Chapter Three

Markets andCompetitive

Space

MARKETS AND COMPETITIVE SPACE

Markets and Strategies

Product-Market Scope and Structure

Describing and Analyzing End-Users

Analyzing Competition

Developing a Strategic Vision about the Future

Market Size Estimation

MARKETS AND COMPETITIVE SPACEThe Challenges ―

Markets are increasingly complex, turbulent, and interrelated.

Importance of a broad view of the market.

Essential to develop a vision about how the market is likely to change in the future.

Continuous Monitoring is Necessary to:

Find promising opportunitiesIdentify shifts in value requirementsUnderstand competitors’ positioningGuide targeting and positioning

decisions

MARKETS AND STRATEGIES

Markets and Strategies are

InterlinkedForming

a Shared VisionValue Migration

Challenges

• Market changes often require altering strategies

• Forces of change create both market opportunities and threats

• Inherent danger in faulty market sensing

Markets Impact Strategies

• Customers shift purchasing to new business designs with enhanced value offering

• Beware of disruptive technologies• Market sensing and organizational

learning are essential

Value Migrations

PRODUCT-MARKET SCOPE AND STRUCTURE

4Matching Needs with Product Benefits

4Product-Market Boundaries and Structure

4Forming Product-Markets for Analysis

4The Changing Composition of Markets

Matching Needs with Product Benefits

• A product – market matches people with needs to the product benefits that satisfy those needs

“A product – market is the set of products judged to be substitutes within those usage situations in which similar patterns of benefits are sought by groups of customers.”*

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

INNOVATION FEATURE

• 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 for shareholder value creation.

• The company invents new ways of providing services to save customers time, money and irritation, while often lowering 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 write checks on the spot.

• Progressive reduced the time needed to see a damaged automobile 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 day is $28, about the same as the profit from a six-month policy.

Progressive Insurance: Customer Needs at the Center of Strategy

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

Product – Market Boundaries and Structure

• Determining Product-Market Structure

1. Start with the generic need satisfied by the product category of interest to management

2. Identify the product categories (types) that can satisfy the generic need

3. Form the specific product – markets within the generic product – market

SUPER MARKETS

MICROWAVEOVENS

CONVENIENCESTORES

TRADITIONAL RESTAURANTS

Illustrative Fast-Food Product-Market Structure

FAST-FOOD MARKET

Forming Product – Markets for Analysis

Factors influencing product – market boundaries:

Purpose of analysis

Changing composition of markets

Extent of market complexity

The Changing Composition of Markets

• Change due to new technologies and emerging competition

• Consider existing and emerging markets• Identify alternative ways to meet needs• Extend product-market analysis beyond

industry boundaries (e.g. Fast-foods)

Extent of Market 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

Illustrative Product – Market Structure

•Generic Product Class

•Product Type

•Variant A

Regular•Variant B

•Brands

Food and beveragesfor breakfast meal

Cereals

Ready to eat

NaturalPre-sweetened

Life

Nutritional

Special KProduct 19

DEFINING AND ANALYZING MARKETS

Define Product-Market Boundaries and Structures

Identify and Describe End-Users

Analyze Industry and Value Added Chain

Evaluate Key Competitors

Forecast Market Size and Growth Trends

Identifying andDescribing Buyers

HowBuyersMake

Choices

BuildingCustomerProfiles

EnvironmentalInfluences

DESCRIBINGAND

ANALYZINGEND-USERS

Identifying and Describing End-Users

• Illustrative buyer characteristics in consumer markets: Family size, age, income,

geographical location, sex, and occupation

• Illustrative factors in organizational markets: Type of industry Company size Location Type of products

How Buyers Make Choices

BUYING DECISION PROCESS:

1. Problem recognition

2. Information search

3. Alternative evaluation

4. Purchase decision

5. Post-purchase behavior

Environmental Influences

• 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 on purchasing decisions

Building Customer Profiles

• Start with generic product – market

• Move next to product- type and variant profiles >> increasingly more specific

• Customer profiles guide decision making (e.g. targeting, positioning, market segmentation etc.)

ANALYZING COMPETITION

1. Define Industry Structure and

Characteristics

2. Identify and Describe Key Competitors

5. IdentifyNew

Competitors

3. Evaluate Key

Competitors

PRODUCT-MARKET

STRUCTUREAND

MARKETSEGMENTS

4. Anticipate Actions by

Competitors

Examples of Levels of Competition

Diet-RiteCola

Diet PepsiDiet Coke

Product from competition:

diet colas

Regular colas

Diet lemonlimes

Lemon limes

Fruitflavored

colas

Product categorycompetition:

soft drinks

Bottlewater

Wine

Beer

Coffee

Juices

Generic competition:beverages

Baseballcards

FastFood

VideoGames

IceCream

Budget competition:food & entertainment

Industry Analysis

• Industry size, growth, and composition

• Typical marketing practices

• Industry changes that are anticipated (e.g. consolidation trends)

• Industry strengths and weaknesses

• Strategic alliances among competitors

Defining Industry Structure & Characteristics

Industry FormIndustry EnvironmentCompetitive Forces Value

AddedChain

SUPPLIERS

PRODUCERS

WHOLESALERS/ DISTRIBUTORS

RETAILERS/DEALERS

CONSUMER/ ORGANIZATIONAL END USERS

Competitive Forces

1. Rivalry among existing firms.

2. Threat of new entrants.

3. Threat of substitute products.

4. Bargaining power of suppliers.

5. Bargaining power of buyers.

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

Key Competitor Analysis

• Business scope and objectives• Management experience, capabilities, and

weaknesses• Market position and trends• Market target(s) and customer base• Marketing program positioning strategy• Financial, technical, and operating

capabilities• Key competitive advantages (e.g., access to

resources, patents)

Extent of Market Coverage

CustomerSatisfaction

CurrentCapabilities

PastPerformance

Competitor Evaluation

DEVELOPING A STRATEGIC VISION ABOUT THE FUTURE

Industry Boundaries Blurring and Evolving

Competitive Structure and Players Changing

Value Migration Paths

Product Versus Business Design Competition

Firms are Collaborating to Influence Industry Standards

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

MARKET SIZE ESTIMATION

UnrealizedPotential

CompanySales

Forecast

IndustrySales

Forecast

Market PotentialEstimate

Product-Market Forecast Relationships (area denotes sales in $’s)

0100200300400500600700800900

Sales (in 1000sof units)

2001 2002 2003 2004 2005 2006 2007 2008

MarketPotential

Sales Forecast

Company XYZ Sales Forecast

Product-Market Forecast Relationships for Industrial

Painting Units