CH 1 Competition

Slide 1.
Chapter 1
Competition and product
strategy
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 1.2
Agenda
Global competition
Marketing and competitive success
Environmental change
Life cycles and evolution
The nature of competition
Product strategy its nature and importance
Slide 1.3
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 doing
this 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.
Slide 1.4
Success in business is success in a market.

Firms go out of business not by closing factories
but by unprofitable marketing. Firms usually enter
a business by creating products (i.e. goods and
services) but stay in business only by creating
and retaining customers at a profit.
[OShaughnessy]
Slide 1.5
A recent survey of top European CEOs identified

eight factors which characterize the environment
facing management:
1.
2.
3.
4.
5.
6.
7.
8.
A demand for quality and advice.

A move towards a service culture.
An emphasis upon the specialist.
Shortening strategic time horizons.
Scenario planning replacing forecasting.
Reduction in head office functions.
A wider international outlook.
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
Slide 1.7
Reasons for the success of the management

best 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.
Slide 1.8
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.
Slide 1.9
Peters and Watermans eight attributes:

1.
2.
3.
4.
5.
6.
7.
8.
A bias for action.

Close to the customer.
Autonomy and entrepreneurship.
Productivity through people.
Hands-on, value driven.
Stick to the knitting.
Simple form, lean staff.
Simultaneous loose-tight properties.
Slide 1.10
Under modern conditions of competition it is

becoming increasingly risky not to innovate.
At the same time it is extremely expensive
and 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.
Slide 1.11
It is accepted that, at the national level,

more than 90% of all economic growth
and progress is due to innovation.
Slide 1.12
BUT.
Most new products fail!
Slide 1.13
We all agree that innovation

benefits both world and nation.
The question we must answer later
is, will it help the innovator?
[Kenneth Boulding]
Slide 1.14
Research into competitiveness:

1. Popular, anecdotal track.
2. Academic track.
Slide 1.15
Research weaknesses:
1.
2.
3.
4.
High-growth industries.
High-growth companies.
Single factor focus.
Operational vagueness.
Slide 1.16
Project MACS
Extensive review of the literature
Semi-structured interviews with opinion
leaders
Matched samples:
successful and unsuccessful
sunrise and sunset
Structured interviews with MDs of 86 firms

Funded by ESRC and IM
Slide 1.17
In above average companies:

Marketing personnel meet more often with
the top-level decision makers.
Marketing responsibility is defined within
a sales and/or marketing department.
Slide 1.18
In below average companies:

Marketing personnel meet less often with the
top-level decision-makers
Marketing responsibility is left to the parent
company.
Marketing responsibility is isolated in
general-purpose, support functions.
Slide 1.19
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
Slide 1.20
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
Slide 1.21
Queens 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]
Slide 1.22
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]
Slide 1.23
Seven conclusions:
Marketing is good for you.
Distinguish between trappings and substance
No MAGIC factors
The correlates of successful companies are
situation specific
A customer orientation is key but not at any price!
Production and selling are not dirty words
Be yourself commitment and implementation
Slide 1.24
Characteristics of a successful business:

Vision directed with shared values and culture
Innovative, entrepreneurial
Flexible, learning
Customer focused
Source: Wind and West (1991,1993)
Slide 1.25
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
Environmental change
All firms compete within the same macro-environment.
The nature of this environment is determined by
a wide variety of factors usually summarised as:
Political and legal

Economic
Social
Technological
Hence, PEST analysis
Slide 1.27
Most predictions of environmental change are

based on the assumptions that, ultimately,
supply is fixed but that demand will continue to grow.
As Demand is determined by the size of the worlds
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 deferred
largely as a result of technological innovation or,
in marketing terms new product and process
development
Slide 1.28
Technological innovation is both an evolutionary

and a revolutionary process.
Evolution is essentially a gradual and cyclical
process whereby more successful species displace
less successful ones the survival of the fittest.
However, this cycle may be punctuated by discontinuities which have a major impact on the process.
A consequence of this is that all phenomena have a
Life cycle.
Slide 1.29
In business the survival of the fittest is determined

by the forces of competition.
These forces have been summarised by Porter(1979) as:
1. The threat of new entrants
2. The threat of substitution
3. The bargaining power of suppliers
4. The bargaining power of customers
5. Rivalry between current competitors
Analysis of these forces confirms that differentiation
is the key to survival.
Slide 1.30
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.
Product
New
Present
New product
development
New
Market
development
Diversification
Mission
Present
Market
penetration
Slide 1.31
The MACS study showed that the most successful companies

pursued strategies of market penetration, market development
and new product development simultaneously.
In seeking to develop and maintain a sustainable competitive
advantage (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 majority
and it is this that has resulted in the emphasis on innovation
and new product development as the favoured strategy.
Slide 1.32
Five alternatives are open to the firm when

competing through products based on:
Product proliferation
Value
Design
Innovation
Service

CH 1 Competition

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Slide 1.

The history of human development is based on the

Success in business is success in a market.

A recent survey of top European CEOs identified

A demand for quality and advice.

The changing business environment

Accelerating technological change

Reasons for the success of the management

They are based on the analysis, practice and

Peters and Watermans eight attributes:

A bias for action.

Under modern conditions of competition it is

It is accepted that, at the national level,

We all agree that innovation

Research into competitiveness:

Structured interviews with MDs of 86 firms

In above average companies:

In below average companies:

Above average companies:

Do more strategic planning

Above average companies:

Queens award winners:

Japanese new product development:

Characteristics of a successful business:

Source: Wind and West (1991,1993)

Three roads to competitive success:

Political and legal

Hence, PEST analysis

Most predictions of environmental change are

Technological innovation is both an evolutionary

In business the survival of the fittest is determined

In competing with one another firms have only a limited number of

The MACS study showed that the most successful companies

Five alternatives are open to the firm when

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