University of Washington EMBA Program Regional 20 Marketing Management “Competitive Analysis” Instructor: Elizabeth Stearns

MARKETING MANAGEMENT Marketing Framework Course Structure The Marketing Framework/Concept Analysis 5C’s Opportunity Analysis Marketing Research Marketing Strategy & Customer Strategy Goal Setting, Segmentation, Targeting, and Positioning Put stuff about how future marketing courses delve into one or more of these topics in detail, I.e., Consumer Marketing takes a long hard look at the human consumer, the human mind, and human decision making as well as what that implies for businesses who are trying to communicate and trade with these individuals Implementation/Action Plans Marketing Mix (4 P’s) Professor Stearns, University of Washington Page 10

“How Competitive Forces Shape Strategy” Industry Forces MARKETING MANAGEMENT Marketing Framework “How Competitive Forces Shape Strategy” Industry Forces Suppliers New Directly Competitive Entrants Direct The Firm Competitors Indirect Competitors Foreign Low Priced Different Industries Substitute Products Technologies When Michael Porter developed this famous model, he did so at a time (’70’s) when there was not a lot of cooperation or collaboration between the forces above. Because of that McKinsey has argued that this model is no longer as meaningful (see……). It is important nevertheless, because it identifies a structure for you to consider when doing a thorough competitive analysis and assessing your opportunities for success. Buyers Michael Porter Professor Stearns, University of Washington

Competitor, Collaborator, and Company Analysis Competitor: Any organization whose goods and services could provide the same benefits to your customers Collaborator: Any organization who assists your own in the delivery of benefits to your customers Company: Your organization

Competitor, Collaborator, and Company Analysis MARKETING MANAGEMENT Marketing Framework Competitor, Collaborator, and Company Analysis Key Questions Who are they? What capabilities/skills/assets do they have? How can/will they go to market? Past behavior Strategic signals Optimal behavior, both strategies and reactions Mission and objectives Might organize your thoughts in a SWOT analysis. Professor Stearns, University of Washington

Competitors: Definition MARKETING MANAGEMENT Marketing Framework Competitors: Definition Any organization whose goods and services could satisfy the same needs or wants of your customers Define competition broadly Actual competitors (in the market now) Potential competitors (may enter the market) Direct competitors (offer similar products or services) Indirect competitors (offer substitute products or services) Business units within our firm Professor Stearns, University of Washington

The Broad View of the Soft Beverage Market* Strong Taste Iced Tea & Coffee Cola Soft Drinks Club Sodas Sports Drinks Bottled & Mineral Waters Noncola Soft Drinks Fruit Juices Fruit Drinks Fruit Flavor Bitter Tasting Sweet Tasting *Roger Best

Competitors: Definition MARKETING MANAGEMENT Marketing Framework Anticipate future competition Consider not only product/market competition, but also competition between organizations Professor Stearns, University of Washington

Analyzing Competitors Objectives Competitor Actions Strategies Strengths & Weaknesses Reaction Patterns ©2000 Prentice Hall

Industry Competition Number of Sellers - Degree of Differentiation Entry, Mobility, Exit barriers Cost Structure Degree of Vertical Integration Degree of Globalization ©2000 Prentice Hall

Structural Determinants of Entry MARKETING MANAGEMENT Marketing Framework Structural Determinants of Entry Economies of Scale and Scope Capital Requirements Government Regulations Technology & Patents Threat of Competitive Retaliation Other Market-oriented Characteristics Professor Stearns, University of Washington

“A pictorial view of the Competitive Frame… in the minds of the customer”

Positioning and Perceptual Maps Useful to provide pictorial view of competitive situation. Information revealed: What are the major perceptual dimensions underlying the map? e.g. When customers were judging the similarities of ten brands, what were the most important attributes underlying their perceptual decisions? Subjective/subject to argument

Positioning and Perceptual Maps What brands are perceived as similar to others? Deals with issue of substitutability. if customer’s brand is not available, what brand is most likely to be purchased? Unique Position Or Easy switching

Positioning and Perceptual Maps What holes exist for repositioning an old, or new product introduction? (Point on map where no competitive brands exist) Opportunity or not? Ideal points = Preference maps If customer could have any product they wished.

Brand Development Index & Category Development Index (or using sales information that most companies have!)

Brand Development Index (BDI) Market (1) % U.S. Population (2) % Brand Sales BDI (2 ÷ 1) * 100 A 10 11 B 15 C 20 18 D 25 30 E 26 Total 100 100 (Average)

Brand Development Index (BDI) Market (1) % U.S. Population (2) % Brand Sales BDI (2 ÷ 1) * 100 A 10 11 110 B 15 100 C 20 18 90 D 25 30 120 E 26 87 Total 100 (Average)

Brand Development Index (BDI) Market (1) % U.S. Population (2) % Brand Sales BDI (2 ÷ 1) * 100 A 10 11 110 B 15 100 C 20 18 90 D 25 30 120 E 26 87 Total 100 (Average) Markets “C” & “E need support, “A”, “B”, and “D” seem OK

(% Sales / % Population) BDI Compared to CDI % Sales Index (% Sales / % Population) Index (BDI/CDI) Market % Population Category Brand A 10 12 11 B 15 C 20 16 18 D 25 30 E 27 26 Total 100

(% Sales / % Population) BDI Compared to CDI % Sales Index (% Sales / % Population) Index (BDI/CDI) Market % Population Category Brand A 10 12 11 120 110 92 B 15 100 C 20 16 18 80 90 113 D 25 30 E 27 26 87 96 Total

(% Sales / % Population) BDI Compared to CDI % Sales Index (% Sales / % Population) Index (BDI/CDI) Market % Population Category Brand A 10 12 11 120 110 92 B 15 100 C 20 16 18 80 90 113 D 25 30 E 27 26 87 96 Total Consider possible different conclusions: Market “D” is only average, “C” & “E” probably don’t need support, “A” probably does.

Differential Advantage

Differential Advantage: Definition MARKETING MANAGEMENT Marketing Framework A Differential Advantage is a benefit or cluster of benefits that customers value and believe they cannot obtain elsewhere (Acid test: they are willing to pay more for your product or service) Professor Stearns, University of Washington

Designing Offers for Customers MARKETING MANAGEMENT Marketing Framework Designing Offers for Customers Product Price Time Effort Risk Delivery Services Sales Relation- ship Technical Innovation Brand Equity Value Cost Offer Professor Stearns, University of Washington

Differential Advantage: Shift Over Time Psychological Differential advantage sustained by focusing on functional or psychological values Tends to erode over time in the direction of economic advantages Competition drives offers from specialty to commodity Functional Economic

Differential Advantage: Discussion MARKETING MANAGEMENT Marketing Framework The question that is answered is “do we deliver that which our customer/prospect values”, “by what means”, and “how well” (is it superior to our competition). it is NOT “what do we do well” as a stand alone question. This concept is difficult for companies to integrate into the selling mode especially when they pride themselves in what they do well and/or are considered the gold standard. Professor Stearns, University of Washington

Differential Advantage: Discussion MARKETING MANAGEMENT Marketing Framework Differential Advantage: Discussion While a company may have excellent strengths and assets, these are only important if they satisfy a customer need. (this is the Marketing concept) Differential Advantage analysis raises the bar for understanding what a customer needs and the priority/importance of that need to his/her organization. If a company does not know this, they proceed to sell what they do well, and not what the customer values. Professor Stearns, University of Washington

Sources of Differential Advantage MARKETING MANAGEMENT Marketing Framework Sources of Differential Advantage Business strengths, often defined as assets and skills, provide the basis for differential advantage. An asset is something a firm possesses such as a brand name, a retail location, human capital, a philosophy, etc., which is superior to that of competition. A skill is something that a firm does better than its competitors, such as advertising, merchandising, efficient manufacturing, etc. Professor Stearns, University of Washington

Differential Advantage Matrix Tool for matching a segment’s required benefits with our organization’s ability to deliver those benefits more effectively than competitors 1. Identify the segment for which this matrix will apply 2. List the priority-ordered benefit requirements for this segment as the row headings in the matrix 3. List the relevant business strengths that a “generic” organization would require to deliver these benefits as the column headings of the matrix

Differential Advantage Matrix Assessment Diagnostics (presuming that this business strength is relevant to providing this benefit—if not leave blank or use NA) Do we have the capability to deliver the required customer benefit? (1 or Y) Do we have significantly greater capabilities than competitors? (1 or Y) Would it be difficult for competitors to match us? (1or Y) (if you get to 0, or No, you stop)

Differential Advantage Matrix MARKETING MANAGEMENT Marketing Framework Differential Advantage Matrix Implications Do we have a differential advantage, i.e., (1,1,1) or (Y,Y,Y)? If so, where, and through what strengths? Our organization has a differential advantage in delivering benefit X to segment Y because of business strengths A, B, and C. Professor Stearns, University of Washington

Differential Advantage Matrix Relevant Business Strengths Segment ID/Description Opportunistic, solo, weekend leisure travelers Patented reverse auction business Patented reverse auction business High brand awareness among end- High brand awareness among end- Broad collaborator-provider network Broad collaborator-provider network Demonstrable track record with Demonstrable track record with adaptive marketing affiliates adaptive marketing affiliates Priority model model users users Benefit Ranking Low out-of-pocket 1,1,1 1,0 Price allows add ons 1 2 3 4 5 6

Thank you!