1. Introduction to Marketing MM2711
Week 3
Marketing Analysis II: Competitors and customers

2. Defining Customer Value
This CTR corresponds to Figure 18-1 on p. 545 and relates to the material on pp
Instructor’s Note: This material previews the concepts that underlie the following discussion on Porter’s Value Chain (Slide 18-7).
Defining Customer Value - =
Total Customer
Value
Cost
(Product, Service,
Personnel, &
Image Values)
(Monetary, Time,
Energy, &
Psychic Costs)
Customer
Delivered Value
(Profit to the
Consumer)
Elements of Customer Value
Customer Value is a multi-faceted concept marketers should consider in preparing the total marketing offer. Key dimensions to the customer value concept include:
Customer-Centered. To win in today’s marketplace, companies must excel at becoming more customer-centered in delivering superior value to their target customers. A key concept is market engineering - the process of designing the whole company system to deliver customer value at every level.
Customer Delivered Value. Delivered value is defined as the difference between total customer value and total customer cost.
Discussion Note: The text example emphasizes the dollar value of customer costs. Consumers also weigh psychological costs such as image, reputation, and decision-time.

3. Customer Satisfaction
This CTR relates to the discussion on pp
Customer Satisfaction Results When a Company’s Performance Has Fulfilled a Buyer’s Expectations.
Performance Exceeds Expectations- Customer is Delighted
Customer Satisfaction
Closely tied to delivering customer value is the concept of customer satisfaction. Again, the elements involved in how customer’s determine what products are satisfying or unsatisfying are of critical importance to marketers. Key considerations in understanding customer satisfaction include:
Expectations. Customer satisfaction with a purchase depends upon the product’s performance relative to a buyer’s expectations. Expectations are based upon the customer’s past buying experiences, the opinions of friends and associates, and marketer and competitor information. Expectations may be realistic or unrealistic. Further, as the text observes, satisfaction alone doesn’t retain customers.
Buyer’s Expectations Are Based On:
Customer’s Past Buying Experiences Opinions of Friends & Associates Marketer/ Competitor Information & Promises
Product’s Actual Performance
Performance Below Expectations - Customer is Dissatisfied

4. Total Customer Satisfaction
This CTR relates to the discussion on pp
Highly satisfied (delighted) customers produce benefits:
They are less price sensitive,
They remain customers longer,
They talk favorably about the company and products to others.
Delighted customers have emotional and rational preferences for products, and this creates high customer loyalty.
Therefore, the purpose of Marketing is to generate customer value profitably.
Total Customer Satisfaction
Total Customer Satisfaction. Satisfaction aims at meeting, exceeding, and then continually raising customer expectations for product performance. Satisfaction at this level of performance can lead to competitive advantage. To achieve this end, companies must track their customer’s expectations, perceived company performance, and customer satisfaction.
The Goal: Customer Delight. The goal is to create customer delight - an emotional affinity for a product or service, not just a rational preference. This kind of bond is required for obtaining high customer loyalty in an increasingly competitive marketplace.

5. The Need for Customer Retention
This CTR relates to the discussion on pp
The Key to Customer Retention is Superior Customer Value and Satisfaction. Companies Must Consider:
New
Customer
Costs
Lost
Lifetime
Value
Retaining Customers
Getting New Customers Costs Money. Marketers need to think in terms of how much of each aspect of the promotion mix and marketing mix must be spent each time a new customer is recruited. Common sense tells us that current customers will need fewer of these expensive resources to make their buying decisions than will potential customers.
Cost of Lost Customers. Once marketers realize that losing customers is expensive, they need to determine how to identify why customers are lost to measure the actual cost of customer loss.
Discussion Note: Even small businesses can use focus groups and surveys to identify loss centers on a personal computer database.
Customer’s Lifetime Value. When the revenues of each customer are factored in, it is possible to determine the customer’s lifetime value -- the amount of profit generated each year for the company over the lifetime of that customer’s business with the company.

6. Competitive Advantage & Competitive Analysis
An advantage over competitors gained by offering consumers greater value and satisfaction than competitors offer.
Competitive Analysis
The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.

7. Steps in Analyzing Competitors
Marketing concept – “satisfy customers … better than competitors”
Market-centered company – balance
Avoid “competitor myopia” – define competition broadly, market point-of-view – indirect competitors as well as those in “strategic group” and industry
Identify the
company’s
competitors
Assess competitors’
objectives, strategies,
strengths and weaknesses,
and reaction patterns
Competitive
intelligence,
benchmarking
In short, CI is the purposeful and coordinated monitoring of your competitor(s), wherever and whoever they may be, within a specific marketplace... Your "competitors" are those firms which you consider rivals in business, and with whom you compete for market share. CI also has to do with determining what your business rivals WILL DO before they do it. Strategically, to gain foreknowledge of your competitor's plans and to plan your business strategy to countervail their plans. As you might expect, this will involve many methods at the tactical collection level, but it will also require integration into your existing information infrastructure, analysis and distribution of the information, and finally, the calculation of business decisions on the grounds of that information and the analysis of same. This is the "intelligence" part of the formula.
Anti-trust: of, relating to, or being legislation against or opposition to trusts or combinations; specifically : consisting of laws to protect trade and commerce from unlawful restraints and monopolies or unfair business practices
Some competition is a good thing:
(market development, avoid anti-trust)
Select which
competitors to
attack or avoid

8. Identifying Competitors
Competitors can include:
All firms making the same product or class of products
All firms making products that supply the same service
All firms competing for the same consumer dollars
Note to Instructor
Discussion Question
Who are competitors for IKEA?
Students should mention other furniture stores such as Home Depot where customer can build their own, and travel and vacation resorts because they compete for extra discretionary income.
This Web link is to the famous Mac ads against the PC. This one is really biting as it remarks on PC adverting campaign. One might caution Mac against competitor myopia which refers to a firm focusing on what it considers to be its direct competition and not being aware of indirect or new competitors. 8

9. Direct competitor
Indirect competitors ……

10. Competitor’s objectives Competitor’s strategies
Assessing Competitors
Competitor’s objectives
Profitability
Market share growth
Cash flow
Technological leadership
Service leadership
Competitor’s strategies
Strategic group offers the strongest competition
Note to Instructor
A strategic group is a group of firms in an industry following the same or a similar strategy in a given target market. For example, in the major appliance industry, General Electric, and Whirlpool belong to the same strategic group. Each produces a full line of medium-price appliances supported by good service. In contrast, Sub-Zero and Viking belong to a different strategic group. They produce a narrower line of higher-quality appliances, offer a higher level of service, and charge a premium price. 10

11. Assessing Competitors
Competitor’s strengths and weaknesses
What can our competitors do?
Benchmarking
Estimating competitor’s reactions
What will our competitors do? 11

12. Selecting Competitors to Attack and Avoid
Customer value analysis determines the benefits that target customers’ value and how customers rate the relative value of various competitors’ offers
Identification of major attributes that customers value and the importance of these values
Assessment of the company’s and competitors’ performance on the valued attributes
Competitors may be
Strong or weak
Close or distant
Note to Instructor
This hyperlink is for a small credit union with a clear message—the other banks have high fees. They should have performed a customer value analysis to realize this is one of their benefits that the competitors do not offer. 12

13. Basic Competitive Strategies Michael Porter, Competitive Advantage
Overall cost
leadership
Low prices through lowest cost
production & distribution
Focus
Market nicher, specialist in
serving a small market
3 “winning strategies,” 1 “losing strategy”
Differentiation
Perceived as product class leader,
perceived as superior
Middle of the road
Avoid – do the worst
No clear strategy or advantage
(e.g., moderate quality,
moderate price, mass market)

14. Basic Competitive Strategies
Overall cost leadership strategy is when a company achieves the lowest production and distribution costs and allows it to lower its prices and gain market share Differentiation strategy is when a company concentrates on creating a highly differentiated product line and marketing program so it comes across as an industry class leader Focus strategy is when a company focuses its effort on serving few market segments well rather than going after the whole market Porter considered no clear strategy to be “middle of the road”
Note to Instructor
This hyperlink is to Dell’s Web site. They have a changing banner on their site that almost always gives a message of how the consumer can save money with a Dell. 14

15. Differentiation
Focus
Overall cost leadership
Middle of the road

16. Basic Competitive Strategies – Value Disciplines Treacy & Wiersema, HBR
Leading companies focus on and excel at one; meet industry standards on the others
Operational Excellence
Lean and efficient –
low price, convenience
Customer Intimacy
Target customer knowledge –
service and relationship focus
Product Leadership
Innovation – continuous stream of
leading edge products

17. Basic Competitive Strategies
Operational excellence refers to a company providing value by leading its industry in price and convenience by reducing costs and creating a lean and efficient value delivery system Customer intimacy refers to a company providing superior value by segmenting markets and tailoring products or services to match the needs of the targeted customers Product leadership refers to a company providing superior value by offering a continuous stream of leading-edge products or services. Product leaders are open to new ideas and solutions and bring them quickly to the market 17

18. Competitive Positions
Firms competing in a given market differ in their resources and objectives, so may pursue different competitive positions
Market Leader
Pursue large
market segments
(or several smaller ones)
Market Challengers
Market Followers
Pursue small
segments not
pursued by
others
Market Nichers
A company may hold different
competitive positions in different markets

19. Competitive Positions
This CTR corresponds to Table 18-1 on p. 564 and relates to the discussion on p
Market Leader
Firm with the Largest
Market Share
Competitive Positions
Competitive Strategies
Expand Total Market
Protect Market Share
Expand Market Share
Market Challenger
Runner-Up Firms that
Fight Hard to Increase
Market Share
Competitive Positions
It may be useful to classify competitive positions on the basis of the roles companies play in the marketplace. Four key positions include:
Market Leader. This is the firm with the largest market share. It typically leads other firms in price changes, new product introductions, distribution coverage, and promotion spending.
Market Challenger. The challenger is the runner-up firm in the industry. It is aggressively seeking to expand its market share. Challengers may be a somewhat distant second or they may be very close to the leader’s share.
Discussion Note: The distance between the leader and the challenger may have a very strong influence on the strategies selected by each.
Market Follower. A follower is another runner-up firm that seeks to hold its share. It does not attempt to gain share at the expense of the leader, often to avoid competitive retaliation from its more powerful rivals.
Market Nicher. The nicher is a firm that serves very small, tightly defined segments, or even a single segment. Often the segments are ignored or overlooked by larger firms.
Market Followers
Runner-Up Firms that Want
to Hold Their Share Without
Rocking the Boat
Full Frontal Attack
Indirect Attack
Follow Closely
Follow at a Distance
Market Nichers
Firms that Serve Small
Segments Not Being
Pursued by Other Firms
By Customer, Market,
Quality-Price, Service
Multiple Niching

20. Competitive Strategies for Leaders
Largest market share; strategy leader
But, not easy
not automatically most profitable
must build market
must defend
Competitive Strategies for Leaders
Expand the total market
Finding new users
Discovering and promoting new product uses
Encouraging greater product usage
Protect market share
Prevent or fix weaknesses
Fulfill value promise
Keep prices consistent with value
Build relationships
Continuous innovation
Brand, product, or firm that has the largest percentage of total sales revenue (the market share) of a market. A market leader often dominates its competitors in customer loyalty, distribution coverage, image, perceived value, price, profit, and promotional spending.
Expand market share
In served market
Profitability rises with market share

21. Leaders of supermarkets in Hong Kong
Leaders of PC operating system

22. Competitive Strategies for Challengers
Aggressively try to build
market share
Challenge the market leader
High-risk but high-gain
Sustainable competitive advantage over the leader is key to success
Challenge firms of the same size or smaller regional and local firms
Competitive Strategies for Challengers
Attack the leader
Frontal attack (attack strengths)
(risky – leader usually retaliates
and the one with the most strength
and endurance wins)
Indirect attack
(attack weaknesses)
Avoid the leader
Attack others
Acquire others

23. Challenger of free TV in Hong Kong
Challenger of PC operating system

24. Competitive Strategies for Followers
Want to hold share
without aggressively challenging
Learn from the market leader’s experience
Copy or improve on the leader’s offerings
Competitive Strategies for Followers
Not too close
Not too distant
Offer distinctive
advantage
Leverage available to non-pioneering firms for gaining long term competitive advantage by virtue of their late entry into a market: as it was with IBM over Apple, and is with Dell over IBM. The follower can benefit from the (1) clarification of the demand-uncertainty and market-uncertainty, (2) knowledge of the effects of changing customer needs and new technologies, (3) opportunity to free-ride the pioneer's investments in consumer-education, (4) distribution channel and infrastructure development, (5) pioneer's mistakes in product positioning and pricing, and in its promotional efforts.
Often very profitable
Sometimes target of challengers

25. Follower of convenience store in HK
                                                                         
Follower of PC hardware

26. Competitive Strategies for Nichers
Specialists – serve small segments
not pursued by other firms
Serving market niches means targeting sub-segments
Good strategy for small firms with limited resources
Earns high margins rather than high volume
Competitive Strategies for Nichers
End-user
specialist
Customer-size
specialist
Geographic
market
specialist
Quality-
price
specialist
Service
specialist
Often high margins and profits
Ideal niche – big enough to be profitable, likely to grow
Risks - niche may dry up, or may become target of larger firms

27. Nicher of supermarkets in Hong Kong
Nicher of PC hardware

28. Balancing Customer and Competitor Orientations
Types of companies:
Competitor-centered companies
Customer-centered companies
Market-centered companies

29. Balancing Customer and Competitor Orientations
Competitor-centered company spends most of its time tracking competitor’s moves and market shares and trying to find ways to counter them
Advantage is that the company is a fighter
Disadvantage is that the company is reactive
Customer-centered company spends most of its time focusing on customer developments in designing strategies; Provides a better position than competitor- centered company to identify opportunities and build customer relationships
Market-centered company spends most of its time focusing on both competitor and customer developments in designing strategies 29

30. Balancing Customer and Competitor Orientations
Balancing Customer and Company Orientations
This CTR corresponds to Figure 18-5 on p. 569 and relates to the discussion on pp
Product
Orientation
Competitor
Customer
Market
Competition-Centered No
Yes
Customer-Centered
Evolving Company Orientations
Companies must consider and follow closely the movements of its competition in a given market. On the other hand, it must also monitor other factors in the environment and - always - what the customer needs and wants. A critical strategic decision involves balancing these various orientations. Orientations can be classified as the following:
Competitor-Centered Company. This is a company whose moves are mainly based on competitors’ actions and reactions. Competitor-centered companies spend most of their time tracking competitors’ moves and market share and trying to find strategies to counter them.
Customer-Centered Company. This is a company that focuses on customer developments in designing its marketing strategies and on delivering superior value to its target customers.
Teaching Tip: The customer-centered approach seems the best in theory, but in practice it is seldom so simple. When Apple/IBM/Motorola tested the new RISC-based PowerPC chip, rival Intel did nothing. Tests results indicated success, and at a much lower cost that Intel’s Pentium. But before the PowerPC went to market, Intel cut prices (up to 40%) on the Pentium and introduced more powerful versions.
Market-Centered Company. This is a company that pays balanced attention to both customers and competitors in designing its marketing strategy.
Product-Centered Company. This is a company that is neither customer- nor competitor-centered. Although the nature of some products and/or industries may make this orientation a successful one, it is generally not a good approach for most companies.