0. Creating Competitive Advantage
Chapter 18

1. Objectives Learn Major Goals of Marketing
Learn how to understand competitors as well as customers via competitor analysis.
Learn the fundamentals of competitive marketing strategies based on creating value for customers.

2. Intel Has dominated the chip industry
Success is directly related to Intel’s competitive strategy
Strategy focuses on superior value and product leadership
Heavy focus on product and advertising innovation and R&D investments
Changing market needs have challenged Intel to adapt
Intel is capitalizing on the Internet now

3. Two Major Goals of Marketing*
1. Design and Manage a Superior Value-Delivery System to Reach and Satisfy Target Customer Segments.
2. Gain and Sustain Competitive Advantage.

4. - = Defining Customer Value Total Customer Benefit Cost Customer
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
Benefit
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.

5. Value Chain Analysis**
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Value Chain
This CTR relates to the material on pp
Teaching Tip: Ask students to identify the primary and support activities operating at your school.
Value Chain Analysis**
Support Activities
The Generic Value Chain
Michael Porter’s value chain identifies nine value-creating activities undertaken by companies seeking to provide products that meet customer needs. Activities include:
Margin
Operations
Outbound
Logistics
Marketing
and
Sales
Primary Activities:
Inbound Logistics. Inbound logistics consists of those activities and their coordination that bring needed materials into the business. Value is added in the choice of materials and their integration into the business operations in a timely manner.
Operations. Operations is the first step in developing materials into value-added products. Operations add value through manufacturing innovations and processes.
Outbound Logistics. Outbound logistics refers to the distribution system set up by the business. As with inbound logistics, coordination and integration of the firm’s products with the needs of retailers and customers creates value.
Marketing and Sales. Marketing and sales educate consumers and position the firm’s products and image to create value.
Service. Service creates value both by keeping the product’s performance in line with customer expectations and by demonstrating to the customer the firm’s commitment to meeting customer needs.
Support Activities: These activities occur within each primary activity.
Firm Infrastructure. How the firm is set up permeates each primary activity and determines the parameters of action each activity can take.
Human Resource Management. Recruitment, training, and evaluation add value in relation to the competition’s efforts.
Technology Development. All primary activities must develop and maintain technological advantages.
Procurement. Every primary activity procures inputs of both material and expertise.
Inbound
Logistics
Service
Analytical tool to identify value-adding activities and maximize value.
Ex) Dell Computer
Cost structure and differentiation
Primary Activities

6. Customer Value-Delivery Network*
Customer (you)
Customer Value-Delivery Network*
Customer Value-Delivery System
This CTR relates to the discussion on p. 554.
Retailer (Sears)
Delivery
Order
Producer (Levi)
Order
Delivery
Value Delivery Systems
To enhance competitive advantage, firms look beyond their own value chains for ways of improving customer value. In linking the company’s value chain with those of its suppliers and resellers, the company improves the performance of the entire customer value delivery system. A key concept of the value delivery system is partnering.
Partnering. Partnering involves merging key aspects of two or more companies in the delivery system to increase customer value. The text relates the example of Honda headquarters working with Donnelly Corporation employees to reduce their costs and improve quality. Other examples include sharing sales information with suppliers by manufacturers and retailers, coordinating promotional activities throughout the chain, and sharing new technological developments in inventory and database ordering systems with other chain members.
Vendor (Milliken)
Delivery
Order
Raw Material
Supplier (Du Pont)
Order
Delivery
Order
Delivery

7. Definition Competitive Advantage
An advantage over competitors gained by offering consumers greater value than competitors offer.

8. Steps in Analyzing Competitors*
Figure 18-1:
Steps in Analyzing Competitors*

9. Competitor Analysis Steps in the Process:
Firms face a wide range of competition
Be careful to avoid “competitor myopia”
Methods of identifying competitors:
Industry point-of-view
Market point-of-view
Steps in the Process:
Identifying Competitors
Assessing Competitors
Selecting Competitors to Attack or Avoid

10. Levels of Competition Diet lemon limes Baseball cards Coffee Coke
Fruit flavored colas
Coffee
Coke
Pepsi
Diet-Rite
cola
Bottled
water
Lemon
Regular
colas
Beer
Juices
Wine
Fast food
Tea
Video
rentals
Ice
cream
Product form competition: Diet colas
Product category competition: Soft drinks
Generic competition: Beverages
Budget competition: Food and entertainment

11. 230-year-old Encyclopedia Britannica viewed itself as competing with other publishers of printed encyclopedias. Big mistake! Its real competitors were software encyclopedias and the Internet.

12. Discussion Question
Create a levels of competition diagram for one of the following:
WalMart
McDonald’s
Nike
Starbucks
Google

13. Competitor Analysis Steps in the Process: Identifying Competitors
Determining competitors’ objectives
Identifying competitors’ strategies
Strategic groups
Assessing competitors’ strengths and weaknesses
Benchmarking
Estimating competitors’ reactions
Steps in the Process:
Identifying Competitors
Assessing Competitors
Selecting Competitors to Attack or Avoid

14. Competitor Analysis Steps in the Process: Identifying Competitors
Strong or weak competitors
Customer value analysis
Close or distant competitors
Most companies compete against close competitors
“Good” or “Bad” competitors
The existence of competitors offers several strategic benefits
Steps in the Process:
Identifying Competitors
Assessing Competitors
Selecting Competitors to Attack or Avoid

15. Customer Value Analysis (for Competition)
Identify Attributes Customers Value
Assess Attribute Importance
Assess Company and Competitor Performance
Examine Segments on Attribute-by-Attribute Basis
Monitor Customer Values Over Time

16. Competitive Strategies*
Basic Winning Competitive Strategies: Michael Porter
Overall cost leadership
Lowest production and distribution costs
Differentiation
Creating a highly differentiated product line and marketing program
Focus
Effort is focused on serving a few market segments

17. Attractiveness of an Industry
Threat of
Potential Entrants
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Existing
Rivalry
Threat of
Substitutes

18. Hohner has successfully implemented a focus strategy to capture an 85% share of the harmonica market.

19. Competitive Strategies
Basic Competitive Strategies: Value Disciplines*
Operational excellence
Superior value via price and convenience
Customer intimacy
Superior value by means of building strong relationships with buyers and satisfying needs
Product leadership
Superior value via product innovation

20. Discussion Question
Firms that follow a customer intimacy strategy are willing to do almost anything for their customers.
Does such a strategy make sense for local businesses, or only for national / global corporations?
British Airways practices customer intimacy with select frequent flyers

21. Hypothetical Market Structure
Figure 18-3:
Hypothetical Market Structure

22. Competitive Positions
Competitive Strategy
Expanding the total demand
Finding new users
Discovering and promoting new product uses
Encouraging greater product usage
Protecting market share
Many considerations
Continuous innovation
Expanding market share
Profitability rises with market share
Competitive Positions
Market Leader
Market Challenger
Market Follower
Market Nicher

23. Competitive Strategy
WD-40 has a knack for developing new uses for its product.
What other brands have adopted a similar strategy?
Clicking the WWW icon will open your web browser and link to the web site pictured in the screen shot.
WD40

24. Competitive Positions
Competitive Strategy
Option 1: challenge the market leader
High-risk but high-gain
Sustainable competitive advantage over the leader is key to success
Option 2: challenge firms of the same size, smaller size or challenge regional or local firms
Full frontal vs. indirect attacks
Competitive Positions
Market Leader
Market Challenger
Market Follower
Market Nicher

25. Pepsi is an example of market challenger that has chosen to use a full frontal attack

26. Competitive Positions
Competitive Strategy
Follow the market leader
Focus is on improving profit instead of market share
Many advantages:
Learn from the market leader’s experience
Copy or improve on the leader’s offerings
Strong profitability
Competitive Positions
Market Leader
Market Challenger
Market Follower
Market Nicher

27. Dial Corporation successfully uses a market follower strategy

28. Competitive Positions
Competitive Strategy
Serving market niches means targeting subsegments
Good strategy for small firms with limited resources
Offers high margins
Specialization is key
By market, customer, product, or marketing mix lines
Competitive Positions
Market Leader
Market Challenger
Market Follower
Market Nicher

29. FedEx and UPS are two competitors in the package delivery business
FedEx and UPS are two competitors in the package delivery business. What competitive strategy seems to describe each company?

30. Balancing Customer and Competitor Orientations
Companies can become so competitor centered that they lose their customer focus.
Types of companies:
Competitor-centered companies
Customer-centered companies
Market-centered companies

31. Evolving Company Orientations
Figure 18-4:
Evolving Company Orientations

32. Latest thinking on Competition
Monopolist
Competitive
Approach
Cooperative
Approach
Co-opetition