Marketing Management 6 th of July 2011

Creating Competitive Advantage

Background Companies need to outperform competitors in order to win, keep, and grow customers They need to manage products as well as customer relationships The understanding of customers is crucial Competitive Advantage: an advantage over competitors gained through offering greater value compared to your competitors Competitor Analysis: the process of identifying key competitors, assessing their objectives, strategies, strengths and weaknesses as well as reaction patterns and then selecting competitors to attack or to avoid Competitive Marketing Strategies: strategies which position the company strongly against competitors and which give the company the strongest strategic advantage possible

Competitive Advantage

Competitor Analysis Companies need to know as much as possible about its competitors It must compare marketing strategies, products, prices, channels, and promos with those of competitors All these enable the establishment of competitive advantages and disadvantages Steps in analysing competitors involve: –Identifying the company competitors –Assessing competitors’ objectives, strategies, strengths, weaknesses and reaction patterns –Selecting the competitors to attack and avoid –Selecting a Competitive Intelligence System

Competitor Analysis Identifying Competitors –Can be companies offering similar products and services to the same customers at similar prices –Can also be all firms making the same product or class of products –Alternatively all companies that compete for the same customer’s currency –Competitor Myopia should be avoided – company only looking at it’s current competitors and not it’s latent competitors –Companies can identify their competitors from an industry point of view –They need to understand competitive patterns in the industry they operate in –Competitors can also be from a market point of view – this opens the company to broader competitors

Competitor Analysis Assessing Competitors –Determining the competitors’ objectives based on market share growth, profitability, cash flows, technology, service, other segments and other goals –Identifying Competitors’ Strategies incorporating strategic groups Must know how they deliver value to customers Must know competitor’s product quality, features, mix, pricing, R&D, and all other strategies –Assessing Competitors Strengths and Weaknesses Gather competitor’s goals, strategies and performance Benchmarking against other firms in and in other industries –Estimating Competitor Reactions Knowing what competitors will do in differing scenarios

Competitor Analysis Selecting Competitors to Attack and Avoid –Strong or Weak Competitors Weak competitors – requires fewer resources and less time, but firm gains little Strong competitors – allows the firm to sharpen its abilities, and may yield greater returns Customer value analysis allows the assessment of competitor strengths and weaknesses –Close or Distant Competitors Those that resemble them or not close at all –Good or Bad Competitors Good Competitors play by the rules and the Bad break the rules Benefits of competitors – share costs of market and product development, may serve less attractive segments, and lead to product differentiation, and will increase total demand –Finding Uncontested Market Spaces Seeking unoccupied positions in uncontested market spaces Making competition irrelevant - Blue Ocean Strategy

Competitor Analysis Designing a Competitive Intelligence System –Information must be collated, interpreted, distributed and used –Cost and time of gathering competitive intelligence is high –Firms must therefore design competitive intelligence systems in a cost-effective way –The use of the competitive intelligence system Identifies vital competitive information needed and best sources Continuously collects information from the field and data Check for information validity and reliability, interprets it and organises in an appropriate way Send key information to decision makers –Timely information intelligence is received about competitors

Competitor Analysis

Competitive Strategies Approaches to Marketing Strategy –No one strategy is best for all companies –Companies determine strategy based on objectives, opportunities and resources –Differentiated strategies may be required for differentiated products and businesses –Three stages of marketing strategy and practice Entrepreneurial Marketing – individuals who go after an opportunity which they’ve visualised – very flexible strategies Formulated Marketing - formal strategies which are adhered to as the business grows and develops Intrepreneurial Marketing – formulated marketing where the company now needs to re-establish creativity and entrepreneurial spirit –There’s always tension between formulated marketing and creativity marketing

Competitive Strategies Basic Competitive Strategies –Michael Porter suggests four basic competitive positioning strategies –Three winning strategies are: Overall Cost Leadership – lowest prodn and distribution costs Differentiation – differentiated product lines Focus – few market segments served well –Middle of the road companies don’t do too well as they can always lose –Treacy and Wiersema suggest a customer centred classification of competitive marketing strategies or value disciplines: Operational Excellence – leading in price and convenience Customer Intimacy – tailoring products and service for target market Product Leadership – leading edge products and services

Competitive Strategies Basic Competitive Strategies –Treacy and Wiersema suggest that companies gain leadership through superior value –Companies can pursue more than one value discipline at the same time, but few excel at it –Generally excel at one value discipline and be industry norm on the other two –Classifying competitive strategies as value disciplines defines marketing strategy with pursuit of delivering superior value –Each value discipline defines specific ways of building lasting customer relationships

Competitive Strategies

Competitive Positions –Companies competing in a given target market differ in objectives and resources –Market Leader: A firm in an industry with the largest market share –Market Challenger: A runner-up company that’s fighting to increase market share in an industry –Market Follower: A runner-up company that wants to hold its share in an industry –Market Nicher: A firm that serves small segments which other firms in an industry ignore or overlook

Competitive Forces

Competitive Strategies Market Leader Strategies –Market leader usually has the highest market share and leads on price changes, product introductions, distribution and promotions –Competitors concede to its dominance and seek challenge, imitate or avoid –Other firms keep challenging the leader’s strengths or trying to take advantage of weaknesses –Product innovation may come along to hurt the leader, or leaders may be arrogant or complacent –To remain number one, firms take one of three actions: Expanding the Total Demand Protecting Market Share Expanding Market Share

Competitive Strategies Market Challenger Strategies –Market challengers have one of two competitive strategies: Challenge the leader and others in an aggressive bid for more market share Play along with competitors and not outdo them –Challenger has to define which competitors to challenge and its objective –Challengers often have the second mover advantage and improves the successful strategies –Means and Ways of Attacking Chosen Competitors: Full frontal attack – matching the competitor in all things Indirect attack – challenging competitor weaknesses

Competitive Strategies Market Follower Strategies –Sometimes its too difficult and more cost effective to remain a follower –Advantages of being a follower include Leader bears the market and product development costs Follower learns from leader’s mistakes and experience Can copy or improve the leader’s products and programs Can be as profitable as the leader over time –A follower needs to have tact – to follow yet be a leading follower –Followers are targets of challengers and thus need to keep manufacturing costs low and quality and service high –Followers need to be quick to enter new markets

Competitive Strategies Market Nicher Strategies –These are firms that target sub segments and focus on specialisation –They look to serve specific customers –Usually small firms with limited resources –They try find one or more safe and profitable niches –Must be big enough to be profitable with growth potential –The firm must be able to serve it effectively –Smart niching can be extremely profitable for firms with low shares Through knowing the target consumer extremely well Can therefore charge substantial mark ups through the value adds Achieves margins and not the volumes of mass producers

Balancing Customer and Competitor Orientations Companies can lose their own focus through focussing on their competitors only Competitor Centred Company: A company whose moves are mainly based on competitor’s actions and reactions Customer Centred Company: A company which focuses on customer development in designing marketing strategies and delivering superior value to target customers Market Centred Company: A company that pays balanced attention to both customers and competitors in designing marketing strategies Over time companies generally move through four orientations: –Product Orientation –Customer Orientation –Competitor Orientation –Market Orientation

See you next time. Cheers Guys!