Offense versus Defense Prof. Markus Christen INSEAD France May/June 2011

Market Driving Strategies - May/June 2007 Market Leadership Even a smaller firm can leverage a minor product advantage into a competitive advantage and attain (and defend) a market leadership position Attack competitor’s “blind spots” Product weaknesses Customer changes Bundling / unbundling Deploy strategy to drive market Create the right customer perceptions Find underdefended markets Focus resources Market Driving Strategies - May/June 2007 © Prof. Markus Christen

Market Driving Strategies - May/June 2007 Market Leadership Even with patent protection, product advantages are not sustainable forever. To maintain product advantages, continuous innovation and speed are essential: “Build a moat” before the enemy is in the city Understand perceived gaps between customer needs and existing products and close them faster than competitors Develop new market segments Develop new customer access points But: Preemption leads to higher average cost Market Driving Strategies - May/June 2007 © Prof. Markus Christen

Market Driving Strategies - May/June 2007 Market Leadership Creating the right customer perceptions Clear and consistent positioning related to customer needs and differential advantage Zantac: fast, simple, specific Align all Ps with intended positioning E.g., price was consistent with customers’ interpretation (quality) and economic incentives Relentless marketing effort Glaxo increased access to GPs by targeting same GP with multiple salespeople Use of partners for fast market penetration Market Driving Strategies - May/June 2007 © Prof. Markus Christen

Customers: Learning Product Quality Products Services Easy Diamond China Cosmetic Surgery Automobiles Restaurant Meals Haircut IT Services Cancer Treatment Business Education Chair Difficult Search Qualities Experience Qualities Credence Qualities Market Driving Strategies - May/June 2007 © Prof. Markus Christen

Offensive and Defensive Strategies Key Attributes Are … Attack Defend Search Offer superior attribute performance Change attribute importance Limit ability and/or motivation to search for new products Change attributes from ‘search’ to ‘experience’ Experience Offer lower price or better availability to induce trial and adoption Find underserved customer segment Change attribute to search Limit trial of new products Expand to block gateways Change attributes from ‘experience’ to ‘credence’ Credence Use ‘trusted’ people to create superior reputation Undermine reputation of incumbent firms Change attributes to experience or search Stress long-standing reputation Undermine reputation of new entrant Threaten to retaliate (denying allegations will not be sufficient) Take extreme measures to restore reputation Market Driving Strategies - May/June 2007 © Prof. Markus Christen

Competitor Analysis: Key Elements Past & Current Strategy Objectives Strengths and Weaknesses People, Culture, Assumptions Action/ Reaction Profile Reactions Likelihood and timing of reaction Strength of reaction Target market and/or marketing mix element used to react Market Driving Strategies - May/June 2007 © Prof. Markus Christen

Rule 6: Anticipate (Re)Actions You need to understand a player’s ability and motivation to anticipate its (re)action. Market Driving Strategies - May/June 2007 © Prof. Markus Christen

Prof. Markus Christen INSEAD Singapore May/June 2011 Case Study: Zantac Prof. Markus Christen INSEAD Singapore May/June 2011

What is the value today of £1400 invested in 1949? Invested in Today’s value Cash £ 84 Gold £ 10,200 A “typical” house (in the U.K.) £ 49,000 The Gartmore Practical Investment Fund £ 127,219 (a unit trust that invests in a range of British and international shares) Shares in Shell £ 375,000 Comprehensive basket of British shares £ 433,900 Glaxo shares £ 6,300,000 Not bad!

Italy UK France Germany Tagamet USA Initial UK

Losec Market Share Total Antiulcerant Market Non-Ulcer Peptic Ulcer Acute Treatment Maintenance and NSAID Prevention Reflux 54% 16% 30% 65% 35% Share of Segment in Total Market 35% 19% 10% 6% 30% Losec Share - in total market - in segment 3% 9% not approved 9% 90%

Glaxo’s Moves 1989-1991 Strategic Objective “There is a two- or three-year period in which the company cannot lose sight of the absolute importance of protecting and expanding market share with Zantac. Unless we keep our wits about us, we face the risk of someone taking away our lunch the way we did to Tagamet.” (Dr. Ernest Mario, CEO, Glaxo, 1989) Market Expansion Priorities NSAID co-prescription Maintenance Reflux Protection of Market Share Position Losec as a ‘Second-Line Treatment’, specialist product Challenge Losec’s promotion Increase doctor awareness of potential safety risks with Losec Match Losec’s healing performance and tie up opinion leaders Broad range of line extensions Heavy promotional investments