Slide 1 Marketing Management MKTG 420 Week 8 October 20, 2003

Slide 2 Competitor Analysis Best, Chapter 6 – Competitor Analysis Marketing Warfare (Wednesday) – Cima Case (Friday) – Andy Hedden-Nicely (President, HNA Impression Management) (Monday) – Best, chapter 7 – Product Strategy

Slide 3 Competitive Position Industry Forces –Market Entry/Exit –Buyer/Supplier Power –Substitutes/Rivalry Competitor Benchmarking Competitive Position –Cost Advantage –Differentiation Advantage –Marketing Advantage

Slide 4 Industry Forces Market Entry/Exit Buyer/Supplier Power Substitutes/Rivalry

Slide 5 Effect on Competition? Industry ForceExampleCounter Strategy Easy to Enter Market Hard to Exit Market Powerful Buyers Powerful Suppliers Many Substitutes Intense Rivalry (excess capacity)

Slide 6 Effect on Competition? Industry ForceExampleCounter Strategy Easy to Enter Market Espresso stands Hard to Exit Market Bankrupt airlines

Slide 7 Effect on Competition? Industry ForceExampleCounter Strategy Easy to Enter MarketEspresso standStarbucks Branding Hard to Exit MarketBankrupt airlines Low cost – Southwest Service - Alaska

Slide 8 Effect on Competition? Industry ForceExampleCounter Strategy Powerful BuyersDell, Gateway Powerful Suppliers Intel Microsoft

Slide 9 Effect on Competition? Industry ForceExampleCounter Strategy Powerful BuyersDell, GatewayIngredient Branding – Intel Powerful Suppliers Intel Microsoft Promote Windows- compatibility Promote Linux

Slide 10 Effect on Competition? Industry ForceExampleCounter Strategy Many SubstitutesAutomobiles Intense Rivalry (excess capacity) Dell – Compaq – HP – Gateway – Sony

Slide 11 Effect on Competition? Industry ForceExampleCounter Strategy Many SubstitutesAutomobilesDifferentiation Intense Rivalry (excess capacity) Dell – Compaq – HP – Gateway – Sony Promotions Mergers Focus on Addons (printer & ink cartridge)

Slide 12 Initial State Competitor Self Hold Price Cut Price 5% Hold Price Share – 10% Volume – 1,000,000 Price - $100 Margin - $40 Net Contr. - $40 million Share – 8% Volume – 800,000 Price - $100 Margin - $40 Net Contr. - $32 million Cut Price 5% Share – 12% Volume – 1,200,000 Price - $95 Margin - $35 Net Contr. - $42 million Share – 10% Volume – 1,000,000 Price - $95 Margin - $35 Net Contr. - $35 million

Slide 13 Hold or Cut 5%? Competitor Self Hold Price Cut Price 5% Hold Price Share – 10% Volume – 1,000,000 Price - $100 Margin - $40 Net Contr. - $40 million Share – 8% Volume – 800,000 Price - $100 Margin - $40 Net Contr. - $32 million Cut Price 5% Share – 12% Volume – 1,200,000 Price - $95 Margin - $35 Net Contr. - $42 million Share – 10% Volume – 1,000,000 Price - $95 Margin - $35 Net Contr. - $35 million

Slide 14 Cut 5% Competitor Self Hold Price Cut Price 5% Hold Price Share – 10% Volume – 1,000,000 Price - $100 Margin - $40 Net Contr. - $40 million Share – 8% Volume – 800,000 Price - $100 Margin - $40 Net Contr. - $32 million Cut Price 5% Share – 12% Volume – 1,200,000 Price - $95 Margin - $35 Net Contr. - $42 million Share – 10% Volume – 1,000,000 Price - $95 Margin - $35 Net Contr. - $35 million

Slide 15 Competitor Cuts Price 5% Competitor Self Hold Price Cut Price 5% Hold Price Share – 10% Volume – 1,000,000 Price - $100 Margin - $40 Net Contr. - $40 million Share – 8% Volume – 800,000 Price - $100 Margin - $40 Net Contr. - $32 million Cut Price 5% Share – 12% Volume – 1,200,000 Price - $95 Margin - $35 Net Contr. - $42 million Share – 10% Volume – 1,000,000 Price - $95 Margin - $35 Net Contr. - $35 million

Slide 16 Hold or Cut 5%? Competitor Self Hold Price Cut Price 5% Hold Price Share – 10% Volume – 1,000,000 Price - $100 Margin - $40 Net Contr. - $40 million Share – 8% Volume – 800,000 Price - $100 Margin - $40 Net Contr. - $32 million Cut Price 5% Share – 12% Volume – 1,200,000 Price - $95 Margin - $35 Net Contr. - $42 million Share – 10% Volume – 1,000,000 Price - $95 Margin - $35 Net Contr. - $35 million

Slide 17 Match 5% Cut Competitor Self Hold Price Cut Price 5% Hold Price Share – 10% Volume – 1,000,000 Price - $100 Margin - $40 Net Contr. - $40 million Share – 8% Volume – 800,000 Price - $100 Margin - $40 Net Contr. - $32 million Cut Price 5% Share – 12% Volume – 1,200,000 Price - $95 Margin - $35 Net Contr. - $42 million Share – 10% Volume – 1,000,000 Price - $95 Margin - $35 Net Contr. - $35 million

Slide 18 Effect on Competition? Industry ForceExampleCounter Strategy Easy to Enter Market Hard to Exit Market Powerful Buyers Powerful Suppliers Many Substitutes Intense Rivalry (excess capacity)

Slide 19 Supplier Power Best Buy shares hit on Microsoft pact worry October 16, :37:00 AM ET CHICAGO, Oct 16 (Reuters) - Best Buy Co. Inc. (BBY) shares tumbled as much as 13 percent on Wednesday morning after the electronics retailer said software giant Microsoft Corp. (MSFT) may not renew an alliance that expires in March.BBYMSFT In a quarterly filing with the U.S. Securities and Exchange Commission on Tuesday, Best Buy said it was still negotiating with Microsoft, which had told the company it would let the alliance expire. The pact provides advertising money and profit sharing to Best Buy, a major retailer of Microsoft products. "If we are unable to extend our alliance with Microsoft or to replace it with a comparable strategic marketing relationship, future operating results could be affected," Best Buy said in the filing. The stock was down $1.94, or 8.9 percent, at $19.85, in late morning New York Stock Exchange trading, giving back Tuesday's strong gains racked up in a sectorwide rally. The shares had traded as low as $19.01 earlier in the session. A Best Buy spokeswoman said the company had no further comment about the Microsoft alliance. REUTERS

Slide 20 Counter Strategy Gateway to offer Corel software over Microsoft October 15, :06:00 PM ET SEATTLE, Oct 15 (Reuters) - Canadian software maker Corel Corp. (CORL) said on Tuesday that Gateway Inc. (GTW) became the latest PC maker to begin offering its WordPerfect Office software instead of Microsoft Corp.'s (MSFT) dominant Office software.CORLGTWMSFT With computer prices falling, the cost of adding Microsoft's Office word processing, spreadsheet and presentation software in some cases makes up more than half the original cost of a $600 PC, analysts have said.

Slide 21 Competitive Advantage AdvantageExamplesMethods Cost Dell vs. Compaq Southwest Airlines Wal Mart, Office Depot NBC vs. CBS Quality HP Printers Intel, Microsoft Sony, Toyota Marketing Coca Cola McDonalds

Slide 22 Competitive Advantage AdvantageExamplesMethods Cost Dell vs. Compaq Southwest Airlines Wal Mart, Office Depot NBC vs. CBS, AOL Outsourcing Low Labor Economies of Scale Economies of Scope Quality HP Printers Intel, Microsoft Sony, Toyota R&D Mktg Research Marketing Coca Cola McDonalds Distribution Promotion

Slide 23 Marketing Warfare

Slide 24 Basic Assumptions Markets are competitive Competitors are rarely of equal strength Competitive strategy is dictated by one’s relative strength Proper deployment of assets is key to success –I.e., what you do with your assets is as important as the strength of your assets.

Slide 25 How Markets Divide Themselves Leader - > 30% share Challenger % share Flanker % share Nichers - 1% or less

Slide 26 Leader Strategy

Slide 27 Leader – Defend Position ApproachExamples Adopt an Aggressive Offense against the competition

Slide 28 Package Delivery Market

Slide 29 UPS Strategy

Slide 30 UPS Strategy Wanted to expand share in Ground Deliveries Purchased Mailboxes Etc. A key point of contact for FedEx

Slide 31 Leader – Defend Position ApproachExamples Adopt an Aggressive Offense against the competition UPS Use resources to increase the cost of competition Microsoft

Slide 32 Leader Defending by Attacking GM - Avalanche

Slide 33 The Versatile Car Category

Challenger Strategy

Slide 35 Challenger – Focus on Leader ApproachExamples Attack Leader’s strength but narrowly Pepsi Consider turning leader’s strength into weakness Netscape

Slide 36 Challenger – Focus on Leader ApproachExamples Attack Leader’s strength but narrowly Pepsi Consider turning leader’s strength into weakness Netscape

Flanker Strategy

Slide 38 Flanker – Focus on Overlooked Areas ApproachExamples Segment market to identify unmet needs Chrysler Avoid direct competition with leader and challenger Jack in the Box

Nicher Strategy

Slide 40 Nichers/Guerillas – Find areas not attractive to Others ApproachExamples Think smallJolt Subaru Be prepared to quit when competition hits up Hummer Microbrews Snapple

Slide 41 A Succesful Nicher Casual Male Retail Group (CMRG) 475 stores in the U.S. & Puerto Rico Target big and tall men $340 million in annual sales (2002) vs $195 million in 2001 No one else seems interested in this low cost, high margin business Outsized males are not fashion leaders but trend followers

Slide 42 Battle Field

Slide 43 Humble Beginnings

Slide 44 1 st Wendy’s ( 1969 )

Slide 45 1 st Jack in the Box

Slide 46 Constant Combat

Slide 47 A Battle of Words as Well as Food

Slide 48 Fast Food Attitudes FAST FOOD CHAIN MENU VARIETY POPULARI TY w/ Child FOOD TASTE PRICEOVERALL PREFER BURGER KING JACK IN THE BOX McDONALDS' WENDY’S RELATIVE IMPORTANCE WEIGHTS