Strategic Marketing052 430

Instructor: Michael Cooke E-mail Address: michco@kku.ac.th Office: IC room 817

Class hours: Friday 13:00-16:00 Class Location: IC room 806 Web: home/kku.ac.th/michco

Structure of Competitor Analysis Who are the competitors?

– Who are the most intense competitors?– What are the substitute products– Who are the potential entrants? Can they be discouraged?– What are the barriers to entry?

Evaluating the competitors– Their objectives and strategies? Level of commitment? (Note how exit

from a geographic market is interpreted)– Do they have a cost advantage or disadvantage?– Image and positioning strategy– Which are the most successful over time?

• Why?• Their strengths and weaknesses?

– Customer problems, or unmet needs that competitors could exploit?

Competitor Analysis – Customer-based Approach Look at competitors from a customer perspective

– Product-use associations (which products do they associate with a given use or context?)

– Customer choices (what other brands would be considered?)

Indirect competitors– Consider geographic regions (firms may expand)– Customer priorities change

• The firm needs to understand positioning and new product strategies of indirect competitors

• Customers do consider alternatives beyond current direct competitors

At what level is the analysis conducted?– Business unit, firm, an aggregation of businesses? Analysis may be need at all

levels at which strategies are developed.– May need to include indirect competitors in some level of strategic analysis

Competitor Analysis - Strategic GroupsConcept is useful for making industry analysis

manageableSelection of strategy will often mean selecting or

creating a strategic groupA strategic group is firms that:

1. Pursue similar competitive strategies2. Have similar characteristics3. Have similar assets and competencies

Specific assets and competencies often serve as mobility barriers

A firm competing across strategic groups is often at disadvantage (distribution channels, etc)

Potential Competitors

• Market expansion – firms operating in other geo areas

• Product expansion – firms in related product areas

• Backward integration – customers that move upstream

• Forward integration – suppliers that move downstream

• Weak competitors can become strong via M&A situations

• Retaliatory or defensive strategies in response to perceived threats

© Copyright 2010 John Wiley & Sons Ltd

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Understanding the Competitors

Objectives and CommitmentObjectives and Commitment

Image and PositioningImage and PositioningSize, Growth

& ProfitabilitySize, Growth

& Profitability

Current and Past Strategies

Current and Past Strategies

Strengths and WeaknessesStrengths and Weaknesses

Cost StructureCost Structure

Exit BarriersExit Barriers Organization and CultureOrganization and Culture

Competitor Actions

Competitor Actions

Figure 4.3

Figure 3.2

Understanding Competitors• Size, growth and profitability

• These indicate strength and successful strategy• Profitable businesses have access to capital (unless being milked)• Often have to use indirect measures to find these numbers

• Image and positioning• Competitors positioning may present opportunities to differentiate• Can use consumer research or study of competitor products, adverts, websites, actions to

determine competitor positioning• Competitor objectives, including parent company

• Market share, sales growth, profitability objectives• Is the company or the parent company committed to the business? Will the parent make

resources available? Exit barriers (chapter 14)?• Has the competitor abandoned markets?

• Current and past strategies• Failed strategies are unlikely to be repeated• Pattern of new market or product moves may be predictive

• Based on line breadth, product quality, service, brand, or distribution?• If niche or focus, what is the scope?• If low cost is the strategy, is it achieved via scale, experience, supplier access?

• Cost structure indicates pricing strategy and staying power• Outsourcing strategy or investment in fixed assets• Sales relative to number of factories• Direct labor versus overhead (fixed costs)

• Company websites are a good source of information

Relevant Assets and CompetenciesWhich assets or competencies contributed business successes?

Which businesses have had chronically low performance? Why? What assets or competencies do they lack?

What are the customer motivations? Service? Product quality?

Which assets and competencies are industry entry or exit barriers? (Mobility barriers)

Barriers to exit exist where assets have no alternative use

Some assets and competencies are difficult or impossible to reproduce to would be entrants

Value added components? Excelling on a value added component can be an SCA for a firm.Start examination with suppliers

End with customer use

Checklist of Strengths and Weaknesses (see McLoughlin p54)Innovation

Manufacturing

Access to capital (operations, net short term assets,

Customer base

Marketing

Figure 4.4

Key Learnings Competitors can be identified by customer choice (the set from which

customers select) or by clustering them into strategic groups, (firms that pursue similar strategies and have similar assets, competencies, and other characteristics). In either case, competitors will vary in terms of how intensely they compete.

Competitors should be analysed along several dimensions, including their size, growth and profitability, image, objectives, business strategies, organisational culture, cost structure, exit barriers, and strengths and weaknesses.

Potential strengths and weaknesses can be identified by considering the characteristics of successful and unsuccessful businesses, key customer motivations, and value-added components.

The competitive strength grid, which arrays competitors or strategic groups on each of the relevant assets and competencies, provides a compact summary of key strategic information.

“We often give our enemies the means for our own destruction.”

Aesop

P&G in China Entry through joint venture with a Hong Kong based multinational in 1998 Chinese market characterized by:

– Huge disparity in income levels and consumer needs within China– Large number of outlets for consumer goods

Three tier consumer segment system developed– Premium– Middle– Low price

Marketing objective to promote global products as Chinese brands– R&D in Beijing– Use local ingredients– Local cost and pricing targets– Local customer research staff

• Tailor products to local traditions, local tastes, local budgets• Different and more costly products for wealthier urban markets

Global Strategy Elements

1. Competitive forces in an industry

2. Global industry – the extent of globalization

3. Competitive advantage (cost, differentiation, etc)

4. Hyper competition (disrupting the market)

5. Interdependency – standardized components

Competitive Industry StructureAn element of global strategy

Michael Porter

Industry competitors – rivalry among existing firms Potential entrants – note barriers to entry

– Barriers could be legislated– Time and investment

Bargaining power of suppliers (raw materials to components)

Bargaining power of buyers (supermarket chains, large volume operations like WalMart, government as customer, single large company customer)

Threats of substitutes

Competitive Industry StructureSubstitute Products or Services

Often overlooked or underestimated by established industry players– HP in 2004 saw Personal Computers as a commodity

• Build cheap in high volume• Main competitor thought to be Dell Computer of TX• $3BB R&D under-utilized

Substitutes can restructure entire industries– Common in technology industries– Always a threat in the petroleum industry

• But cost of entry for substitutes is high• Once a substitute gains entry, costs may rapidly drop • Pattern is to have price spikes, followed by periods of prices too low for

substitutes to thrive

– Synthetic rubber became a substitute when war cut natural rubber supplies

Global Industry

– Those industries where a firm’s competitive position in one country is affected by its position in other countries.

– The first question that faces managers is the extent of globalization of their industry. Example: Foreign car brands in many countries are made locally.

– Every industry could have global aspects. Some academics believe consumer tastes are converging globally, and firms drive tastes to converge.

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Industry Globalization Potential

The potential globalization of an industry is determined by:

1. Market forces

2. Cost forces

3. Government forces

4. Competition forces

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Exhibit 8-1: Industry Globalization Drivers

Copyright (c) 2009 John Wiley & Sons, Inc.

Global Industry Market Forces

Per capita income convergence Rich consumers in emerging markets Convergence of lifestyles and tastes Increased international travel creates global customers Organizations behaving as global customers (Toyota) Growth of global and regional retail channels

– More regional successes than global– Those that are global are adapted to regional culture (7-11)

Establishment of world brands Global advertising Spread of global and regional media Revolution in communication technology* 19

*Revolution in Communication technology Much bigger and more fundamental than e-commerce alone Growth of worldwide secure financial settlements

– Rapid spread of ATMs from the mid-90s for example– Ease of doing financial transactions across borders

Rapid spread of cellular technology connected whole regions to the outside world, from late 1990s

Rapid decrease in the price of bandwidth late 1990s– Large scale long distance data transfer became viable

• Fiber optic technology means very cheap prices across oceans• Google and others have mix of local and central content

– Offshore factories and suppliers have real time access– Distributors have real time access to retail inventory– Medical information and other data intensive documents exchanged real

time

Cultural diffusion via better communication– Often thought of as spread of English– Growing exposure and interest works in both directions

Global StrategyCost Forces

1. Global economies of scale and scope

2. Steep experience curve

3. Global sourcing efficiencies

4. Favorable logistics

5. Difference in country costs

6. High product development costs– Need to spread costs onto higher volumes– Emerging R&D centers in lower cost countries

7. Fast-changing technology

8. Shorter product life cycles

Copyright (c) 2009 John Wiley & Sons, Inc.21

Global Strategy– Government Forces

1. Favorable trade policies (and trading blocks)2. Compatible technical standards3. World Trading Regulations4. High growth/low labor cost developing countries5. Deregulation/privatization of industries 6. Shift to market economies in China, Russia, E. Europe

– Competitive Forces 1. High exports and imports2. Competitors from different continents and countries3. Interdependent countries (components specialization)4. Globalized competitors5. Globalized financial markets (and company ownership)

Copyright (c) 2009 John Wiley & Sons, Inc.22

Global StrategyCompetitive Advantage

– Cost leadership• Builds on economies of scale• Learning effects (how to be more efficient)• Long production runs (high cost to change lines)• Amortize fixed costs over more units (R&D often fixed)• Cost leadership can be a barrier to entry (and a trap!)

– Product differentiation• Customers willing to pay premium price for unique products• Can be a barrier to entry (note Brand Relevance, “own a category”)

– Niche strategy• Focus on a highly specialized segment• Try to achieve a dominant global position in that segment• Pays to stay ‘under the radar’• A overlooked niche can grow into something much bigger

– Global marketers combine cost control and product differentiation 23

Global Strategy Gaining Competitive Advantage

Firms create series of temporary advantages– Most advantages are temporary (methods are learned)– Firms must innovate to stay ahead (think of Brand Relevance)– Experiment with small product introductions – some will work

Advantages and disadvantages of being the pioneer– Can grow quickly in absence of competitors (a reason small firms with

innovative ideas seek to go public or be bought – marketing)– Can become the standard for a product– But others may learn from mistakes of pioneers – first mover costs

Competitor-focused approach– Comparisons with competitor costs, prices, technology– Firm might focus too intently on competitors

Customer-focused approach (How would we describe P&G China?)

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Global Strategy Interdependency

Interdependency of modern companies• Firms draw on outside technologies – purchase use of ideas• Standardized components enable scale economies to suppliers• Standardized components enable different firms to use same

components• Note that many firms may cooperate for open standards

Governments affect parts of a firm’s cost structure– Export restraints (to protect domestic markets or for

defense purposes)– Tariff and non-tariff barriers

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Global Marketing Strategy Benefits of Global Marketing:

– Cost Reduction• Standard packaging (include lower inventory)• Consolidate multiple marketing functions• Reduced total advertising costs

– Improved Products and Program Effectiveness (from integration of ideas and spreading costs over larger base)

– Enhanced Customer Preference through consistent theme– Competitive Advantage through coordinating the worldwide

organization (employee communication, intelligence gathering) Limits to Global Marketing:

– Globalization vs. localization (local adaptation)• Worldwide Web has elements of both• Languages and cultural values differ among national sites

– Global integration vs. local responsiveness• Global companies create local subsidiaries to respond locally• Local R&D etc

– Scale vs. sensitivity to local cultures26

Degrees of Standardization of Products in World MarketsChapter 8

Copyright (c) 2009 John Wiley & Sons, Inc.27

Typical Income Statement– Net Revenue

• Less COGS (includes provision for inventory write-off)

– Gross Profit

– SG&A (mostly fixed cost in short term)• Administration (includes finance)• Sales and Marketing• Distribution• Research and Development

– Net (operating) income before taxes and depreciation• Taxes etc

– Net income

Marketing Interactions within the Company

Marketing interacts with Finance, Operations, and R&D to determine whether new products are viable from a resources and opportunities perspective– Financial resources (can we afford to launch?)– Human and manufacturing hardware resources

Marketing interacts with Finance to make forecasts and budgets – Top line numbers – budgeting usually begins with revenue forecasts– Marketing expenses

Marketing interacts with Finance, Manufacturing, and Distribution to determine pricing and promotion strategies (what do we need to move this month?), fine tuning of production runs, and inventory obsolescence

R&D, Operations and Marketing Interfaces

R&D/Operations Interface (basic R&D vs production R&D) – design new products to use existing resources

Manufacturing/Distribution/Marketing Interface– Core Components Standardization in adapting to local needs

• Some cosmetic or packaging considerations might be applied in packaging and distribution

• Some adaptation might occur only in customer perceptions

– Timing and length of factory production runs – Cost and pricing considerations– Inventory management

• Avoiding excess inventory through coordinating sales with production• Getting rid of unused inventory (obsolete product might be sold in LDC)

Marketing/R&D Interface (customers as idea sources)30

Exhibit 8-5: Interfaces among R&D, Manufacturing, and Marketing

Chapter 8

Copyright (c) 2009 John Wiley & Sons, Inc.31

Regionalization of Global Marketing Strategy

Regional strategies are cross-subsidization in pursuit of regional production, branding, and distribution advantages.

Issues in regionalization of global marketing strategy:

– Cross-Subsidies of Markets (competitor bases)• Kodak ignored Japan when Fuji targeted economy segment• Failure to counter an attack can be catastrophic

– Identification of Weak Market Segments• Use a weak niche to expand in a foreign market• Established players often ignore niches

– Lead Markets set standards for the world (India tractors)– Marketing Strategies for Emerging Markets

• Local companies identify their relative strengths• Local businesses closer to customers, part of local culture

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Competitive Analysis

SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis (See Exhibit 8-6.)– A SWOT analysis divides the information into two main

categories: internal and external factors.– Based on SWOT analysis, marketing executives can

construct alternative strategies.– The aim of any SWOT analysis should be to isolate the key

issues that will be important to the future of the firm and that will be addressed by subsequent marketing strategy.

Copyright (c) 2009 John Wiley & Sons, Inc.33

Exhibit 8-6: SWOT Analysis

Chapter 8

Copyright (c) 2009 John Wiley & Sons, Inc.34