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CRAVENS

PIERCY

8/eMcGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc., All Rights Reserve

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3-2

Chapter Three

Markets andCompetitive

Space

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3-3

MARKETS ANDCOMPETITIVE SPACE

Markets and Strategies

Product-Market Scopeand Structure

Describing and

Analyzing End-Users Analyzing Competition

Developing a StrategicVision about the Future

Market Size Estimation

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3-4MARKETS ANDCOMPETITIVE SPACEThe Challenges

Markets are increasingly complex,turbulent, and interrelated.

Importance of a broad view of themarket.

Essential to develop a vision abouthow the market is likely to change inthe future.

Continuous Monitoring is Necessary to:

Find promising opportunities

Identify shifts in value requirements

Understand competitors positioning

Guide targeting and positioning

decisions

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3-5

MARKETS AND

STRATEGIES

Markets and

Strategies are

Interlinked

Forming

a Shared

Vision

Value

Migration

Challenges

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3-6

Market changes often

require altering strategies

Forces of change create

both market opportunities

and threats

Inherent danger in faulty

market sensing

Markets ImpactStrategies

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3-7

Customers shift

purchasing to new

business designs with

enhanced value offering

Beware of disruptivetechnologies

Market sensing and

organizational learning areessential

Value Migrations

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3-8PRODUCT-MARKETSCOPE ANDSTRUCTURE

Matching Needs with Product

Benefits

Product-Market Boundaries and

Structure

Forming Product-Markets for

Analysis

The Changing Composition ofMarkets

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3-9Matching Needswith ProductBenefits

A product market matchespeople with needs to the

product benefits that satisfythose needs

A product market is the setof products judged to be

substitutes within those

usage situations in which

similar patterns of benefitsare sought by groups of

customers.*

*Srivastava, et al. (1984) Journal of Marketing, Spring, 32.

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3-10INNOVATIONFEATURE In the period 1994 to 2004, Progressive Insurance

increased sales from $1.3 billion to $9.5 billion, and ranks

high in the Business Week Top 50 U.S. companies forshareholder value creation.

The company invents new ways of providing services tosave customers time, money and irritation, while oftenlowering costs at the same time.

Loss adjusters are sent to the road accidents rather than

working at head office, and they have the power to writechecks on the spot.

Progressive reduced the time needed to see a damagedautomobile from seven days to nine hours.

Policy holders cars are repaired quicker, and the focus on

this central customer need has won much automobile

insurance business for Progressive. These initiatives also enable Progressive to reduce its own

costs the cost of storing a damaged automobile for a dayis $28, about the same as the profit from a six-monthpolicy.

Progressive Insurance:Customer Needs at the Center of Strategy

Source: Adapted from Mitchell, Adrian (2004)Heart of the Matter,The Marketer, June 12, 14.

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3-11Product Market Determining Product-Market

Structure

1. Start with the generic needsatisfied by the productcategory of interest to

management2. Identify the product

categories (types) that cansatisfy the generic need

3. Form the specific productmarkets within the genericproduct market

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3-12

SUPERMARKETS

MICROWAVEOVENS

CONVENIENCESTORES

TRADITIONALRESTAURANTS

Illustrative Fast-FoodProduct-Market

Structure

FAST-FOODMARKET

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3-13Forming Product Markets forAnalysis

Factors influencing

product market

boundaries:

Purpose of analysis

Changing composition

of markets

Extent of market

complexity

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3-14The ChangingComposition ofMarketsChange due to new

technologies and emerging

competition

Consider existing and

emerging markets

Identify alternative ways tomeet needs

Extend product-market

analysis beyond industryboundaries (e.g. Fast-foods)

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3-15Extent ofMarket Complexity Three characteristics of

markets:

1. Functions or uses of

the product

2. The enabling

technology of the product

3. Customer segments in

the product-market

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3-16Illustrative Product Market StructureGeneric Product

Class

Product Type

Variant A

Regular

Variant B

Brands

Food and beverages

for breakfast meal

Cereals

Ready to eat

NaturalPre-sweetened

Life

Nutritional

Special KProduct 19

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3-17DEFINING ANDANALYZING MARKETSDefine Product-Market

Boundaries and Structures

Identify and Describe End-Users

Analyze Industry andValue Added Chain

Evaluate Key Competitors

Forecast Market Size

and Growth Trends

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3-18

Identifying andDescribing Buyers

HowBuyersMake

Choices

BuildingCustomerProfiles

EnvironmentalInfluences

DESCRIBING

AND

ANALYZINGEND-USERS

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3-19Identifying andDescribing End-Users Illustrative buyer

characteristics inconsumer markets:

Family size, age,income, geographicallocation, sex, and

occupation Illustrative factors in

organizational markets:

Type of industry

Company size

Location

Type of products

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3-20How Buyers MakeChoices BUYING DECISION

PROCESS:

1. Problem recognition

2. Information search

3. Alternative evaluation

4. Purchase decision

5. Post-purchase behavior

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3-21EnvironmentalInfluences External factors

influencing buyers

needs and wants: Government, social

change, economic

shifts, technology etc. These factors are often

non-controllable but can

have a major impact onpurchasing decisions

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3-22Building CustomerProfiles Start with generic product

market

Move next to product-

type and variant profiles

>> increasinglymore

specific

Customer profiles guide

decision making (e.g.

targeting, positioning,market segmentation etc.)

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3-23

ANALYZINGCOMPETITION

1.Define Industry

Structure and

Characteristics

2. Identify

and

Describe

Key

Competitors

5. Identify

New

Competitors

3. EvaluateKey

Competitors

PRODUCT-

MARKET

STRUCTUREAND

MARKET

SEGMENTS4. Anticipate

Actions byCompetitors

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3-24Examples of Levelsof Competition

Diet-Rite

Cola

Diet

Pepsi

Diet

Coke

Product from

competition:

diet colas

Regular

colasDiet lemon

limes

Lemon

limes

Fruit

flavoredcolas

Product category

competition:soft drinks

Bottle

water

Wine

Beer

Coffee

Juices

Generic competition:

beverages

Baseball

cards

Fast

Food

Video

Games

Ice

Cream

Budget competition:

food & entertainment

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3-25Industry Analysis Industry size, growth,

and composition

Typical marketingpractices

Industry changes that

are anticipated (e.g.consolidation trends)

Industry strengths and

weaknesses

Strategic alliancesamong competitors

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3-26Defining IndustryStructure &Characteristics

Industry Form

Industry

Environment

Competitive

Forces

ValueAdded

Chain

SUPPLIERS

PRODUCERS

WHOLESALERS/

DISTRIBUTORS

RETAILERS/

DEALERS

CONSUMER/

ORGANIZATIONAL

END USERS

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3-27CompetitiveForces1. Rivalry among existing firms.

2. Threat of new entrants.

3. Threat of substitute products.

4. Bargaining power ofsuppliers.

5. Bargaining power of buyers.

Source: Michael E. Porter, Competitive Advantage, Free Press, 1985, 5.

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3-28Key CompetitorAnalysis Business scope and

objectives

Management experience,

capabilities, andweaknesses

Market position and trends

Market target(s) and

customer base Marketing program

positioning strategy

Financial, technical, andoperating capabilities

Key competitive advantages(e.g., access to resources,

patents)

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3-29

Extent of

Market Coverage

Customer

Satisfaction

Current

Capabilities

Past

Performance

Competitor

Evaluation

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3-30DEVELOPING ASTRATEGIC VISIONABOUT THE FUTURE

Industry Boundaries Blurringand Evolving

Competitive Structure andPlayers Changing

Value Migration Paths

Product Versus BusinessDesign Competition

Firms are Collaborating toInfluence Industry Standards

Source: C. K. Prahalad, Journal of Marketing, Aug. 1995, vi.

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3-31MARKET SIZEESTIMATION

UnrealizedPotential

Company

Sales

Forecast

Industry

Sales

Forecast

Market Potentia

Estimate

Product-Market ForecastRelationships(area denotes sales in $s)

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3-32

0

100

200

300

400

500

600

700

800

900

Sales (in 1000s

of units)

Market

Potential

Sales Forecast

Company XYZ

Sales Forecast

Product-MarketForecastRelationships forIndustrial PaintingUnits