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MARKETING MANAGEMENT

SESSION VI
-DEALING WITH COMPETITION
-DEVELOPING NEW PRODUCTS: Innovation
Marketing

Instructor:
Dr. S. Sahney
Visiting Faculty
School of Management, Asian Institute of Technology, Bangkok.
Source of Slides: 1. Philip Kotler 2. Rajan Saxena 3. Self
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DEALING WITH COMPETITION


Poor firms ignore their competitors; average firms copy
their competitors; winning firms lead their competitors.
KOTLER

DEALING WITH COMPETITION:


ISSUES:
-Know how marketers identify primary competitors
-Know how we should analyze competitors strategies,
objectives, strengths, and weaknesses
-Know how market leaders can expand the total market
and defend market share
-Know how market challengers should attack market
leaders
-Know how market followers or nichers can compete
effectively

COMPETITIVE FORCES:
A company must study competitors as well as actual and
potential customers.
Marketers need to identify competitors strategies,
objectives, strengths, and weaknesses.
i) Closest competitors: those seeking to satisfy the same customers
and needs and making similar offers.
ii) Latent competitors: those who may offer new or other ways to
satisfy the same needs.

Market leader:
- has the largest market share in the relevant product market;
- to remain dominant, the leader looks for ways to expand total market
demand, attempts to protect its current market share, and perhaps tries
to increase its market share.
Market challenger:
- attacks the market leader and other competitors in an aggressive
bid for more market share.
Market follower:
- a runner-up firm willing to maintain its market share and not rock
the boat.
Market nicher:
- serves small market segments not being served by larger firms.
- the key to nichemanship is specialization.
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HOW DO YOU DEAL WITH COMPETITION:


I

IDENTIFYING COMPETITORS:

- The range of a companys actual and potential competitors can be very


broad.
- An industrys competitive structure can change over time.

II

ANALYZING COMPETITORS:

- Once a company identifies its primary competitors, it must ascertain their


strategies, objectives, strengths, and weaknesses.
a
Identifying competitor strategies:
-A group of firms following the same strategy in a given target market is called a
strategic group.
b
Determining competitor objectives:
-Determine what each competitor is seeking in the marketplace?
-One useful initial assumption is that competitors strive to maximize profits.
- A company must monitor competitors expansion plans.
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A Competitors Expansion Plans

STRENGTHS AND WEAKNESSES:

- A company needs to gather information on each competitors strengths and


weaknesses.

A company should monitor three variables when analyzing competitors:


1. Share of market: The competitors share of the target market
2. Share of mind:
-The percentage of customers who name the competitor in responding to the
statement, Name the first company that comes to your mind in this industry.
3. Share of heart:
-The percentage of customers who name the competitor in responding to the
statement, Name the company from which you would prefer to buy the product.
Companies that make steady gains in mind share and heart share will
inevitably make gains in market share and profitability.
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Market Share, Mind Share, and Heart Share


Market Share

Mind Share

Heart Share

2000

2001

2002

2000

2001

2002 2000

2001 2002

Competitor A

50%

47%

44%

60%

58%

54%

45%

42%

39%

Competitor B

30

34

37

30

31

35

44

47

53

Competitor C

20

19

19

10

11

11

11

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III

ESTIMATING COMPETITOR REACTION PATTERNS:

-Laid-back (does not react)


-Selective (reacts only to certain types of attacks)
-Tiger (reacts to any assault)
-Stochastic (no predictable reaction)

IV
DESIGNING THE COMPETITIVE INTELLIGENCE SYSTEM
(focus today on Internet and competitor Web sites): Four main steps:
-Setting up the system
-Collecting the data
-Evaluating and analyzing the data
-Disseminating information and responding
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Customers Ratings of Competitors on Key Success Factors


Customer
Awareness

Product
Quality

Product
Availability

Technical
Assistance

Selling
Staff

Competitor A

Competitor B

Competitor C

Note: E = excellent, G = good, F = fair, P = poor.

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VII

SELECTING COMPETITORS:

After the company has conducted value analysis and examined competitors
carefully, it can focus its attack on one of the following classes of competitors:
-Strong versus weak
-Close versus distant
-Good versus bad

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VIII

DESIGNING COMPETITIVE STRATEGIES

Hypothetical
Market Structure

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COMPETITIVE STRATEGIES:
I

MARKET LEADERS:

a) Expanding the Total Market:


i) New Customers:
- look for potential buyers who are unaware of the product or who are resisting
it because of price or lack of certain features.
ii) More Usage:
- increase the level of quantity of consumption, frequency of consumption,
identifying completely new and different ways to use the brand,
communicate the appropriateness and advantages of using the brand.

b) Expanding Market Share:


- Cost vs. Benefit: Investment vs. Returns

c) Defending Market Share:


How:
By continuous innovation:

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II

MARKET-CHALLENGER STRATEGIES:

a) A market challenger must first define its strategic objective.


- The challenger must decide whom to attack:
-It can attack the market leader
-It can attack firms of its own size that are not doing the job and are
underfinanced
-It can attack small local and regional firms

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-The challenger can use specific strategies like:


-Price discount.
-Lower price goods.

-Value priced goods and services.


-Prestige goods.
-Product innovation.

-Improved services.
-Manufacturing-cost reduction.
-Intensive advertising promotion.
-A challengers success depends upon combining several strategies to
improve its position over time.
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III

MARKET-FOLLOWER STRATEGIES:

- Product imitation might be as profitable as product innovation.


-Many companies prefer to follow rather than challenge the market leader.
-Conscious parallelism
- Four broad strategies can be distinguished:
a) Counterfeiter: duplicates the leaders products and packages and sells it on
the black market or through disreputable dealers.
b) Cloner: emulates the leaders products, name and packaging, with slight
variations
c) Imitator: copies some things from the leader but maintains differentiation in
terms of packaging, advertising, pricing or location.
d) Adapter: takes the leaders products and adapts or improves them
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DEVELOPING NEW PRODUCTS: Innovation


Marketing

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-DEVELOPING NEW PRODUCTS: Innovation Marketing


- Know what challenges a company faces in developing
new products
- Know what organizational structures are used to manage
new-product development
- Know what are the main stages in developing new
products
- Know what is the best way to set up the new product
development process
- Know what factors affect the rate of diffusion and
consumer adoption of newly launched products
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New product development shapes the companys


future:
-improved or replacement products will maintain or
build sales.
Companies need to grow their revenue over time by
developing new products and expanding into new
markets.
Marketers play a key role in the new-product process
by identifying and evaluating new product ideas and
working with R&D and others in every stage of
development.
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Johnson & Johnson emphasizes


New Product Development

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-Most new-product activity is devoted to improving existing


products.
-Less than 10 percent of all new products are truly innovative and new
to the world; these products involve the greatest cost and risk because
they are new to both the company and the marketplace.

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Why innovating?
-Changing Customer Needs (demand pull)
-New technological opportunities match unfulfilled customer
needs (tech push)
-Price changes, eg., oil (=induced innovation)
-Discover new market segments
-Innovating out of the competition
-Competitors have launched imitations
-Competitor has launched a new product
-No growth of existing product lines.
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The Worlds
Most Innovative Companies
Apple
Google
Toyota
General Electric
Microsoft
Procter & Gamble
3M
Walt Disney

IBM
Sony
Wal-Mart
Honda
Starbucks
Target
BMW
Samsung

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-A company can add new products through acquisition or


development.

a) acquisition:
-the company can buy other companies, acquire patents from other
companies, buy a license or franchise from another company.

b) development:
-develop new products in its own laboratories; contract with
independent researchers or new-product development firms to develop
new products.

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New Product Categories:


1.Repositioning (new, cosmetic changes)
2.Improved Product (utility or cost)
3.New to the firm but not to the market(=imitation,
me-too with marginal changes)
4.New-to-the market within an existing product line
(=line extension)
5.New Product Line
Risk

6. Radically new product

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MANAGING THE DEVELOPMENT PROCESS: IDEA


A

Idea Generation:

i) Interacting with Others: sources like customers, scientists, competitors,


employees, channel members, and top management.
- Increasingly, new product ideas arise from lateral marketing that combines
two product concepts or ideas to create a new offering:
eg. Gas station stores = Gas stations + food;
I pod: audio-video + portable.

Idea Screening:

- Ideas should be written down and reviewed each week by an idea committee
The purpose of screening is to drop poor ideas as early as possible.
The rationale is that product-development costs rise substantially with each
successive development stage.
- 2 Kinds of errors:
i) A GO-error occurs when the company permits a poor idea to move into
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development and commercialization.
ii) A DROP-error occurs when the company dismisses an otherwise good idea.

The executive committee reviews each idea against a set of criteria.

Product-Idea Rating Device


Relative
Weight

Product
Score

Product
Rating

Product Success Requirements

(a)

(b)

(c = a x b)

Unique or superior product

.40

.8

.32

High performance to cost ratio

.30

.6

.18

High marketing dollar support

.20

.7

.14

Lack of strong competition

.10

.5

.05

Total

1.00

.69

Rating scale: .00-.30 poor; .31-.60 fair; .61-.80 good. Minimum acceptance rate: .61

The surviving ideas can be rated using a weighted-index method.


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As the idea moves through development, the company will constantly


need to revise its estimate of the products overall probability of
success using the following formula:

Overall
Probability
of Success

Probability of
Technical
Completion

Probability of
Commercialization
given
Technical
Completion

Probability of
Economic
Success
given
Commercialization

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Concept Testing:

Concept testing involves presenting the product concept to target


consumers and getting their reactions.
- entails presenting consumers with an elaborated version of the concept.
-the concepts can be presented symbolically or physically.

- rapid prototyping to design products


- Customer-driven engineering.
The respondents answers indicate whether the concept has:
-A broad consumer appeal.
-What products this new product competes against.
-Which consumers are the best targets.

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Marketing Strategy Development:

Following a successful concept test, the new-product manager


will develop a preliminary strategy plan for introducing the new
product into the market.
The plan consists of three parts:
- The first part describes the target markets size, structure and
behavior; the planned products positioning; and the sale, market
share, profit goals in the first few years.
- The second part outlines planned price, distribution strategy, and
marketing budget for the first year.

- The third part describes the long-run sales and profit goals.
marketing-mix strategy over time.
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Business Analysis:

-After management develops the product concept and marketing


strategy, it can evaluate the proposals business attractiveness.
-Management needs to prepare sales, cost, and profit projections
to determine whether they satisfy company objectives.
-If it does, then the concept can move into the development stage.

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Product Development:

- Physical Prototypes
- QFD
- Customer attributes, Engineering attributes

The R&D department will develop one or more physical versions of the
product concept.
-Customer Tests
When the prototypes are ready, they must be put through rigorous
functional tests and consumer tests.
i) Alpha testing is a name given to testing the product within the company.
ii) Beta testing is testing the product with customers.

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G
Market Testing:
- the marketers can learn how large the market is, and how
consumers and dealers react to handling, using, and repurchasing
the product.
- The amount of market testing is influenced by the investment cost,
risk on the one hand, and time pressure and research on the other.

- High investmenthigh-risk products, where the chance of failure is


high, must be market tested.
- High-risk products, those that create new-product categories or have
novel features warrant more market testing than modified products.

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Test Markets in Europe


Belgium
Switzerland
Habloch, Germany
Angers, France
Test Markets in Asia
Japan for Asia
Taiwan for China
Kerela for India
Hongkong
Singapore

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H
Commercialization
- If the company goes ahead with commercialization, it will face its
biggest costs to date.

Issues:
i) When (Timing):
In commercializing a new product, market-entry timing is critical.
-The company faces three choices: First entry. Parallel entry. Late entry.
-The timing decision involves additional considerations: does the new product
replaces an older product (finish with stocks of older version first); if the product
is seasonal (wait for the right season) .
ii) Where (Geographic Strategy):
-The company must decide whether to launch the new product in a single
locality, a region, several regions, the national market, or the international
market.
-Most will develop a planned rollout over time.
- In choosing rollout markets, the major criteria are: Market potential,
Companys local reputation, Costs involved, Cost of communications media,
Competitive penetration.
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iii) To Whom (Target-Market Prospects):


-Within the rollout markets, the company must target its initial
distribution and promotion to the best prospect groups.
- These would be the: early adopters, heavy users, opinion leaders, also those
who can be reached at a low cost.
iv) How (Introductory Market Strategy):
The company must develop an action plan for introducing the new product into
the rollout markets.

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THE CONSUMER-ADOPTION PROCESS


Adoption is an individuals decision to become a regular user of a
product.
Stages in the Adoption Process
-An innovation is any goods, service, or idea that is perceived by
someone as new. Innovations take time to spread through the
social system.
-Adopters of new products have been observed to move through five
stages:
-Awareness.
-Interest.
-Evaluation.
-Trial
Adoption.
The new-product marketers should facilitate movement through these
stages.

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