Creating

Competitive
Advantage

Chapter 18

Objectives
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.
Realize the need for balancing customer
and competitor organizations in order to
become a truly market-centered
organization.

c
Intel

Has dominated the

chip industry
Success is directly
related to Intels
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

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

Definition
Competitive Analysis
The process of identifying key
competitors; assessing their
objectives, strategies, strengths
and weaknesses, and reaction
patterns; and selecting which
competitors to attack or avoid.

Figure 18-1:

Steps in Analyzing
Competitors

Competitor Analysis
Steps in the
Process:
Identifying
Competitors
Assessing
Competitors
Selecting
Competitors to
Attack or Avoid

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
Competitor

can help

maps

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

Figure 18-2:

Competitor Map

Discussion Question
Create a competitor
map for one of the
following:

WalMart
McDonalds
Nike
Starbucks
Google

Competitor Analysis
Steps in the
Process:
Identifying
Competitors
Assessing
Competitors
Selecting
Competitors to
Attack or Avoid

Determining
competitors objectives
Identifying competitors
strategies
Strategic groups

Assessing competitors
strengths and
weaknesses
Benchmarking

Estimating competitors
reactions

Competitor Analysis
Steps in the
Process:
Identifying
Competitors
Assessing
Competitors
Selecting
Competitors to
Attack or Avoid

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

Competitive Strategies
Basic Winning Competitive
Strategies: 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

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

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

Figure 18-3:

Hypothetical
Market Structure

Competitive Strategy
Competitive
Positions
Market Leader
Market
Challenger
Market
Follower
Market Nicher

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 Strategy
WD-40 has a knack
for developing new
uses for its product.
What other brands
have adopted a
similar strategy?

WD40

Competitive Strategy
Competitive
Positions
Market Leader
Market
Challenger
Market
Follower
Market Nicher

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

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

Competitive Strategy
Competitive
Positions
Market Leader
Market
Challenger
Market
Follower
Market Nicher

Follow the market

leader
Focus is on improving
profit instead of
market share
Many advantages:
Learn

from the
market leaders
experience
Copy or improve on
the leaders offerings
Strong profitability

Dial Corporation
successfully
uses a market
follower strategy

Competitive Strategy
Competitive
Positions
Market Leader
Market
Challenger
Market
Follower
Market Nicher

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

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

Game playing industry

a.

Nintendo
a. Wii hyperlink

b.

Microsoft
a. Xbox 360

c.

Sony
a. Play Station

Threat of New Entry

the existence of barriers to entry
economies of product differences
brand equity
switching costs
capital requirements
access to distribution
absolute cost advantages
learning curve advantages
expected retaliation
government policies

Competitive Rivalry
number of competitors
rate of industry growth
intermittent industry overcapacity
exit barriers
diversity of competitors
informational complexity and
asymmetry
brand equity
fixed cost allocation per value added
level of advertising expense

Supplier Power
supplier switching costs relative to
firm switching costs
degree of differentiation of inputs
presence of substitute inputs
supplier concentration to firm
concentration ratio
threat of forward integration by
suppliers relative to the threat of
backward integration by firms
cost of inputs relative to selling price
of the product

Buyer Power
buyer concentration to firm concentration
ratio
bargaining leverage
buyer volume
buyer switching costs relative to firm
switching costs
buyer information availability
ability to backward integrate
availability of existing substitute products
buyer price sensitivity
price of total purchase

Threat of Substitution
buyer propensity to
substitute
relative price performance of
substitutes
buyer switching costs
perceived level of product
differentiation