Creating Competitive Advantage Chapter 18

Objectives Learn how to understand competitors as well as customers via competitor analysis. Learn the fundamentals of competitive marketing strategies based on creating value for customers. Realize the need for balancing customer and competitor organizations in order to become a truly market-centered organization.

Intel Has dominated the chip industry Success is directly related to Intel’s competitive strategy Strategy focuses on superior value and product leadership Heavy focus on product and advertising innovation and R&D investments Changing market needs have challenged Intel to adapt Intel is capitalizing on the Internet now

Definition Competitive Advantage An advantage over competitors gained by offering consumers greater value than competitors offer.

Definition Competitive Analysis The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.

Steps in Analyzing Competitors Figure 18-1: Steps in Analyzing Competitors

Competitor Analysis Steps in the Process: Firms face a wide range of competition Be careful to avoid “competitor myopia” Methods of identifying competitors: Industry point-of-view Market point-of-view Competitor maps can help Steps in the Process: Identifying Competitors Assessing Competitors Selecting Competitors to Attack or Avoid

230-year-old Encyclopedia Britannica viewed itself as competing with your publishers of printed encyclopedias. Big mistake! Its real competitors were software encyclopedias and the Internet.

Figure 18-2: Competitor Map

Discussion Question Create a competitor map for one of the following: WalMart McDonald’s Nike Starbucks Google

Competitor Analysis Steps in the Process: Identifying Competitors Determining competitors’ objectives Identifying competitors’ strategies Strategic groups Assessing competitors’ strengths and weaknesses Benchmarking Estimating competitors’ reactions Steps in the Process: Identifying Competitors Assessing Competitors Selecting Competitors to Attack or Avoid

Benchmarking In-Depth Types of Benchmarking: Process – searching for the best way to perform a process Internal – enables users to compare similar activities within their own organization. Types of Benchmarking: Competitive – organization is compared to direct competitors or those who are selling to the same customer base. Functional or generic –enables users to compare themselves to organizations that are recognized as the best, whether they are in the same industry or not. “Experts discuss how benchmarking improves the healthcare industry” Healthcare Financial Management; Westchester; Sep 1994; Anonymous; Volume: 48, Issue:  9, Start Page:  90 Competitive Intelligence: A New Benchmarking Tool Management Review; New York; Oct 1992; Harkleroad, David H.; Volume: 81 Issue: 10 Start Page: 26

Benchmarking In-Depth Sources of Information: Competitive intelligence Relevant industry publications Electronic databases Internal company experts Sources of Information: Industry observers such as professors or consultants Industry participants, such as suppliers and customers Competition itself “Experts discuss how benchmarking improves the healthcare industry” Healthcare Financial Management; Westchester; Sep 1994; Anonymous; Volume: 48, Issue:  9, Start Page:  90 Competitive Intelligence: A New Benchmarking Tool Management Review; New York; Oct 1992; Harkleroad, David H.; Volume: 81 Issue: 10 Start Page: 26

Competitor Analysis Steps in the Process: Identifying Competitors Strong or weak competitors Customer value analysis Close or distant competitors Most companies compete against close competitors “Good” or “Bad” competitors The existence of competitors offers several strategic benefits Steps in the Process: Identifying Competitors Assessing Competitors Selecting Competitors to Attack or Avoid

Competitor Analysis Designing Competitive Intelligence Systems A Well-Designed CI System: Identifies types and sources of competitive information Continuously collects information Checks reliability and validity of information Interprets and organizes information Distributes information to decision makers and responds to queries

Competitive Strategies Approaches to Marketing Strategy No single strategy is best for all companies Marketing strategy and practice often passes through three stages: Entrepreneurial marketing Formulated marketing Intrepreneurial marketing

Competitive Strategies Basic Winning Competitive Strategies: Porter Overall cost leadership Lowest production and distribution costs Differentiation Creating a highly differentiated product line and marketing program Focus Effort is focused on serving a few market segments

Hohner has successfully implemented a focus strategy to capture an 85% share of the harmonica market.

Competitive Strategies Basic Competitive Strategies: Value Disciplines Operational excellence Superior value via price and convenience Customer intimacy Superior value by means of building strong relationships with buyers and satisfying needs Product leadership Superior value via product innovation

Discussion Question Firms that follow a customer intimacy strategy are willing to do almost anything for their customers. Does such a strategy make sense for local businesses, or only for national / global corporations? British Airways practices customer intimacy with select frequent flyers

Hypothetical Market Structure Figure 18-3: Hypothetical Market Structure

Competitive Positions Competitive Strategy Expanding the total demand Finding new users Discovering and promoting new product uses Encouraging greater product usage Protecting market share Many considerations Continuous innovation Expanding market share Profitability rises with market share Competitive Positions Market Leader Market Challenger Market Follower Market Nicher

Competitive Strategy WD-40 has a knack for developing new uses for its product. What other brands have adopted a similar strategy? Clicking the WWW icon will open your web browser and link to the web site pictured in the screen shot. WD40

Competitive Positions Competitive Strategy Option 1: challenge the market leader High-risk but high-gain Sustainable competitive advantage over the leader is key to success Option 2: challenge firms of the same size, smaller size or challenge regional or local firms Full frontal vs. indirect attacks Competitive Positions Market Leader Market Challenger Market Follower Market Nicher

Pepsi is an example of market challenger that has chosen to use a full frontal attack

Competitive Positions Competitive Strategy Follow the market leader Focus is on improving profit instead of market share Many advantages: Learn from the market leader’s experience Copy or improve on the leader’s offerings Strong profitability Competitive Positions Market Leader Market Challenger Market Follower Market Nicher

Dial Corporation successfully uses a market follower strategy

Competitive Positions Competitive Strategy Serving market niches means targeting subsegments Good strategy for small firms with limited resources Offers high margins Specialization is key By market, customer, product, or marketing mix lines Competitive Positions Market Leader Market Challenger Market Follower Market Nicher

FedEx and UPS are two competitors in the package delivery business FedEx and UPS are two competitors in the package delivery business. What competitive strategy seems to describe each company?

Balancing Customer and Competitor Orientations Companies can become so competitor centered that they lose their customer focus. Types of companies: Competitor-centered companies Customer-centered companies Market-centered companies

Evolving Company Orientations Figure 18-4: Evolving Company Orientations