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CRAVENS

PIERCY

8/e
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Chapter Three

Markets and
Competitive
Space

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.


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MARKETS AND
COMPETITIVE SPACE

 Markets and
Strategies
 Product-Market Scope
and Structure
 Describing and
Analyzing End-Users
 Analyzing
Competition
 Developing a
Strategic Vision about
the Future
MAR KE TS AND
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COMP ETITIV E
SP―ACE
The Challenges
Markets are increasingly complex,
turbulent, and interrelated.
Importance of a broad view of the
market.
Essential to develop a vision about
how the market is likely to change in
the future.
Continuous Monitoring is Necessary to:
Find promising opportunities
Identify shifts in value requirements
Understand competitors’ positioning
Guide targeting and positioning
decisions
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MARKETS AND
STRATEGIES

Markets and
Strategies are
Interlinked

Forming Value
a Shared Migration
Vision Challenges
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Markets I mpact
Strategi es

 Market changes often


require altering strategies
 Forces of change create

both market opportunities


and threats
 Inherent danger in faulty

market sensing
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Val ue Mi grati ons

 Customers shift
purchasing to new
business designs with
enhanced value offering
 Beware of disruptive

technologies
 Market sensing and

organizational learning are


essential
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PROD UCT- MAR KE T


SCOP E AND
STRUCTURE

Matching Needs with Product


Benefits
Product-Market Boundaries and
Structure
Forming Product-Markets for
Analysis
The Changing Composition of
Markets
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Ma tchin g Needs
wi th Produ ct
Benef its
 A product – market matches
people with needs to the
product benefits that satisfy
those needs

“A product – market is the set


of products judged to be
substitutes within those
usage situations in which
similar patterns of benefits
are sought by groups of
customers.”*
*Srivastava, et al. (1984) Journal of Marketing, Spring, 32.
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INNOVA TION
FEATURE
Progressive Insurance:
Customer Needs at the Center of
Strategy
 In the period 1994 to 2004, Progressive Insurance
increased sales from $1.3 billion to $9.5 billion, and ranks
high in the Business Week Top 50 U.S. companies for
shareholder value creation.
 The company invents new ways of providing services to
save customers time, money and irritation, while often
lowering costs at the same time.
 Loss adjusters are sent to the road accidents rather than
working at head office, and they have the power to write
checks on the spot.
 Progressive reduced the time needed to see a damaged
automobile from seven days to nine hours.
 Policy holders’ cars are repaired quicker, and the focus on
this central customer need has won much automobile
insurance business for Progressive.
 These initiatives also enable Progressive to reduce its own
costs – the cost of storing a damaged automobile for a day
is $28, about the same as the profit from a six-month
policy.
Source: Adapted from Mitchell, Adrian (2004)”Heart of the Matter,” The Marketer,
June 12, 14.
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Product – Market
Boundaries and
St ructur e
 Determining Product-Market
Structure

3. Start with the generic need


satisfied by the product
category of interest to
management
4. Identify the product
categories (types) that can
satisfy the generic need
5. Form the specific product –
markets within the generic
product – market
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Illustrative Fast-
Food
Product-Market
Structure
SUPER MICROWAVE
MARKETS OVENS

FAST-FOOD
MARKET

CONVENIENCE TRADITIONAL
STORES RESTAURANTS
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Formi ng Product
– Market s for
Analy si s
Factors influencing
product – market
boundaries:

Purpose of analysis

Changing composition
of markets

Extent of market
complexity
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The Changi ng
Com posi ti on of
Ma rkets
 Change due to new
technologies and emerging
competition
 Consider existing and

emerging markets
 Identify alternative ways to

meet needs
 Extend product-market

analysis beyond industry


boundaries (e.g. Fast-foods)
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Ex tent of
Mark et
Compl exit y
 Three characteristics of
markets:

– 1. Functions or uses of
the product

– 2. The enabling
technology of the product

– 3. Customer segments in
the product-market
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Ill us trati ve
Product – Market
Structure
Food and beverages •Generic Product
for breakfast meal
Class

Cereals •Product Type

Ready to eat •Variant A

Regular
Natural •Variant B
Pre-sweetened
Nutritional

Life Product 19 Special K •Brands


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DEFINI NG AND
ANA LYZING
MARKET
Define S
Product-Market
Boundaries and Structures

Identify and Describe End-


Users

Analyze Industry and


Value Added Chain

Evaluate Key Competitors

Forecast Market Size


and Growth Trends
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Identifying and
Describing Buyers

Building
DESCRIBING How
AND Buyers
Customer
Make
Profiles ANALYZING Choice
END-USERS s

Environmental
Influences
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Identi fyi ng and


Descri bi ng End-
Users
 Illustrative buyer
characteristics in
consumer markets:
 Family size, age,
income, geographical
location, sex, and
occupation
 Illustrative factors in
organizational markets:
 Type of industry
 Company size
 Location
 Type of products
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How Buyers Make


Choi ces
 BUYING DECISION
PROCESS:
 Problem recognition

 Information search

 Alternative evaluation

 Purchase decision

 Post-purchase behavior
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Env iro nmental


Inf lue nce s
 External factors
influencing buyers’
needs and wants:
 Government, social
change, economic
shifts, technology etc.
 These factors are often
non-controllable but can
have a major impact on
purchasing decisions
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Bui lding
Custom er
Prof iles
 Start with generic
product – market
 Move next to product-
type and variant profiles
>> increasingly more
specific
 Customer profiles guide
decision making (e.g.
targeting, positioning,
market segmentation
etc.)
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ANALYZING
COMPETITION
1. Define Industry
Structure and
Characteristics

5. Identify 2. Identify
New and
PRODUCT- Describe
Competitors MARKET Key
STRUCTURE Competitors
AND
MARKET
4. Anticipate SEGMENTS
Actions by 3. Evaluate
Competitors Key
Competitors
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Exampl es of
Lev els of
Competi ti on Baseball
cards

Bottle Video
water Games
Fast
Food

Regular Diet lemon Ice


colas limes Cream
Beer
Diet-Rite
Cola
Fruit
Diet Diet
flavored
Coke Pepsi Wine
colas
Product from
competition:
diet colas Lemon
limes
Juices Product category
competition:
soft drinks Coffee

Generic competition:
beverages
Budget competition:
food & entertainment
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Indus try Anal ysi s

 Industry size, growth,


and composition
 Typical marketing
practices
 Industry changes that
are anticipated (e.g.
consolidation trends)
 Industry strengths and
weaknesses
 Strategic alliances
among competitors
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Def ining Indust ry


Str uctur e &
Charact eris tics
SUPPLIERS
■Industry Form
■Industry PRODUCERS
Environment
■Competitive
Forces WHOLESALERS/
DISTRIBUTORS
Value
Added
RETAILERS/ Chain
DEALERS

CONSUMER/
ORGANIZATIONAL
END USERS
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Com pet itiv e


Forces
1. Rivalry among existing firms.

2. Threat of new entrants.

3. Threat of substitute products.

4. Bargaining power of
suppliers.

5. Bargaining power of buyers.

Source: Michael E. Porter, Competitive Advantage, Free Press, 1985, 5.


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Key Comp eti tor


Analy si s
 Business scope and
objectives
 Management experience,
capabilities, and
weaknesses
 Market position and trends
 Market target(s) and
customer base
 Marketing program
positioning strategy
 Financial, technical, and
operating capabilities
 Key competitive advantages
(e.g., access to resources,
patents)
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Extent of
Market Coverage

Current Competitor Customer


Capabilities Evaluation Satisfaction

Past
Performance
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DEVELOPI NG A
ST RA TEGI C VIS ION
ABOUT T HE FUT UR E
Industry Boundaries Blurring
and Evolving

Competitive Structure and


Players Changing

Value Migration Paths

Product Versus Business


Design Competition

Firms are Collaborating to


Influence Industry Standards
Source: C. K. Prahalad, Journal of Marketing, Aug. 1995, vi.
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MAR KE T SI ZE
ES TIMATION
Product-Market Forecast
Relationships
(area denotes sales in $’s)
Market Potential
Estimate

Unrealized
Potential

Company Industry
Sales Sales
Forecast Forecast
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Product- Market
For ec ast
Relat ions hips f or
Industri al Pai nti ng
Un its
Sales (in 1000s
of units)

900
800
Market
700 Potentia
l
600 Sales
Forecast
500
400
300
200 Company XYZ
Sales Forecast
100
0
2001 2002 2003 2004 2005 2006 2007 2008