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Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007

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Chapter 1

Competition and product strategy


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• Global competition

• Marketing and competitive success

• Environmental change

• Life cycles and evolution

• The nature of competition

• Product strategy – its nature and importance

Agenda


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The history of human development is based on the twin concepts of Task specialisation and exchange.

Task specialisation increases productivity and value added,but specialists must be able to exchange surpluses of

their output for other goods and services. The means of doingthis is through the establishment of markets – both real and virtual.

Technological innovation, entrepreneurship, the division of labour and professional management increase both the

volume and variety of goods and services available for exchange.

International trade, based on the Theory of comparative advantage,leads to global competition and further increases in productivity.


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‘Success in business is success in a market.Firms go out of business not by closing factoriesbut by unprofitable marketing. Firms usually entera business by creating products (i.e. goods andservices) but stay in business only by creatingand retaining customers at a profit’.

[O’Shaughnessy]


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A recent survey of top European CEO’s identifiedeight factors which characterize the environmentfacing management:

1. A demand for quality and advice.2. A move towards a service culture.3. An emphasis upon the specialist.4. Shortening strategic time horizons.5. Scenario planning replacing forecasting.6. Reduction in head office functions.7. A wider international outlook.8. Tighter legislation.


Slide 1.6

The changing business environment

• Accelerating technological change• Globalisation• Mergers, acquisitions and strategic alliances• Demographics• Deregulation and privatisation• Changes in business practices – downsizing,

outsourcing, re-engineering etc.• Ethical and ecological concerns


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Reasons for the success of the managementbest sellers:

1. They assert the superiority of American management and systems.

2. They stress the entrepreneurial values and the moneymaking ethic so strongly challenged by the consumerist movement of the 1960s and 1970s.


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• They are based on the analysis, practice and procedure in firms or of people who are leaders in their field and manifestly successful.

• They reduce the ingredients of success to simple catechisms or formulae.

• They emphasise that the essential catalyst and hero of the piece is the manager.

Examples: In Search of Excellence, Iaoccoca, One Minute Manager, The IBM Way, Making it Happen.


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Peters and Waterman’s eight attributes:

1. A bias for action.2. Close to the customer.3. Autonomy and entrepreneurship.4. Productivity through people.5. Hands-on, value driven.6. Stick to the knitting.7. Simple form, lean staff.8. Simultaneous loose-tight properties.


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Under modern conditions of competition it isbecoming increasingly risky not to innovate.At the same time it is extremely expensiveand risky to innovate:

• Most product ideas which go into development never reach the market.• Many of the products which reach the market fail.• Successful products have shorter life cycles.


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It is accepted that, at the national level,

more than 90% of all economic growth

and progress is due to innovation.


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BUT…….

Most new products fail!


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We all agree that innovation

benefits both world and nation.

The question we must answer later

is, will it help the innovator?

[Kenneth Boulding]


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Research into competitiveness:

1. Popular, anecdotal track.

2. Academic track.


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Research weaknesses:

1. High-growth industries.

2. High-growth companies.

3. Single factor focus.

4. Operational vagueness.


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• Extensive review of the literature

• Semi-structured interviews with opinionleaders

• Matched samples:– successful and unsuccessful– sunrise and sunset

• Structured interviews with MD’s of 86 firms

• Funded by ESRC and IM

Project MACS


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In above average companies:

• Marketing personnel meet more often withthe top-level decision makers.

• Marketing responsibility is defined withina sales and/or marketing department.


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In below average companies:

• Marketing personnel meet less often with thetop-level decision-makers

• Marketing responsibility is left to the parent company.

• Marketing responsibility is isolated in general-purpose, support functions.


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Above average companies:• Do more strategic planning• Have plans covering longer time horizons• Quantify strategic objectives more frequently• Are more aware of the strategic relevance of

forecasts of market share• Are more aware of the strategic importance of

liquidity and of continuous product and process development

• Follow strategies of market penetration,market and product development simultaneously


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Above average companies:• Invest more in in-house and external market

research• Are more actively involved in undertaking customer

surveys and field experiments• Are more committed to forecasting competitive

activity• Collect internal information more frequently• Are involved in more types of market segmentation


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Queen’s award winners:• Have ‘product champions’ with power and authority• Interact closely with customers/users in design and

development stages• Have a higher technological content than rivals• Conduct continuous reviews of the environment during and after product design• Make greater use of new and improved

manufacturing techniques• Design is involved through to commercialization. [Ughanwa & Baker, 1989]


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Japanese new product development:• Emphasizes strategic management of technology

as a source of competitive advantage• Constantly monitors consumer needs• Makes little use of external consultants• Sees users as an important source of new product

ideas• Makes little use of test marketing –emphasizes speed. [Kheir-El-Din & Baker,1991]


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Seven conclusions:

Marketing is good for you.Distinguish between trappings and substanceNo ‘MAGIC’ factorsThe correlates of successful companies are situation specificA customer orientation is key – but not at any price!Production and selling are not dirty wordsBe yourself – commitment and implementation


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Characteristics of a successful business:

• Vision directed with shared values and culture• Innovative, entrepreneurial• Flexible, learning

• Customer focused

Source: Wind and West (1991,1993)


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Three roads to competitive success:

Build a better product at the market price.

Build the same product at a lower price.

Create a monopoly through a customer franchise.


Slide 1.26

All firms compete within the same macro-environment.

The nature of this environment is determined bya wide variety of factors usually summarised as:

• Political and legal• Economic• Social• Technological

Hence, PEST analysis

Environmental change


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Most predictions of environmental change arebased on the assumptions that, ultimately,

supply is fixed but that demand will continue to grow.

As ‘Demand’ is determined by the size of the world’s population it is clear that, if the former assumption is

correct, then the latter cannot be – an outcome predicted by Malthus in 1797.

Fulfilment of Malthus’ prediction has been deferredlargely as a result of technological innovation – or,

in marketing terms new product and processdevelopment


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Technological innovation is both an evolutionaryand a revolutionary process.

Evolution is essentially a gradual and cyclicalprocess whereby more successful species displaceless successful ones – the survival of the fittest.

However, this cycle may be punctuated by dis-continuities which have a major impact on the process.

A consequence of this is that all phenomena have aLife cycle.


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In business the ‘survival of the fittest’ is determinedby the forces of competition.

These forces have been summarised by Porter(1979) as:1. The threat of new entrants2. The threat of substitution3. The bargaining power of suppliers4. The bargaining power of customers5. Rivalry between current competitors

Analysis of these forces confirms that differentiationis the key to survival.


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In competing with one another firms have only a limited number of strategic options available to them. These were identified by Ansoff (1957) in a Growth Vector Matrix.

Diversification

Marketdevelopment

New product development

Marketpenetration

Present NewProduct

Present

New

Mis

sio

n


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The MACS study showed that the most successful companiespursued strategies of market penetration, market developmentand new product development simultaneously.

In seeking to develop and maintain a sustainable competitiveadvantage (SCA) firms compete through cost leadership or differentiation.

Cost leadership is only possible for very large firms.

Differentiation is the preferred approach for the vast majorityand it is this that has resulted in the emphasis on innovationand new product development as the favoured strategy.


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Five alternatives are open to the firm when competing through products based on:

• Product proliferation

• Value

• Design

• Innovation

• Service

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Documents

marketing personnel meet

product development simultaneously

marketing responsibility

market penetration

product development

product strategy

market development

structured interviews