1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space3. Strategic Market Segmentation4. Strategic Customer Relationship Management5. Capabilities for Learning about Customers and Markets6. Market Targeting and Strategic Positioning7. Strategic Relationships8. Innovation and New Product Strategy9. Strategic Brand Management10. Value Chain Strategy11. Pricing Strategy12. Promotion, Advertising and Sales Promotion Strategies13. Sales Force, Internet, and Direct Marketing Strategies14. Designing Market-Driven Organizations15. Marketing Strategy Implementation And Control

Strategic Marketing

Chapter 2

Markets andCompetitive

Space

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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MARKETS AND COMPETITIVE SPACE

Markets and Strategies Defining and Analyzing Product-Markets Describing and Analyzing End-Users Analyzing Competition Market Size Estimation Developing a Strategic Vision about the

Future

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MARKETS AND STRATEGIESMARKETS AND STRATEGIES

The Challenges ―The Challenges ―Markets are increasingly complex, turbulent, and interrelated.Markets are increasingly complex, turbulent, and interrelated.Importance of a broad view of the market.Importance of a broad view of the market.Essential to develop a vision about how the market is likely to Essential to develop a vision about how the market is likely to change in the future.change in the future.

Continuous Monitoring is Necessary to:Continuous Monitoring is Necessary to:Find promising opportunitiesFind promising opportunitiesIdentify shifts in value requirementsIdentify shifts in value requirementsUnderstand competitors’ positioningUnderstand competitors’ positioningGuide targeting and positioningGuide targeting and positioning

decisionsdecisions

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OPPORTUNITIES OUTSIDE THE COMPETITIVE BOX

The Competitive Box

Traditional Competitors

New Types of Competition

New Business Models

New Customers

New CustomersConventional Value

Propositions

Existing Customer Base

New Customer Base(s)

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AN ARRAY OF CHALLENGESDisruptive Innovation

Creating New Market Space

Fast Changing Markets

Commoditization ThreatsDrivers of Changes

in Markets

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*Market changes often require altering Market changes often require altering strategiesstrategies

*Forces of change create both market Forces of change create both market opportunities and threatsopportunities and threats

* Inherent danger in faulty market sensingInherent danger in faulty market sensing

Markets Impact StrategiesMarkets Impact Strategies

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DEFINING AND ANALYZING PRODUCT-MARKETS

Determine the Boundaries and Structure of the Product-Market

Form the Product-Market

Describe and Analyze End-Users

Analyze Competition

Forecast Market Size and Rate of Change

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Matching Needs with Product Matching Needs with Product BenefitsBenefits

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

““A product – market is the set of products A product – market is the set of products judged to be substitutes within those usage judged to be substitutes within those usage situations in which similar patterns of situations in which similar patterns of benefits are sought by groups of benefits are sought by groups of customers.”*customers.”**Srivastava, et al. (1984) Journal of Marketing, Spring, 32.

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INNOVATION FEATUREINNOVATION FEATURE

* In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion to $9.5 billion, and ranks high in the to $9.5 billion, and ranks high in the Business WeekBusiness Week Top 50 U.S. companies for Top 50 U.S. companies for shareholder value creation.shareholder value creation.

* The company invents new ways of providing services to save customers time, The company invents new ways of providing services to save customers time, money and irritation, while often lowering costs at the same 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, 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.and they have the power to write checks on the spot.

* Progressive reduced the time needed to see a damaged automobile from seven Progressive reduced the time needed to see a damaged automobile from seven days to nine hours.days to nine hours.

* Policy holders’ cars are repaired quicker, and the focus on this central customer Policy holders’ cars are repaired quicker, and the focus on this central customer need has won much automobile insurance business for Progressive.need has won much automobile insurance business for Progressive.

* These initiatives also enable Progressive to reduce its own costs – the cost of 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 storing a damaged automobile for a day is $28, about the same as the profit from a six-month policy.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.

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Product – Market Boundaries and StructureProduct – Market Boundaries and Structure

* Determining Product-Market StructureDetermining Product-Market Structure

1.1. Start with the generic need satisfied by the Start with the generic need satisfied by the product category of interest to product category of interest to managementmanagement

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

3.3. Form the specific product – markets within Form the specific product – markets within the generic product – marketthe generic product – market

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SUPER MARKETS

MICROWAVEOVENS

CONVENIENCESTORES

TRADITIONAL RESTAURANTS

Illustrative Fast-Food Product-Market Structure

FAST-FOOD MARKET

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Extent of Market ComplexityExtent of Market Complexity

* Three characteristics of markets:Three characteristics of markets:

* 1. Functions or uses of the product 1. Functions or uses of the product

* 2. The enabling technology of the product2. The enabling technology of the product

* 3. Customer segments in the product-3. Customer segments in the product-marketmarket

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Illustrative Product – Market StructureIllustrative Product – Market Structure

•Generic Product Class

•Product Type

•Variant ARegular

•Variant B

•Brands

Food and beveragesfor breakfast meal

Cereals

Ready to eat

NaturalPre-sweetened

Life

Nutritional

Special KProduct 19

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DEFINING AND ANALYZING MARKETSDEFINING 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

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Identifying andDescribing Buyers

HowBuyersMake

Choices

BuildingCustomerProfiles

EnvironmentalInfluences

DESCRIBINGAND

ANALYZINGEND-USERS

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Identifying and Describing End-UsersIdentifying and Describing End-Users

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

location, sex, and occupation location, sex, and occupation * Illustrative factors in organizational markets:Illustrative factors in organizational markets:

Type of industryType of industry Company sizeCompany size Location Location Type of productsType of products

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How Buyers Make ChoicesHow Buyers Make Choices

BUYING DECISION PROCESS:BUYING DECISION PROCESS:

1.1. Problem recognitionProblem recognition

2.2. Information searchInformation search

3.3. Alternative evaluationAlternative evaluation

4.4. Purchase decisionPurchase decision

5.5. Post-purchase behaviorPost-purchase behavior

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Environmental Environmental InfluencesInfluences

* External factors influencing buyers’ External factors influencing buyers’ needs and wants: needs and wants: Government, social change, economic Government, social change, economic

shifts, technology etc.shifts, technology etc.* These factors are often non-controllable These factors are often non-controllable

but can have a major impact on but can have a major impact on purchasing decisionspurchasing decisions

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Building Customer ProfilesBuilding Customer Profiles

* Start with generic product – marketStart with generic product – market

* Move next to product- type and variant Move next to product- type and variant profiles >> profiles >> increasinglyincreasingly more more specificspecific

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

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ANALYZING COMPETITION

1.1. Define the Competitive Arena for the Generic, Specific, and Variant Product Markets

2. Identify and Describe Key Competitors

4. Identify and Evaluate Potential Competitors

3. Evaluate Key Competitors

PRODUCT-MARKET

STRUCTUREAND

MARKETSEGMENTS

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Examples of Levels of CompetitionExamples of Levels of Competition

Diet-RiteCola

Diet PepsiDiet Coke

Product from competition:

diet colas

Regular colas Diet lemon

limes

Lemon limes

Fruitflavored

colas

Product categorycompetition:soft drinks

Bottlewater

Wine

Beer

Coffee

Juices

Generic competition:beverages

Baseballcards

FastFood

VideoGames

IceCream

Budget competition:food & entertainment

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Industry AnalysisIndustry Analysis

* Industry size, growth, and composition Industry size, growth, and composition

* Typical marketing practicesTypical marketing practices

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

* Industry strengths and weaknessesIndustry strengths and weaknesses

* Strategic alliances among competitorsStrategic alliances among competitors

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Defining Industry Structure & Defining Industry Structure & CharacteristicsCharacteristics

Industry FormIndustry EnvironmentCompetitive Forces Value

AddedChain

SUPPLIERS

PRODUCERS

WHOLESALERS/ DISTRIBUTORS

RETAILERS/DEALERS

CONSUMER/ ORGANIZATIONAL END

USERS

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Competitive ForcesCompetitive Forces

1.1. Rivalry among existing firms.Rivalry among existing firms.

2.2. Threat of new entrants.Threat of new entrants.

3.3. Threat of substitute products.Threat of substitute products.

4.4. Bargaining power of suppliers.Bargaining power of suppliers.

5.5. Bargaining power of buyers.Bargaining power of buyers.

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

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Key Competitor AnalysisKey Competitor Analysis

* Business scope and objectivesBusiness scope and objectives* Management experience, capabilities, and Management experience, capabilities, and

weaknessesweaknesses* Market position and trendsMarket position and trends* Market target(s) and customer baseMarket target(s) and customer base* Marketing program positioning strategyMarketing program positioning strategy* Financial, technical, and operating capabilitiesFinancial, technical, and operating capabilities* Key competitive advantages (e.g., access to Key competitive advantages (e.g., access to

resources, patents)resources, patents)

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Extent of Market Coverage

CustomerSatisfaction

CurrentCapabilities

PastPerformance

Competitor Evaluation

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MARKET SIZE ESTIMATIONMARKET SIZE ESTIMATION

UnrealizedPotential

CompanySales

Forecast

IndustrySales

Forecast

Market PotentialEstimate

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

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0100200300400500600700800900

Sales (in 1000sof units)

2003 2004 2005 2006 2007 2008 2009 2010

MarketPotential

Sales Forecast

Company XYZ Sales Forecast

Product-Market Forecast Relationships for Product-Market Forecast Relationships for Industrial Painting UnitsIndustrial Painting Units

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DEVELOPING A STRATEGIC VISION DEVELOPING A STRATEGIC VISION ABOUT THE FUTUREABOUT THE FUTURE

Industry Boundaries Blurring and EvolvingIndustry Boundaries Blurring and Evolving

Competitive Structure and Players ChangingCompetitive Structure and Players Changing

Value Migration PathsValue Migration Paths

Product Versus Business Design Product Versus Business Design CompetitionCompetition

Firms are Collaborating to Influence Industry Firms are Collaborating to Influence Industry StandardsStandards

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