McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. C H A P T E R Defining the Competitive Set 2 Key Question for This Chapter: Who do we or will we compete against?

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Major Topics for Ch. 2 I.Bases of Competition II.Levels of Competition* III.Methods for Determining Competitors** IV.Right Level of Competition for You

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Bases of Competition I.Product-oriented Approach Similar Physical Attributes Functional Similarity II.Customer-oriented Approach Who they are – competition for same budget When they use the product Why they use the product - benefits sought

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Bases of Competition (con’t). III.Marketing oriented: promotion & distribution - Media - Distribution IV. Resource-oriented Approach (Internal) - Raw materials - Employees - Financial resources III.Geographic: Becoming less relevant

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Levels of Competition Diet lemon limes Baseball cards Fruit flavore d colas Coffee Diet Coke Diet Pepsi Diet-Rite cola Bottled water Lemon limes Regular colas Beer Juices Wine Fast food Tea Video rentals Ice cream Product form competition: Diet colas Product category competition: Soft drinks Generic competition: Beverages Budget competition: Food and entertainment

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Example 1: Energy Bar Competition Odwalla Power Bar Balance Bar Clif Energy Bars Snack/Health Bars Healthy Snacks Other Snacks Nutrigrain Bars Slimfast Bars Granola Bars Fruits Nuts Juice Crackers Chips Candy

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Example 2: Super-Premium Ice Cream Level of Competition DefinitionCompetitors Product formSuper-Premium Haagen-Dazs Starbuck/Godiva Ben & Jerry’s Product categoryIce cream Breyer’s Dreyer’s Private labels GenericSnacks Desserts Novelties Frito Lay Nabisco Nestlé Mrs. Fields Yoplait BudgetOther supermarket, Convenience store products Many

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Example 3: PDA Level of Competition DefinitionCompetitorsNeed Satisfied Product formFull-featured PDAs Palm Pilot VII Handspring Compaq Aero Pocket PC makers Personal information management plus integrated communications Product categoryPIM (Personal Information Managers) Palm III Royal Casio PV-100 PIM only GenericTablet PC/ Cell phones Toshiba Nokia Samsung Other solutions to the above Budget $100-$1,000 Paper-based solutions Business items costing $100-$1000 Rolodex Day Timer Fax Machines Personal copiers Furniture (e.g. Steelcase)

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Levels of Competition: Implications for Product Strategy Budget Generic Product Category Product Form Competitive Level Convince Customers that the Brand is Better than Others Convince Customers that the Product Form is Best in the Category Convince Customers that the Product Category is the Best Way to Satisfy Needs Convince Customers that the Generic Benefits are the Most Appropriate Way to Spend their Money Product Management Task

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Methods for Determining Competitors* Existing categories: ex) IRI; SIC  NAICS Managerial judgment Customer-purchase-based measures Customer-judgment-based measures

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Managerial Judgment of Competition MarketsSameDifferent Product/Services Same Different A C B D

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Customer-purchase-based measures Brand Switching Data  The Extent of Substitutability among Brands Cross-Elasticity of Demand: Change in Brand B’s Sales/ Change in Brand A’s Price Mainly Used for Nondurable Products

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Brand-Switching Matrix Time t+1 ABCDE A B C D E Time t

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Customer-Judgment-Based Measures Overall similarity (by Perceptual Mapping)* Similarity of consideration sets Product deletion (based on product unavailability) Substitution In Use: List all the uses of a product List other products that provides the same uses

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Perceptual Mapping Means graphic description of customers’ perception about different brands/products. You can use it to gain Better understanding of market structure Customer perceptions for a new product concept Direction for R&D efforts to satisfy customers better

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Developing A Perceptual Map Two Alternative ways Attribute Rating method (AR) Overall Similarity method (OS) Attribute Rating Method Data Cube (brands*attributes*respondents) Statistical Analysis (Factor Analysis) Find out two (or three) axes for the perceptual map Attribute Analysis Limitations Suitable for B-to-B products

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Developing A Perceptual Map Overall Similarity method (OS) Suitable for consumer products and services Ask consumers’ perception the extent of similarity of pairs of items. Similarity Data Analysis (Multidimensional Scaling) You name the axes and infer the attributes

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Defining Competition with Perceptual Mapping example: desserts Moist Needs refrigeration Tapioca pudding mix Local mix Pudding mix Chocolate torte mix D-zer ta Jell-O Canned pudding Individual pie Hostess cupcakes Quick bread mix Good for a coffee break As a formal dessert Homemade cake Bakery cake Homemade cookies Cheese cake mix “Snackin’ Cake” mix Frozen cake Layer cake mix “ Stir’n Frost cake mix Takes a long time to prepare Bundt cake mix Custard mix Boston crème pie mix “Light Style” cake mix Coffee cake mix Bakery cookies Pillsbury cookie dough Cookie mix Easy to carry with me In my school work lunch Between meal snack Pepperidge Farm cookies Oatmeal cookies Frozen pie Homemade pie Date bar mix Brownie mix Bakery pie

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Enterprise Competition in Financial Services

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Two Key Things to Remember I.How would you determine competition? II.Choose the focal level of competition*

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Right Level of Competition for You I.Your Firm’s Market Position II.Time Horizon III. Product Life Cycle and Technology Change IV. Your Position in the Firm