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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.
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c Intel

Has dominated the chip industry Success is directly related to Intels 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
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Definition
Competitive Advantage
An advantage over competitors gained by offering consumers greater value than competitors offer.

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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.

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Figure 18-1:

Steps in Analyzing Competitors

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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
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can help

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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Discussion Question
Create a competitor map for one of the following:
WalMart McDonalds Nike Starbucks Google

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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

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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

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

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Competitive Strategies
Basic Competitive Strategies: Value Disciplines
Operational excellence

Superior value via price and convenience


Superior value by means of building strong relationships with buyers and satisfying needs Superior value via product innovation
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Customer intimacy

Product leadership

Figure 18-3:

Hypothetical Market Structure

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

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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 leaders experience Copy or improve on the leaders offerings Strong profitability
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Dial Corporation successfully uses a market follower strategy

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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
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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
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Game playing industry


a.

Nintendo
a. Wii hyperlink

b.
c.

Microsoft
a. Xbox 360

Sony
a. Play Station
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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
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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
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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
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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

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