Identify the competitors to CNN and organize them in terms of their intensity of competition.
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Chapter 1
Strategic Market Management—An Introduction and Overview
Guffey and Loewy, Essentials of Business Communication, 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Plans are nothing, planning is everything. Dwight D. Eisenhower
Even if you are on the right track, you’ll get run over if you just sit there Will Rodgers
If you don’t know where you’re going, you might end up somewhere else Casey Stengel
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Marketing supply chain management is the process of minimizing risks and maximizing efficiency in creating, producing, and distributing marketing materials.
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Dynamic Markets • All markets are dynamic.
• Multiple forces feed these changes, including digital technologies, the rise of China and India, trends in healthy living, energy crises, political instability, and more.
• The result is markets that are not only dynamic but risky, complex, and cluttered.
• Such convoluted markets make strategy creation and implementation far more challenging.
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Dynamic Markets • How do you develop successful strategies in dynamic markets?
• How do you stay ahead of the competition?
• How do you stay relevant to the customer?
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The 4 dimensions that define an effective business strategy
1. product-market investment decision – where to compete 2. customer value proposition – the difference between the
benefits customers perceive they are getting from an offering minus the perceived cost of obtaining these benefits
3. assets and competencies 4. functional strategies and programs.
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WHERE TO COMPETE • Which sectors should receive investments in resources and management
attention?
• Which should have resources withdrawn or withheld?
• Sometimes the most important business scope decision is what products or segments to avoid to conserve resources needed to compete successfully elsewhere.
• More important than the scope is the scope dynamics.
− What product markets will be entered or exited?
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Product-Market Investment Decision • Invest to grow (or enter the product market)
• Invest only to maintain the existing position
• Milk the business by minimizing investment
• Recover as many of the assets as possible by liquidating or divesting the business
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CUSTOMER VALUE
3 BIG BASIC QUESTIONS OF MARKETING
1. Who are my customers?
2. What do my customers value? (Doesn’t mean bargain)
3. How can I give what they want better than my competition?
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CUSTOMER VALUE • A strategy that fails to create customer value has no future.
• Value must resonate with a segment of customers and offer more benefits and/or lower costs than competitors.
• Creating value for customers and ensuring long-term profits are central tasks in strategy.
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CUSTOMER VALUE • Value (nice definition) – a customer’s estimation of the worth of a product
based on a comparison of its costs and benefits, including quality, relative to other products.
Customer value = perceived benefits – perceived costs (taking risk into account)
4 TYPES OF VALUE 1. Functional – purpose
2. Monetary – price relative to the function
3. Social – status or connection
4. Psychological – expression
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1. Functional – determined by the product itself, whether it meets the customer’s needs and wants, and the usefulness of the products
2. Monetary – the value of a product or service measured in terms of money, supply, and demand.
3. Social – the relative importance that people place on changes to their wellbeing.
4. Psychological – The extent to which a product allows consumers to express themselves or feel better.
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CUSTOMER VALUE • Customers’ perceived cost dimensions…
− Price paid is the most straightforward cost.
− Acquisition costs (comprised of searching, ordering, processing, receiving, and installing costs)
− Operating costs (notably energy consumption)
− Maintenance
− Disposal
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Assets and Competencies • The strategic assets and competencies that underlie the strategy are the critical
resources that produce sustainable competitive advantage (SCA).
• These resources produce a competitive advantage because they can be converted into sources of value for customers;
− rare,
− not easily imitated
− good substitutes do not exist
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Assets and Competencies • A strategic asset is a resource that the firm owns or controls that can be
leveraged in the design or implementation of a firm’s strategy.
− financial assets
− human assets (leaders and employees)
− physical assets (plant and equipment)
− legal assets (patents and trademarks)
− brand reputations
− customer relationships
− powerful knowledge of markets.
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Assets and Competencies • Competencies leveraging assets to perform activities important to the firm’s
strategy.
• The ability of assets and competencies to support a strategy will in part depend on their strength relative to competitors
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Functional Strategies and Programs • A company’s value proposition, assets, and competencies require the support of
functional activities to succeed.
• Functional strategies or programs that could drive the business strategy might include:
− Information technology strategy
− Distribution strategy
− Global strategy
− Quality program
− Sourcing strategy
− Logistical strategy
− Manufacturing strategy
− Analytics program
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External and Customer Analysis
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External and Customer Analysis • The purpose of an enterprise is to create and keep a customer.
—Theodore Levitt
• Consumers are statistics. Customers are people.
—Stanley Marcus
• Before you build a better mousetrap, it helps to know if there are any mice out there.
—Mortimer B. Zuckerman
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External Analysis • A successful external analysis needs to be directed and purposeful.
• There is always the danger that it will become an endless process resulting in an excessively descriptive report.
• Without discipline and direction, volumes of useless descriptive material can easily be generated.
• The external analysis process should be motivated throughout by a desire to affect strategy.
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External Analysis • Should suggest strategic decision alternatives or influence by addressing the
following questions:
• Should existing business areas be liquidated, milked, maintained, or targeted for investment?
• Should new business areas be entered?
• What are the value propositions? What should they be?
• What assets and competencies should be created, enhanced, or maintained?
• What strategies and programs should be implemented in functional areas?
• What should be the positioning strategy, segmentation strategy, distribution strategy, brand-building strategy, manufacturing strategy, and so on?
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An external analysis can contribute to strategy indirectly by identifying the following: • Significant trends and future events
• Example – concern about saturated fat or the emergence of a new competitor
• Threats and opportunities • Example – a new technology
• Strategic uncertainties that could affect strategy outcomes • Example – a natural disaster, terrorism etc…
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Methodology for Strategic Uncertainties 1. A strategic decision would be logical because a delay would be
costly or risky. 2. Information acquisition and analysis could mitigate uncertainty
or impacts. 3. Uncertainty could be modeled by a scenario analysis.
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The Level of Analysis • To conduct an external analysis, the market or submarket
boundaries need to be specified. • The scope of external analysis can involve an industry
• broadly defined (sporting goods) • narrowly defined (high-performance skis) • scope defined that falls in between such as:
Ski clothing and equipment Skis and snowboards Downhill skis
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• External analysis begins first with customer and then competitor analyses
• These define the relevant industry or industries. • An industry can be defined in terms of the needs of a
specific group of customers
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THE SCOPE OF CUSTOMER ANALYSIS – SEGMENTATION
• Who are the biggest customers? • The most profitable? • The most attractive potential customers? • Do the customers fall into any logical groups based on needs,
motivations, or characteristics? • How could the market be segmented into groups that would
require a unique business strategy?
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How Should Segments Be Defined?
• Geographic • Demographic • Physiographic • Customer characteristics vs product related approaches
1. Can a competitive offering be developed and implemented that will appeal to the target segment?
2. Can the appeal of the offering and the subsequent relationship with the target segment be maintained over time despite competitive responses?
3. Is the resulting business from the target segment worthwhile vs the investment required to develop and market an offering tailored to it?
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How Should Segments Be Defined?
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How Should Segments Be Defined?
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Benefits The most useful segmentation variable is the benefits sought from a product.
Example – In gourmet frozen dinners and entrées, the market can be divided into
• buyers who are calorie-conscious, • those who focus on nutrition and health • those interested in taste • price-conscious buyers.
Each segment implies a very different strategy.
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Price Sensitivity • The trade-off between low price and high quality is both useful
and pervasive • It is appropriate to consider it separately. • There is a well-defined breakdown between those customers
concerned first about price and others who are willing to pay extra for higher quality and features.
• The segment dictates the strategy.
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Loyalty • Brand loyalty, is an important consideration in allocating
resources • The highest priority is to retain existing loyal customers.
• Increase their commitment intensity • Encourage them to talk to others.
• The key is often to reward the loyal customer by living up to expectations consistently, providing an ongoing relationship, and offering extras.
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Applications • Some products and services, particularly industrial products,
can best be segmented by use or application. • A laptop may be needed by some for use while traveling,
whereas others may use it at the office. • One segment may use a computer primarily for Internet
access, while others may use it for editing documents or for data analysis.
• Some might use a four-wheel drive for light industrial hauling, and others may buy primarily for recreation.
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Focus Strategy vs Multiple Segments Focus: a single segment, which can be much smaller than the market as a whole.
Multiple Segments. General Motors provides the classic example. In the 1920s, the firm
positioned the Chevrolet for price-conscious buyers, the Cadillac for the high end, and the Oldsmobile, Pontiac, and Buick for well-defined segments in between.
There can be important synergies between segment offerings.
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THE SCOPE OF CUSTOMER ANALYSIS – CUSTOMER MOTIVATIONS
After identifying customer segments, the next step is to consider their motivations: What lies behind their purchase decisions? Consider… • What elements of the product/service do customers value most? • What are the customers’ objectives? • What are they really buying? • How do segments differ in their motivation priorities? • What changes are occurring in customer motivation? In customer
priorities?
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THE SCOPE OF CUSTOMER ANALYSIS – CUSTOMER MOTIVATIONS
EXAMPLE: Internet shopper segments motivations…
Newbie shoppers—need a simple interface, as well as a lot of hand-holding and reassurance.
Reluctant shoppers—need information, reassurance, and access to live customer support.
Frugal shoppers—need to be convinced that the price is good and they don’t have to search elsewhere.
Strategic shoppers—need access to the opinions of peers or experts and choices in configuring the products they buy.
Enthusiastic shoppers—need community tools to share their experiences, as well as engaging tools to view the merchandise and personalized recommendations.
Convenience shoppers—(the largest group) want efficient navigation, a lot of information from customers and experts, and superior customer service.
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THE SCOPE OF CUSTOMER ANALYSIS – CUSTOMER MOTIVATIONS
Another task of customer motivation analysis is to determine the relative importance of the motivations.
BUYER HOT BUTTONS • Motivations can be categorized as important or unimportant • Hot buttons are motivations whose salience and impact on markets are
significant and growing. • What are buyers talking about? • What are stimulating changes in buying decisions and use patterns?
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THE SCOPE OF CUSTOMER ANALYSIS – CUSTOMER MOTIVATIONS Consumer retail food products hot buttons… Freshness and naturalness: Grocery stores have responded with salad bars, packaged precut vegetables, and efforts to upgrade the quality and selection of their fresh produce. Healthy eating: Low fat, particularly saturated and trans fat, is a prime driver, but concern about sodium, sugar, and processed foods is also growing and affecting product offerings in most food categories. Ethnic eating: A growing interest in ethnic flavors and cooking such as Asian, Mediterranean, and Caribbean cuisines has led to an explosion of new offerings. Brands usually start in ethnic neighborhoods, move into natural food and gourmet stores, and finally reach the mainstream markets. Gourmet eating: The success of Williams-Sonoma and similar retailers reflects the growth of gourmet cooking and has led to the introduction of a broader array of interesting cooking aids and devices. Meal solutions: The desire for meal solutions has led to groups of products being bundled together as a meal and to a host of carryout prepared foods offered by both grocery stores and restaurants. Low-carb foods. The influence of low-carb diets has created a demand for reduced-carb food variants in both grocery stores and restaurants. Convenience. Shoppers have taken convenience to a new level with frozen dinners and cake mixes and even canned soup considered to demand too much preparation. Open and eat is the key. Snacks and yogurt deliver.
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THE SCOPE OF CUSTOMER ANALYSIS – CUSTOMER MOTIVATIONS
• Changing Customer Priorities is critical to gain insight into changes in customers’ priorities. • In the high-tech area, customer priorities often evolve from needing
help in selecting and installing the right equipment to wanting performance to looking for low cost.
• In the coffee business, customer tastes and habits have evolved from buying coffee at grocery stores to drinking coffee at gourmet cafés to buying and brewing their own whole-bean gourmet coffees.
• Assuming that customer priorities are not changing can be risky. • It is essential to ask whether a significant and growing segment has
developed priorities that are different from the basic business model.
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THE SCOPE OF CUSTOMER ANALYSIS – UNMET NEEDS
• An unmet need is a customer need that is not satisfied by existing product offerings. • OfficeMax found that people, especially women professionals,
wanted a cubicle workplace with color, patterns, and textures. The result was four product lines that promised to enliven and personalize cubicle environments delivered under the tagline “Life Is Beautiful, Work Can Be Too.”
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THE SCOPE OF CUSTOMER ANALYSIS – UNMET NEEDS
• Sometimes customers may not be aware of their unmet needs – electric lightbulbs
• Unmet needs that are not obvious may be more difficult to identify, but they can also represent a greater opportunity for an aggressive business because there will be little pressure on established firms to be responsive.
• The key is to stretch the technology or apply new technologies to expose unmet needs.
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THE SCOPE OF CUSTOMER ANALYSIS – UNMET NEEDS
• Why are some customers dissatisfied? • Why are some changing brands or suppliers? • What are the severity and incidence of consumer problems? • What are unmet needs that customers can identify? • Are there some of which consumers are unaware? • Do these unmet needs represent leverage points for competitors
or a new business model?
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THE SCOPE OF CUSTOMER ANALYSIS – UNMET NEEDS • What product-use experience problems have emerged? • What is frustrating? • How does it compare with other product experiences? • Are there problems with the total-use system in which the
product is embedded? • How can the product be improved?
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THE SCOPE OF CUSTOMER ANALYSIS – UNMET NEEDS
• Qualitative research is a powerful tool in understanding customers and potential customers, their unmet needs, and their motivation at a very basic level. It can involve: • focus-group sessions • in-depth interviews • customer case studies, • ethnographic research.
• The idea is to search for the real concerns and motivations that do not emerge from structured lists and that customers may not be consciously aware of.
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THE SCOPE OF CUSTOMER ANALYSIS – UNMET NEEDS
• The Ethnographic research – direct observation of what is done involving the target or service, but also why.
• Companies can achieve a deeper level of understanding of the customer’s needs and motivations and generate actionable insights.
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Competitor Analysis
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COMPETITOR ANALYSIS
• Competitor analysis is the second phase of external analysis. • the goal should be insights that will influence the development
of successful business strategies. • The analysis should focus on the identification of threats,
opportunities, or strategic uncertainties created by emerging or potential competitor moves, weaknesses, or strengths
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COMPETITOR ANALYSIS
• Competitor analysis starts with identifying current and potential competitors.
• There are two very different ways of identifying current competitors. 1. Group competitors according to the degree to which they
compete for a buyer’s choice. 2. Group competitors on the basis of their competitive strategy.
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WHO ARE THE COMPETITORS?
• Against whom do we usually compete? • Who are our most intense competitors? • Less intense but still serious competitors? • Makers of substitute products? • Can these competitors be grouped into strategic groups on the
basis of their assets, competencies, and/or strategies? • Who are the potential competitive entrants? What are their
barriers to entry? Is there anything that can be done to discourage them?
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EVALUATING COMPETITORS
What are their objectives and strategies? Their levels of commitment? Their exit barriers? What are their cost structures? Do they have cost advantages or disadvantages? What are their images and positioning strategies? Which are the most successful/unsuccessful competitors over time? Why?
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EVALUATING COMPETITORS
What are the strengths and weaknesses of each competitor or strategic group? What leverage points (or strategic weaknesses or customer problems or unmet needs) could competitors exploit to enter the market or become more serious competitors? How strong or weak is each competitor with respect to their assets and competencies? Generate a competitor strength grid.
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IDENTIFYING COMPETITORS CUSTOMER-BASED APPROACHES
One approach to identifying competitor sets is to look at them from the perspective of customers—what choices are customers making? A Cisco buyer could be asked what brand would have been purchased had Cisco not made the required item. A buyer for a nursing home meal service could be asked what would be substituted for granulated potato buds if they increased in price. A sample of sports car buyers could be asked what other cars they considered and perhaps what other showrooms they actually visited.
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Brand-Use Associations
• Another approach that provides insights is the association of brands with specific-use contexts or applications – twenty or thirty product users could be asked to identify a list of use situations or applications.
• For each use context they would then name all the brands that are appropriate and identify appropriate use contexts
• Brands would be clustered based on the similarity of their appropriate use contexts. • Doritos being perceived as a snack vs party enhancer. • Industrial product that might be used in several distinct
applications.
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Indirect Competitors
In most instances, primary competitors are quite visible and easily identified.
• Coke competes with Pepsi, other cola brands, and private labels such as President’s Choice.
• CitiBank competes with Chase, Bank of America, and other major banks.
• NBC competes with ABC, CBS, and Fox. • Boeing competes with Airbus.
The competitor analysis for this group should be done with depth and insight.
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Indirect Competitors
In many markets, however, customer priorities are changing, and indirect competitors offering customers product alternatives are strategically relevant. Understanding these indirect competitors can be strategically and tactically important, as the following examples demonstrate. • Coke focused on Pepsi and ignored for many years the emerging
submarkets in water, energy drinks, and fruit-based drinks. The result was a missed opportunity and the eventual need to pursue an expensive and difficult catch-up strategy.
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Indirect Competitors
• While the major television networks struggle against each other, independent networks have emerged. Strong cable networks, such as ESPN, Fox, HBO, and CNN, have flourished; pay-per-view, Netflix, computer games, mobile applications, and the Internet are competing for the leisure time of viewers.
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Indirect Competitors
• While banks focused on competing banks, their markets were eroded by mutual funds, insurers, and brokers.
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Indirect Competitors
• While Folgers, Maxwell House, and others competed for supermarket business using coupon promotions, other firms, such as Starbucks, succeeded in selling a very different kind of coffee in different ways.
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Indirect Competitors
• Starbucks has more recently been threatened by gourmet coffee makers sold for home use and by alternatives offered by chains like Dunkin’ Donuts and McDonald’s.
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IDENTIFYING COMPETITORS—STRATEGIC GROUPS
• The concept of a strategic group provides a very different approach toward understanding the competitive structure of an industry.
A strategic group is a set of firms that: • Over time pursues similar competitive strategies (e.g., the use of
the same distribution channel, the same type of communication strategies, or the same price/quality position)
• Has similar characteristics (e.g., size, aggressiveness) • Has similar assets and competencies (such as brand associations,
logistics capability, global presence, or research and development)
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IDENTIFYING COMPETITORS—STRATEGIC GROUPS
Three strategic groups in the pet food industry
Strategic group 1: • Very large diversified, branded consumer and food product
companies. • Distribute through mass merchandisers and supermarkets • Have strong established brands • Use advertising and promotions effectively • Enjoy economies of scale.
• The major players include Nestlé Purina Petcare and Big Heart Pet Brands (owned by Smuckers).
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IDENTIFYING COMPETITORS—STRATEGIC GROUPS
Strategic group 2: • Highly focused ultra-premium producers, such as Hill’s Petfood
(Science Diet and Prescription Diet) and the Iams Company • Sells through veterinary offices and specialty pet stores. • Historically used referral networks to reach pet owners
concerned with health. • When P&G acquired Iams in 1999 and introduced it into
mass merchandisers and supermarkets, the distinction between the two strategic groups blurred and new competitive dynamics were introduced. Iams became a threat to established brands
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IDENTIFYING COMPETITORS—STRATEGIC GROUPS
• The third strategic group, private-label, is producers that supply Walmart and other major retailers.
• Each strategic group has mobility barriers that inhibit or prevent businesses from moving from one strategic group to another.
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IDENTIFYING COMPETITORS—STRATEGIC GROUPS
• A member of a strategic group can have exit as well as entry barriers. For example, assets such as plant investment or a specialized labor force can represent a meaningful exit barrier, as can the need to protect a brand’s reputation.
• The mobility barrier concept is crucial because one way to develop a sustainable competitive advantage is to pursue a strategy that is protected by assets and competencies that represent barriers to competitors.
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POTENTIAL COMPETITORS In addition to current competitors, it is important to consider potential market entrants, such as firms that might engage in:
• Market expansion. Perhaps the most obvious potential competitors are firms operating in other geographic regions or in other countries. o Example: A cookie company may want to keep a close eye on a competing firm in an adjacent state, for
example. • Product expansion.
o The leading ski firm, Rossignol, has expanded into ski clothing, thus exploiting a common market, and has moved to tennis equipment, which takes advantage of technological and distribution overlap.
• Backward integration. Customers are another potential source of competition. o General Motors bought dozens of manufacturers of components during its formative years. Major can users,
such as Campbell Soup, have integrated backward, making their own containers. • Forward integration. Suppliers attracted by margins are also potential competitors. Suppliers, believing they have
the critical ingredients to succeed in a market, may be attracted by the margins, the control, and the visibility that come with integrating forward. o Apple, Inc., for example, opened a chain of retail stores.
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POTENTIAL COMPETITORS In addition to current competitors, it is important to consider potential market entrants, such as firms that might engage in:
• The purchase of assets or competencies. A current small competitor with critical strategic weaknesses can turn into a major entrant if it is purchased by a firm that can reduce or eliminate those weaknesses. Predicting such moves can be difficult, but sometimes an analysis of competitor strengths and weaknesses will suggest some possible synergistic mergers. A competitor in an above-average growth industry that does not have the financial or managerial resources for the long haul might be a particularly attractive candidate for merger.
• Vertical Integration • Horizontal Integration
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Size, Growth, and Profitability
• The level and growth of sales and market share provide indicators of the vitality of a business strategy.
• The maintenance of a strong market position or the achievement of rapid growth usually reflects a strong competitor (or strategic group) and a successful strategy.
• In contrast, a deteriorating market position can signal financial or organizational strains that might affect the interest and ability of the business to pursue certain strategies.
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Image and Positioning Strategy
• A cornerstone of a business strategy can be an association. • the strongest truck, the most durable car or the most effective cleaner.
• Intangibles that span product class, such as quality, innovation, sensitivity to the environment, or brand personality are useful.
• To develop positioning alternatives, it is helpful to determine the image associations, including the brand personality of the major competitors.
• Weaknesses of competitors on relevant attributes or personality traits can represent an opportunity to differentiate and develop an advantage.
• Strengths of competitors on important dimensions may represent challenges to exceed them or to outflank them.
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Image and Positioning Strategy
• Competitor image and positioning information can be deduced in part by studying a firm’s products, advertising, website, and actions, but often customer research is helpful to ensure that an accurate current portrayal is obtained.
• The conventional approach is to start with qualitative customer research to find out what a business and its brands mean to customers.
• What are the associations? • If the business were a person, what kind of person would it be? • What visual imagery, books, animals, trees, or activities are associated with the
business? • What is its essence?
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Objectives and Commitment
• A knowledge of competitor objectives provides the potential to predict whether or not a competitor’s present performance is satisfactory or whether strategic changes are likely.
• The financial objectives of the business unit can indicate the competitor’s willingness to invest in that business even if the payout is relatively long-term.
• What are the competitor’s objectives with respect to market share, sales growth, and profitability?
• Nonfinancial objectives are also helpful. • Does the competitor want to be a technological leader? • Or to expand distribution?
• These provide a good indication of the competitor’s possible future strategy.
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Objectives and Commitment • The objectives of the competitor’s parent company (if one exists) are also
relevant. • What are the current performance levels and financial objectives of the parent?
• If the business unit is not performing as well as the parent, pressure might be exerted to improve or the investment might be withdrawn.
• Of critical importance is the role attached to the business unit. I • Is it central to the parent’s long-term plans, or is it peripheral? • Is it seen as a growth area, or is it expected to supply cash to fund other areas? • Does the business create synergy with other operations? • Does the parent have an emotional attachment to the business unit for any reason?
• The existence of resources does not mean they are available.
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Current and Past Strategies
• The competitor’s current and past strategies should be reviewed. • In particular, past strategies that have failed should be noted because such
experiences can inhibit the competitor from trying similar strategies again. • Knowledge of a competitor pattern of new product or new market moves can
help anticipate its future growth directions. • Is the strategy based on product-line breadth, product quality, service, distribution
type, or brand identification? • If a low-cost strategy is employed, is it based on economies of scale, the experience
curve, manufacturing facilities and equipment, or access to raw material? • What is its cost structure?
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Organization and Culture
• Knowledge about the background and experience of the competitor’s top management can provide insight into future actions. o Are the managers drawn from marketing, engineering, or manufacturing? o Are they largely from another industry or company?
• An organization’s culture, supported by its structure, systems, and people, often has a pervasive influence on strategy. o A cost-oriented, highly structured organization that relies on tight controls to achieve
objectives and motivate employees may have difficulty innovating or shifting into an aggressive, marketing-oriented strategy.
o A loose, flat organization that emphasizes innovation and risk-taking may similarly have difficulty pursuing a disciplined product refinement and cost-reduction program.
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Cost Structure
• Knowledge of a competitor’s cost structure, especially when the competitor is relying on a low-cost strategy, can provide an indication of its likely future pricing strategy and its staying power.
• The following information can usually be obtained and can provide insights into cost structures:
• The number of employees (variable labor cost) and overhead • The relative costs of raw materials and purchased components • The investment in inventory, plant, and equipment (also fixed cost) • Sales levels and number of plants (on which the allocation of fixed costs is based) • Outsourcing strategy
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Exit Barriers
Exit barriers can be crucial to a firm’s ability to withdraw from a business area and thus are indicators of commitment. They include the following 1. Specialized assets—plant, equipment, or other assets that are costly to transform to
another application and therefore have little salvage value 2. Fixed costs – labor agreements, leases, a need to maintain parts for existing equipment 3. Relationships to other business units in the firm resulting from the firm’s image or from
shared facilities, distribution channels, or sales force 4. Government and social barriers—for example, governments may regulate whether a
railroad can exit from a passenger service responsibility, or firms may feel a sense of loyalty to workers, thereby inhibiting strategic moves
5. Managerial pride or an emotional attachment to a business or its employees that affects economic decisions
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COMPETITOR STRENGTHS AND WEAKNESSES Knowledge of a competitor’s strengths and weaknesses provides insight into its ability to pursue various strategies and offers important input into the process of identifying and selecting strategic alternatives.
One approach is to exploit a competitor’s weakness in an area where the firm has an existing or developing strength. The desired pattern is to develop a strategy that will pit “our” strength against a competitor’s weakness. Another approach is to bypass or neutralize a competitor’s strength.
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COMPETITOR STRENGTHS AND WEAKNESSES What are the Relevant Assets and Competencies?
• Competitor strengths and weaknesses are based on the existence or absence of assets or competencies. • An asset such as a well-
known name or a prime location could represent a strength.
• A competency such as the ability to develop a strong promotional program could also be a strength.
• The absence of an asset or competency can represent a weakness.
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Identifying Relevant Assets and Competencies What businesses have been successful over time? What assets or competencies have contributed to their success? What businesses have had chronically low performance? Why? What assets or competencies do they lack? By definition, assets and competencies that provide SCAs should affect performance over time. Thus, businesses that differ with respect to performance over time should also differ with respect to their assets and competencies. Analysis of the causes of the performance usually suggests sets of relevant competencies and assets. Typically, the superior performers have developed and maintained key assets and competencies that have been the basis for their performance. Conversely, weakness in several assets and competencies relevant to the industry and its strategy should visibly contribute to the inferior performance of the weak competitors over time. For example, in the CT scanner industry, the best performer, General Electric, has superior product technology and R&D, scale economies, an established systems capability, a strong sales and service organization (owing, in part, to its X-ray product line), and an installed base.
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Identifying Relevant Assets and Competencies
What are the key customer motivations? What is needed to be preferred? What is needed to be considered?
Customer motivations usually drive buying decisions and thus can dictate which assets or competencies potentially create meaningful advantages. In the heavy-equipment industry, customers value service and parts backup. Caterpillar’s promise of “24-hour parts service anywhere in the world” has been a key asset because it is important to customers. Apple has focused on the motivation of designers for user-friendly design platforms.
There are motivations that lead to a brand being excluded from consideration. An offering characteristic may not determine winners, but a deficiency will eliminate it from being considered. Hyundai, for example, needs to be perceived as having adequate quality. A series of “best car” awards in 2009 did not necessarily vault the brand to a superior position, but for many, it did get rid of the “inadequate” perception.
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Identifying Relevant Assets and Competencies
What assets and competencies represent industry mobility (entry and exit) barriers?
Strategic groups are characterized by structural stability even when one group is much more profitable than the others. The reason is mobility barriers, which can be both entry barriers and exit barriers. Some groups have assets and competencies that will be difficult and sometimes impossible to duplicate by those seeking to enter. International deep-water oil- well drilling firms, for example, have technology, equipment, and people that domestic, on- shore firms cannot duplicate. These assets also represent exit barriers because there is no other use to which they could be put.
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Identifying Relevant Assets and Competencies What are the significant value-added components in the value chain?
A firm that can excel on a critical value-added component can have a sustainable advantage. The component can be critical because of its cost such as package handling for FedEx or the call center at Dell. Or it can be critical because of the customer benefit it generates or affects such as the ordering system at Amazon or the ingredients of a P&G detergent. In examining the value chain, it is helpful to start with suppliers and end with the customer use experience while charting all the components in between. The components can be found throughout the organization and that of its partners. For eBay, for example, operations, customer support, auction services, plus the operations of those selling goods are all potential candidates.
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A Checklist of Strengths and Weaknesses
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THE COMPETITIVE STRENGTH GRID
• With the relevant assets and competencies identified, the next step is to scale your own firm and the major competitors or strategic groups of competitors on those assets and competencies.
• A sustainable competitive advantage is almost always based on having a position superior to that of the target competitors in one or more asset or competence area that is relevant both to the industry and to the strategy employed. Thus, information about each competitor’s position with respect to relevant assets and competencies is central to strategy development and evaluation.
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THE COMPETITIVE STRENGTH GRID
• If a superior position does not exist with respect to assets and competencies important to the strategy, it probably will have to be created or the strategy may have to be modified or abandoned.
• A competency that all competitors share will not be the basis for an SCA. • For example, flight safety is important among airline passengers, but if
airlines are perceived to be equal with respect to pilot quality and plane maintenance, it cannot be the basis for an SCA.
• Some airlines can convince passengers that they are superior with respect to antiterrorist security, then an SCA could indeed emerge.
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THE COMPETITIVE STRENGTH GRID
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Analyzing Submarkets
It is often desirable to conduct an analysis for submarkets or strategic groups and perhaps for different products. A firm may not compete with all other firms in the industry, but only with those engaged in similar strategies and markets. For example, a competitive strength grid may look very different for the safety submarket, with Volvo having more strength. Similarly, the handling submarket may also involve a competitive grid that will look different, with BMW having more strength.
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OBTAINING INFORMATION ON COMPETITORS
A competitor’s website is usually a rich source of information and the first place to look. The strategic vision (along with a statement about values and culture) is often posted and the portfolios of businesses are usually laid out. The way that the latter are organized can provide clues as to business priorities and strategies. When IBM emphasizes its e-servers, for example, that says something about its direction in the server business. The website also can provide information about such business assets as plants, global access, and brand symbols. Research on the competitor’s site can be supplemented with search engines, access to articles, and financial reports about the business.
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OBTAINING INFORMATION ON COMPETITORS
Detailed information on competitors is generally available from a variety of other sources as well. Competitors usually communicate extensively with their suppliers, customers, and distributors; security analysts and stockholders; and government legislators and regulators. Contact with any of these can provide information. Monitoring trade magazines, trade shows, advertising, speeches, annual reports, and the like can be informative. Technical meetings and journals can provide information about technical developments and activities. Thousands of databases accessible by computer now make available detailed information on most companies.
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OBTAINING INFORMATION ON COMPETITORS
Detailed information about a competitor’s standing with its customers can be obtained through market research. For example, regular telephone surveys could provide information about the successes and vulnerabilities of competitors’ strategies. Respondents could be asked questions such as the following: Which store is closest to your home? Which do you shop at most often? Are you satisfied? Which has the lowest prices? Best specials? Best customer service? Cleanest stores? Best-quality meat? Best- quality produce? And so on. Those chains that were well positioned on value, on service, or on product quality could be identified, and tracking would show whether they were gaining or losing position. The loyalty of their customer base (and thus their vulnerability) could be indicated in part by satisfaction scores and the willingness of customers to patronize stores even when they were not the most convenient or the least expensive.
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