lecture 4 - competition & planning2
TRANSCRIPT
MAR 3023 – PRINCIPLES OF MARKETING
Dr. Jaishankar Ganesh
BA2 308G
Competition & Strategic Planning
September 08, 2003
Strategic Market Management• External Analysis
– Environmental Analysis
• Economic
• Political/Legal
• Socio/Cultural
• Technological
• Competitive
– Customer/Market Analysis
• Internal Analysis
– Evaluation of assets, skills and resources
– Business/Product portfolio analysis
– Determining strategic alternatives
Competition, Competitive Strategy, and Competitive Advantage
• A firm’s strategy cannot be formulated in vacuum
• Competition is at the core of the success or failure of firms
• Competition determines the appropriateness of a firm’s activities that contributes to its performance
Types of CompetitionTypes of Competition
DirectDirect
• Nike Vs Reebok Vs Adidas
© PhotoDisc
IT HAS ALWAYS BEEN VIRGIN’SPOLICY TO ENCOURAGE YOU TO FLY TO LONDON FOR AS LITTLE AS POSSIBLE.
SO ON JUNE 10WE ENCOURAGE YOU TO FLYBRITISH AIRWAYS
As for the rest of the year, we look forward to seeing you aboard Virgin Atlantic.For the best service possible. For the lowest possible fare.
Legoland California
Legoland Competes with Other Theme Parks in California
Types of Competition
Direct
IndirectIndirectMcDonalds vs. Pizza Hut vs. Arby’s vs. Chinese takeout
© PhotoDisc
Types of Competition
Direct
Indirect
General (Budget)General (Budget)
© PhotoDisc
Competing for the same dollars
Levels of Competition
Share of the Mind
Share of the Wallet
Generic Competition
Product Category
ProductForm
Direct toIndirect
Defining the Competitive Set
• Levels of Marketing Competition
– Product Form based competition – Diet Colas– Product Category based competition – Soft Drinks– Generic or “need-based” perspective - Beverages– Rivalry or “Budget-based” competition – Food,
Entertainment, etc.
Developing a Competitive Strategy
Developing a Competitive Strategy
1. Should wecompete?
1. Should wecompete?
© PhotoDisc
Developing a Competitive Strategy
Developing a Competitive Strategy
2. If so, in what marketsshould we compete?
2. If so, in what marketsshould we compete?
1. Should wecompete?
© PhotoDisc
Developing a Competitive Strategy
Developing a Competitive Strategy
2. If so, in what marketsshould we compete?
3. How should we compete?
3. How should we compete?
1. Should wecompete?
© PhotoDisc
• So, what is strategy? A Creative thought, an idea, a concept, or a plan that uses the
natural laws to its advantage to turn a potential loss into victory. It is a plan or a series of maneuvers for obtaining a specific goal or result.
• Who are strategists? People who understand the natural laws and the outcomes they
govern, and can creatively use the same in their favor.
• Competitive Strategy is the search for a favorable competitive position in an industry
Basic Competitive Strategies
• Cost Leadership
• Differentiation
• Focus (Niche)
Competitive Advantage
The set of unique features of
a company and its products that are
perceived by the target market as
significant and superior to the
competition.
• Competitive Advantage– grows fundamentally out of value a firm is able to create for its
buyers that exceeds the firm’s cost of creating it and is greater than the value created by competitive offerings
– Value is what buyers are willing to pay
– Superior value stems from being able to offer lower prices than competition of equivalent benefits (COST LEADERSHIP) or providing unique benefits that more than offset a higher price (DIFFERENTIATION)
SustainableCompetitive Advantage
An advantage
that cannot be copied
by the competition.
Industry Structure Analysis
• The essence of formulating a CS is relating the firm to its environment
• The key aspect of a firm’s environment is the industry in which it competes
The five competitive forces
Industrycompetitors
Rivalry amongexisting firms
Potentialentrants
Potentialentrants
SubstitutesSubstitutes
SuppliersSuppliers BuyersBuyers
Bargaining powerof suppliers
Bargaining powerof suppliers
Threat ofnew entrants
Threat ofsubstitute productsor services
Forces Driving Industry Competition• Bargaining power of the buyer
• BP of the seller
• Threat of new entrants
• Threat of substitutes
• Rivalry among existing firms
Barriers to Entry• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Other advantages
– Patents
– Government subsidies
Number of Sellers and Differentiation
Low
High
Low High
Nu
mb
er o
f se
llers
Differentiation
Pure monopoly Oligopoly
Monopolisticcompetition
Purecompetition
Continuum of competition
• Number ofsellers
• Productdifferences
• Importance ofmarket mix
• Large numberof sellers
• Similar products
• Distribution isimportant
• Large numberof sellers
• Unique butsubstitutable
• Pricing isimportant
• A few largecompetitors
• Similarproducts
• Promotion iskey to achieveperceivedproductdifferences
• Singleproducer
• Unique andunsubstitutable
• Unimportant
BASIS OFCOMPARISON
PURECOMPETITION
MONOPOLISTICCOMPETITION OLIGOPOLY MONOPOLY
Number of sellersMany One
Strategic Planning
Definition:
The process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing environment.
Who plans?
• All managers or top managers only?
Top Managers
Middle Level
Bottom Level Bottom Level
PLANNING AT DIFFERENT ORGANIZATIONAL LEVELSPLANNING AT DIFFERENT ORGANIZATIONAL LEVELS
STRATEGIC
TACTICAL
OPERATIONAL
Top down forecasts
Levels of Strategy• Corporate Level• Business Unit Level
– SBU’s - a subgroup of a single business or collection of related businesses
• Functional Level– Marketing
Strategic Business Units (SBUs)
A distinct mission and specific target market
Control over their resources
Their own competitors
Plans independent of other SBUs
CharacteristicsCharacteristics
What is the planning process?I. Define the company’s mission
II. Set organizational objectives
III. Snapshot view - SWOT
IV. Formulate strategy
V. Implement strategy
VI. Monitor and evaluate
Marketing Planning Process
Marketing Strategy
Product
Promotion
Distribution
Price
Marketing Mix
Business Mission Statement
Objectives
Situation or SWOT Analysis
ImplementationEvaluation
Control
Target Market Strategy
Strategic Planning
Where are we now?
Where do we want to go?
How do we get there?
Where Are We Now?
• Organization HistoryAn understanding of the “historical roots” of the
organization
• Organizational CultureThe values and cultural norms of the organization
• Organizational AuditA strategic evaluation of the organization
Where Do We Want To Go?
• Basic Mission A sense of direction for the organization
• Environmental Trends Uncontrollable trends which create opportunities and
threats to the organization
• Organizational Analysis Analysis of controllable factors which show strengths
and weaknesses of the organization
Effective Mission Statement
• Gives a sense of direction for the organization
• Should be limited enough to exclude some ventures and broad enough to allow for creative growth
• Should be stated in terms sufficiently clear to be widely understand by all stakeholders
Mission Statements
• To serve humanity in a profitable way• To minimize long-run profits• To educate young people who are critical thinkers
• BIC Basic Mission To manufacture and sell only products that can
be made cheaply, used relatively briefly, and then be thrown away.
Mission StatementMission Statement
Corporate StrategyCorporate Strategy
Business-Unit StrategyBusiness-Unit Strategy
Marketing StrategyMarketing Strategy
Marketing Mix ElementsMarketing Mix Elements
Flow of Strategy Levels of Strategic Marketing Planning
IdentityIdentity
What business are we in?What business are we in?
Defining Businesses
• Businesses must be viewed as CONSUMER-SATISFYING process and not goods-producing process
• Marketing Myopia
• Remember products are transient and basic NEEDS are not ….so, the key is to have a “market definition” of your business and not a product-based definition
II. Setting objectives
1. Specific – Consistent with Firm’s Priorities2. Measurable3. Realistic4. Time frame
# 1. To obtain a 15% market share by the end of the # 1. To obtain a 15% market share by the end of the fiscal yearfiscal year
# 2. Reduce the level of advertising expenditures by 11% # 2. Reduce the level of advertising expenditures by 11% over the next two quartersover the next two quarters
SWOT Analysis
Identifying
internal strengths (S)
and weaknesses (W)
and also examining
external opportunities (O) and threats
(T)
44
SWOT Analysis
©South-Western College Publishing
SS
WW
OO
TT
Things the company does well.Things the company does well.
Things the company does not do well.Things the company does not do well.
Conditions in the external environment that favor strengths.Conditions in the external environment that favor strengths.
Conditions in the external environment that do not relate to existing strengths or favor areas of current weakness.
Conditions in the external environment that do not relate to existing strengths or favor areas of current weakness.
Internal
External
44
III. Taking a snapshot view - SWOT
weaknesses
opportunities
threats
strengths
How Do We Get There?
• Marketing Growth Strategies Strategic focus on market opportunities
• Financial Growth Strategies Strategic use of financial resources
• Technology Growth Strategies Strategic development of research and development
(R&D)
Core of Strategy
• Strategic Window – limited periods
• Core competency – what does a company do well?
• Competitive Advantage – advantage relative to the competition
• Sustainable competitive advantage
Tools of Marketing Planning – to assess SBUs
• Market share / Market growth matrix aka BCG Matrix
?The Boston Consulting Group Matrix
Relative Competitive Position/Market Share
Bu
sin
ess
Gro
wth
Rat
e
MARKET SHARE DOMINANCE
HIGH LOW
MA
RK
ET
GR
OW
TH
RA
TE
LO
W
H
IGH
High growthMarket leaders Require cash
Large profits
Low growth
High market shareHigh cash flow
Low growthLow market shareMinimal cash flow
High growth
Low market shareNeed cash
Poor profit margins
$$$$
BCG Portfolio Matrix
BCG Portfolio Matrix Example
Sub-Notebooks
and Hand-Held Computer
Integrated phone/Palm
devices
Laptop and Personal
Computers
MainframeComputer
MA
RK
ET
GR
OW
TH
RA
TE
LO
W
H
IGH
MARKET SHARE DOMINANCE
HIGH LOW
STAR PROBLEM
CHILD
CASH COW DOG
Basic Product Portfolio Strategies• Build
Expand marketing effort to increase market share, particularly Stars and potential question marks.
• Hold Preserve existing market share, especially strong cash cows.
• Harvest Increase short-term cash flow, especially weak cash cows and strong dogs.
• Divest Sell or liquidate product, appropriate for dogs.
Marketing Growth Strategies
• Intensive Growth Internal growth with products and markets
• External Growth Growth outside the existing organization
Strategic Growth Matrix
Current Products New Products
New
Mar
ket
s
Cu
rren
t M
ark
ets
Market Penetration
Market Development/Expansion
Product Development/Expansion
Diversification
Strategic Alternatives
MarketPenetration
MarketPenetration
MarketDevelopment
MarketDevelopment
Product Development
Product Development
DiversificationDiversification
Increase market share among existing customers
Attract new customers to existing products
Introduce new products into new markets
Create new products for present markets
Market Penetration
• Increase customer use• Convert non-users• Take competitors business
– Advertising– Personal selling– Distribution
• Arm and Hammer baking soda
Product Development
• Modifying existing product
• Introducing new product
Marketing Development
• Geographical expansion in U.S.
• International expansions
• New product-markets
• Kellogg cereal
External Growth Strategies• Backward Integration
Firm seeking control of supply system
• Forward Integration Firm seeking control of distribution system
• Horizontal Integration Firm seeking control of some competition
• Diversification Firm expands outside present system
Backward Integration
• New York Times buying paper mill
• Holiday Inn owning mattress factory
• Ford owning steel mill
Forward Integration
• Pepsi Cola buying local Pepsi distributors
• Gap
• IBM opening retail outlets
Horizontal Integration
• Earnst and Whinney merging with Authur Young
• Nestle buying Carnation
• Chevron buying Gulf
• Chemical Bank buying Chase
Diversification
• Sony buying CBS records
• Quaker Oats owning Fisher-Price toys
• Borden buying a fertilizer plant
Key terms
• Sales
• Market penetration
• Market share
• Relative market share
• Industry growth
Key terms• Sales = units sold
• Category penetration = % of people that has used the product at least once
• Market share = Sales of brand / Total industry sales
Key terms
• Relative market share = Market share of brand / market share of leader (or second place competitor as the case maybe).
• Industry growth =Increase / decrease in industry sales for the year
Market ShareLet’s say industry Jai has three firms.
• A sells 50 units;• B sells 40 units• C sells 10 units
• Total Industry Sales = 50 + 40 + 10 = 100
Market Share
• Market share for A = Sales of brand / Total industry sales
• Market share for A = 50 / 100 = 50%
• Market share for B = 40 / 100 = 40%
• Market share for C = 10 / 100 = 10%
• Who is the leader?
Relative Market Share
• Relative market share for A = Market share of brand / market share of second place competitor
• RMS for A = 50 / 40 = 1.25
• Relative market share for B = Market share of brand / market share of leader
• RMS for B = 40 / 50 = 0.8
• Relative market share for C = 10 / 50 = 0.2
Market Share Example # 2Let’s say industry Jane has two firms.• A sells 60 units;• B sells 40 units• Market share for A = 60%
• Market share for B = 40%
• Relative Market share for A = 60 / 40 = 1.5• Relative Market share for B = 40 / 60 = 0.67
Last steps of the Planning Process
V. Implementing strategy
VI. Evaluate & Monitor
Market Attractiveness/Business Strength Matrix
Marketing Planning Process
Marketing Strategy
Product
Promotion
Distribution
Price
Marketing Mix
Business Mission Statement
Objectives
Situation or SWOT Analysis
ImplementationEvaluation
Control
Target Market Strategy
The Marketing Plan
• Executive Summary
• Environmental Analysis
• SWOT Analysis
• Marketing Objectives
• Marketing Strategies
• Marketing Implementation
• Evaluation and Control