis** Support Activities Margin Outbound Logistics Marketing and Sales Operations Inbound Logistics Service Primary Activities

7. Customer (you) Retailer (Sears) Customer Value-Delivery Network* Delivery Order Producer (Levi) Delivery Order Vendor (Milliken) Delivery Order Raw Material Supplier (Du Pont) Delivery Order Order Delivery

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

9. Figure 18-1: Steps in Analyzing Competitors*

10. 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 Analysis Steps in the Process: • Identifying Competitors • Assessing Competitors • Selecting Competitors to Attack or Avoid

11. Beer Ice cream Tea Regular colas Diet lemon limes Diet-Rite cola Wine Product form competition: Diet colas Diet Pepsi Diet Coke Juices Fast food Fruit flavored colas Product category competition: Soft drinks Video rentals Lemon limes Bottled water Generic competition: Beverages Coffee Baseball cards Budget competition: Food and entertainment Levels of Competition

12. 230-year-old Encyclopedia Britannica viewed itself as competing with other publishers of printed encyclopedias. Big mistake! Its real competitors were software encyclopedias and the Internet.

13. Discussion Question • Create a levels of competition diagram for one of the following: • WalMart • McDonald’s • Nike • Starbucks • Google

14. Determining competitors’ objectives Identifying competitors’ strategies Strategic groups Assessing competitors’ strengths and weaknesses Benchmarking Estimating competitors’ reactions Competitor Analysis Steps in the Process: • Identifying Competitors • Assessing Competitors • Selecting Competitors to Attack or Avoid

15. 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 Competitor Analysis Steps in the Process: • Identifying Competitors • Assessing Competitors • Selecting Competitors to Attack or Avoid

16. Customer Value Analysis (for Competition) • Identify Attributes Customers Value • Assess Attribute Importance • Assess Company and Competitor Performance • Examine Segments on Attribute-by-Attribute Basis • Monitor Customer Values Over Time

17. Competitive Strategies* • Basic Winning Competitive Strategies: Michael 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. Attractiveness of an Industry Threat of Potential Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Existing Rivalry Threat of Substitutes

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

20. 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

21. Discussion Question Firms that follow a customer intimacy strategy are willing to do almost anything for their customers. Does such a strategy make sense for local businesses, or only for national / global corporations? British Airways practices customer intimacy with select frequent flyers

22. Figure 18-3: Hypothetical Market Structure

23. 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 Competitive Strategy Competitive Positions • Market Leader • Market Challenger • Market Follower • Market Nicher

24. Competitive Strategy WD-40 has a knack for developing new uses for its product. What other brands have adopted a similar strategy? WD40

25. 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 Competitive Strategy Competitive Positions • Market Leader • Market Challenger • Market Follower • Market Nicher

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

27. 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 Competitive Strategy Competitive Positions • Market Leader • Market Challenger • Market Follower • Market Nicher

28. Dial Corporation successfully uses a market follower strategy

29. 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 Competitive Strategy Competitive Positions • Market Leader • Market Challenger • Market Follower • Market Nicher

30. FedEx and UPS are two competitors in the package delivery business. What competitive strategy seems to describe each company?

31. 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

32. Figure 18-4: Evolving Company Orientations

33. Latest thinking on Competition Monopolist Competitive Approach Cooperative Approach Co-opetition