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Page 1: Chap003 markets and competitive space

CRAVENSCRAVENS

PIERCYPIERCY

8/e8/eMcGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

Rights Reserved.

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Chapter Three

Markets andCompetitive

Space

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

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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

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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 opportunities

Identify shifts in value requirements

Understand competitors’ positioning

Guide targeting and positioning

decisions

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MARKETS AND STRATEGIES

Markets and Strategies are

Interlinked

Forming a Shared

Vision

Value Migration Challenges

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Market changes often require altering strategies

Forces of change create both market opportunities and threats

Inherent danger in faulty market sensing

Markets Impact Strategies

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Customers shift purchasing to new business designs with enhanced value offering

Beware of disruptive technologies

Market sensing and organizational learning are essential

Value Migrations

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PRODUCT-MARKET SCOPE AND STRUCTURE

Matching Needs with Product Benefits

Product-Market Boundaries and Structure

Forming Product-Markets for Analysis

The Changing Composition of Markets

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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.

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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.

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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

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SUPER MARKETS

MICROWAVEOVENS

CONVENIENCESTORES

TRADITIONAL RESTAURANTS

Illustrative Fast-Food

Product-Market Structure

FAST-FOOD MARKET

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Forming Product – Markets for

Analysis Factors influencing

product – market boundaries:

Purpose of analysis

Changing composition of markets

Extent of market complexity

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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)

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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

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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

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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

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Identifying andDescribing Buyers

HowBuyersMake

Choices

BuildingCustomerProfiles

EnvironmentalInfluences

DESCRIBINGAND

ANALYZINGEND-USERS

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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

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How Buyers Make Choices

BUYING DECISION PROCESS:

1. Problem recognition

2. Information search

3. Alternative evaluation

4. Purchase decision

5. Post-purchase behavior

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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

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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.)

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ANALYZING COMPETITION

1.1. Define Industry Structure and

Characteristics

2. Identify and

Describe Key

Competitors

5. IdentifyNew

Competitors

3. Evaluate Key

Competitors

PRODUCT-MARKET

STRUCTUREAND

MARKETSEGMENTS4. Anticipate

Actions byCompetitors

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Examples of Levels of Competition

Diet-RiteCola

Diet Pepsi

Diet 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

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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

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Defining Industry Structure &

Characteristics

Industry FormIndustry EnvironmentCompetitive Forces

ValueAddedChain

SUPPLIERS

PRODUCERS

WHOLESALERS/ DISTRIBUTORS

RETAILERS/DEALERS

CONSUMER/ ORGANIZATIONAL

END USERS

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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.

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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)

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Extent of Market Coverage

CustomerSatisfaction

CurrentCapabilities

PastPerformance

Competitor Evaluation

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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.

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MARKET SIZE ESTIMATION

UnrealizedPotential

CompanySales

Forecast

IndustrySales

Forecast

Market PotentialEstimate

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

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0

100

200

300

400

500

600

700

800

900

Sales (in 1000sof units)

2001 2002 2003 2004 2005 2006 2007 2008

MarketPotentia

l

Sales Forecast

Company XYZ Sales Forecast

Product-Market Forecast

Relationships for Industrial Painting

Units