1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space3. Strategic Market Segmentation4. Strategic Customer Relationship Management5. Capabilities for Learning about Customers and Markets6. Market Targeting and Strategic Positioning7. Strategic Relationships8. Innovation and New Product Strategy9. Strategic Brand Management10. Value Chain Strategy11. Pricing Strategy12. Promotion, Advertising and Sales Promotion Strategies13. Sales Force, Internet, and Direct Marketing Strategies14. Designing Market-Driven Organizations15. Marketing Strategy Implementation And Control
Strategic Marketing
Chapter 2
Markets andCompetitive
Space
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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MARKETS AND COMPETITIVE SPACE
Markets and Strategies Defining and Analyzing Product-Markets Describing and Analyzing End-Users Analyzing Competition Market Size Estimation Developing a Strategic Vision about the
Future
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MARKETS AND STRATEGIESMARKETS AND STRATEGIES
The Challenges ―The Challenges ―Markets are increasingly complex, turbulent, and interrelated.Markets are increasingly complex, turbulent, and interrelated.Importance of a broad view of the market.Importance of a broad view of the market.Essential to develop a vision about how the market is likely to Essential to develop a vision about how the market is likely to change in the future.change in the future.
Continuous Monitoring is Necessary to:Continuous Monitoring is Necessary to:Find promising opportunitiesFind promising opportunitiesIdentify shifts in value requirementsIdentify shifts in value requirementsUnderstand competitors’ positioningUnderstand competitors’ positioningGuide targeting and positioningGuide targeting and positioning
decisionsdecisions
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OPPORTUNITIES OUTSIDE THE COMPETITIVE BOX
The Competitive Box
Traditional Competitors
New Types of Competition
New Business Models
New Customers
New CustomersConventional Value
Propositions
Existing Customer Base
New Customer Base(s)
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AN ARRAY OF CHALLENGESDisruptive Innovation
Creating New Market Space
Fast Changing Markets
Commoditization ThreatsDrivers of Changes
in Markets
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*Market changes often require altering Market changes often require altering strategiesstrategies
*Forces of change create both market Forces of change create both market opportunities and threatsopportunities and threats
* Inherent danger in faulty market sensingInherent danger in faulty market sensing
Markets Impact StrategiesMarkets Impact Strategies
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DEFINING AND ANALYZING PRODUCT-MARKETS
Determine the Boundaries and Structure of the Product-Market
Form the Product-Market
Describe and Analyze End-Users
Analyze Competition
Forecast Market Size and Rate of Change
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Matching Needs with Product Matching Needs with Product BenefitsBenefits
* A product – market matches people with A product – market matches people with needs to the product benefits that satisfy needs to the product benefits that satisfy those needsthose needs
““A product – market is the set of products A product – market is the set of products judged to be substitutes within those usage judged to be substitutes within those usage situations in which similar patterns of situations in which similar patterns of benefits are sought by groups of benefits are sought by groups of customers.”*customers.”**Srivastava, et al. (1984) Journal of Marketing, Spring, 32.
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INNOVATION FEATUREINNOVATION FEATURE
* In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion to $9.5 billion, and ranks high in the to $9.5 billion, and ranks high in the Business WeekBusiness Week Top 50 U.S. companies for Top 50 U.S. companies for shareholder value creation.shareholder value creation.
* The company invents new ways of providing services to save customers time, The company invents new ways of providing services to save customers time, money and irritation, while often lowering costs at the same time.money and irritation, while often lowering costs at the same time.
* Loss adjusters are sent to the road accidents rather than working at head office, Loss adjusters are sent to the road accidents rather than working at head office, and they have the power to write checks on the spot.and they have the power to write checks on the spot.
* Progressive reduced the time needed to see a damaged automobile from seven Progressive reduced the time needed to see a damaged automobile from seven days to nine hours.days to nine hours.
* Policy holders’ cars are repaired quicker, and the focus on this central customer Policy holders’ cars are repaired quicker, and the focus on this central customer need has won much automobile insurance business for Progressive.need has won much automobile insurance business for Progressive.
* These initiatives also enable Progressive to reduce its own costs – the cost of These initiatives also enable Progressive to reduce its own costs – the cost of storing a damaged automobile for a day is $28, about the same as the profit from a storing a damaged automobile for a day is $28, about the same as the profit from a six-month policy.six-month policy.
Progressive Insurance: Customer Needs at the Center of Strategy
Source: Adapted from Mitchell, Adrian (2004)”Heart of the Matter,” The Marketer, June 12, 14.
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Product – Market Boundaries and StructureProduct – Market Boundaries and Structure
* Determining Product-Market StructureDetermining Product-Market Structure
1.1. Start with the generic need satisfied by the Start with the generic need satisfied by the product category of interest to product category of interest to managementmanagement
2.2. Identify the product categories (types) that Identify the product categories (types) that can satisfy the generic needcan satisfy the generic need
3.3. Form the specific product – markets within Form the specific product – markets within the generic product – marketthe generic product – market
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SUPER MARKETS
MICROWAVEOVENS
CONVENIENCESTORES
TRADITIONAL RESTAURANTS
Illustrative Fast-Food Product-Market Structure
FAST-FOOD MARKET
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Extent of Market ComplexityExtent of Market Complexity
* Three characteristics of markets:Three characteristics of markets:
* 1. Functions or uses of the product 1. Functions or uses of the product
* 2. The enabling technology of the product2. The enabling technology of the product
* 3. Customer segments in the product-3. Customer segments in the product-marketmarket
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Illustrative Product – Market StructureIllustrative Product – Market Structure
•Generic Product Class
•Product Type
•Variant ARegular
•Variant B
•Brands
Food and beveragesfor breakfast meal
Cereals
Ready to eat
NaturalPre-sweetened
Life
Nutritional
Special KProduct 19
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DEFINING AND ANALYZING MARKETSDEFINING AND ANALYZING MARKETS
Define Product-Market Boundaries and Structures
Identify and Describe End-Users
Analyze Industry and Value Added Chain
Evaluate Key Competitors
Forecast Market Size and Growth Trends
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Identifying andDescribing Buyers
HowBuyersMake
Choices
BuildingCustomerProfiles
EnvironmentalInfluences
DESCRIBINGAND
ANALYZINGEND-USERS
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Identifying and Describing End-UsersIdentifying and Describing End-Users
* Illustrative buyer characteristics in consumer Illustrative buyer characteristics in consumer markets:markets: Family size, age, income, geographical Family size, age, income, geographical
location, sex, and occupation location, sex, and occupation * Illustrative factors in organizational markets:Illustrative factors in organizational markets:
Type of industryType of industry Company sizeCompany size Location Location Type of productsType of products
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How Buyers Make ChoicesHow Buyers Make Choices
BUYING DECISION PROCESS:BUYING DECISION PROCESS:
1.1. Problem recognitionProblem recognition
2.2. Information searchInformation search
3.3. Alternative evaluationAlternative evaluation
4.4. Purchase decisionPurchase decision
5.5. Post-purchase behaviorPost-purchase behavior
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Environmental Environmental InfluencesInfluences
* External factors influencing buyers’ External factors influencing buyers’ needs and wants: needs and wants: Government, social change, economic Government, social change, economic
shifts, technology etc.shifts, technology etc.* These factors are often non-controllable These factors are often non-controllable
but can have a major impact on but can have a major impact on purchasing decisionspurchasing decisions
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Building Customer ProfilesBuilding Customer Profiles
* Start with generic product – marketStart with generic product – market
* Move next to product- type and variant Move next to product- type and variant profiles >> profiles >> increasinglyincreasingly more more specificspecific
* Customer profiles guide decision Customer profiles guide decision making (e.g. targeting, positioning, making (e.g. targeting, positioning, market segmentation etc.)market segmentation etc.)
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ANALYZING COMPETITION
1.1. Define the Competitive Arena for the Generic, Specific, and Variant Product Markets
2. Identify and Describe Key Competitors
4. Identify and Evaluate Potential Competitors
3. Evaluate Key Competitors
PRODUCT-MARKET
STRUCTUREAND
MARKETSEGMENTS
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Examples of Levels of CompetitionExamples of Levels of Competition
Diet-RiteCola
Diet PepsiDiet Coke
Product from competition:
diet colas
Regular colas Diet lemon
limes
Lemon limes
Fruitflavored
colas
Product categorycompetition:soft drinks
Bottlewater
Wine
Beer
Coffee
Juices
Generic competition:beverages
Baseballcards
FastFood
VideoGames
IceCream
Budget competition:food & entertainment
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Industry AnalysisIndustry Analysis
* Industry size, growth, and composition Industry size, growth, and composition
* Typical marketing practicesTypical marketing practices
* Industry changes that are anticipated (e.g. Industry changes that are anticipated (e.g. consolidation trends)consolidation trends)
* Industry strengths and weaknessesIndustry strengths and weaknesses
* Strategic alliances among competitorsStrategic alliances among competitors
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Defining Industry Structure & Defining Industry Structure & CharacteristicsCharacteristics
Industry FormIndustry EnvironmentCompetitive Forces Value
AddedChain
SUPPLIERS
PRODUCERS
WHOLESALERS/ DISTRIBUTORS
RETAILERS/DEALERS
CONSUMER/ ORGANIZATIONAL END
USERS
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Competitive ForcesCompetitive Forces
1.1. Rivalry among existing firms.Rivalry among existing firms.
2.2. Threat of new entrants.Threat of new entrants.
3.3. Threat of substitute products.Threat of substitute products.
4.4. Bargaining power of suppliers.Bargaining power of suppliers.
5.5. Bargaining power of buyers.Bargaining power of buyers.
Source: Michael E. Porter, Competitive Advantage, Free Press, 1985, 5.
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Key Competitor AnalysisKey Competitor Analysis
* Business scope and objectivesBusiness scope and objectives* Management experience, capabilities, and Management experience, capabilities, and
weaknessesweaknesses* Market position and trendsMarket position and trends* Market target(s) and customer baseMarket target(s) and customer base* Marketing program positioning strategyMarketing program positioning strategy* Financial, technical, and operating capabilitiesFinancial, technical, and operating capabilities* Key competitive advantages (e.g., access to Key competitive advantages (e.g., access to
resources, patents)resources, patents)
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Extent of Market Coverage
CustomerSatisfaction
CurrentCapabilities
PastPerformance
Competitor Evaluation
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MARKET SIZE ESTIMATIONMARKET SIZE ESTIMATION
UnrealizedPotential
CompanySales
Forecast
IndustrySales
Forecast
Market PotentialEstimate
Product-Market Forecast Relationships (area denotes sales in $’s)
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0100200300400500600700800900
Sales (in 1000sof units)
2003 2004 2005 2006 2007 2008 2009 2010
MarketPotential
Sales Forecast
Company XYZ Sales Forecast
Product-Market Forecast Relationships for Product-Market Forecast Relationships for Industrial Painting UnitsIndustrial Painting Units
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DEVELOPING A STRATEGIC VISION DEVELOPING A STRATEGIC VISION ABOUT THE FUTUREABOUT THE FUTURE
Industry Boundaries Blurring and EvolvingIndustry Boundaries Blurring and Evolving
Competitive Structure and Players ChangingCompetitive Structure and Players Changing
Value Migration PathsValue Migration Paths
Product Versus Business Design Product Versus Business Design CompetitionCompetition
Firms are Collaborating to Influence Industry Firms are Collaborating to Influence Industry StandardsStandards
Source: C. K. Prahalad, Journal of Marketing, Aug. 1995, vi.