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CRAVENS

CRAVENS

PIERCY

PIERCY

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McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc., All

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Chapter Three

Markets and Competitive Space

McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc., All

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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

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MARKETS AND

COMPETITIVE

The Challenges

SPACE

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
Markets and
Strategies are
Interlinked
Forming
Value
a Shared
Migration
Vision
Challenges

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Markets Impact

Strategies

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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Value Migrations

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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PRODUCT-MARKET

SCOPE 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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Matching Needs

with Product

Benefits

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.”*

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INNOVATION

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

Structure

Determining Product-Market Structure

  • 1. Start with the generic need satisfied by the product category of interest to management

  • 2. Identify the product categories (types) that can satisfy the generic need

  • 3. 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 TRADITIONAL CONVENIENCE RESTAURANTS STORES
Structure
SUPER
MICROWAVE
MARKETS
OVENS
FAST-FOOD
MARKET
TRADITIONAL
CONVENIENCE
RESTAURANTS
STORES

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Forming Product –

Markets for

Analysis

Factors influencing product – market boundaries:

Purpose of analysis

Changing composition of markets

Extent of market complexity

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The Changing

Composition of

Markets

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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Extent of

Market Complexity

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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Illustrative

Product – Market

Food and beverages for breakfast meal
Food and beverages
for breakfast meal
Cereals
Cereals

Structure

Generic Product

Class

Product Type

Ready to eat Regular Natural Pre-sweetened Nutritional Life Product 19 Special K
Ready to eat
Regular
Natural
Pre-sweetened
Nutritional
Life
Product 19
Special K

Variant A

Variant B

Brands

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DEFINING AND

ANALYZING

MARKETS

Define Product-Market Boundaries and Structures

3-17 DEFINING AND ANALYZING MARKETS Define Product-Market Boundaries and Structures Identify and Describe End- Users Analyze

Identify and Describe End- Users

3-17 DEFINING AND ANALYZING MARKETS Define Product-Market Boundaries and Structures Identify and Describe End- Users Analyze

Analyze Industry and Value Added Chain

3-17 DEFINING AND ANALYZING MARKETS Define Product-Market Boundaries and Structures Identify and Describe End- Users Analyze

Evaluate Key Competitors

3-17 DEFINING AND ANALYZING MARKETS Define Product-Market Boundaries and Structures Identify and Describe End- Users Analyze

Forecast Market Size and Growth Trends

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Identifying and Describing Buyers

Building

Customer

3-18 Identifying and Describing Buyers Building Customer Profiles DESCRIBING AND ANALYZING END-USERS How Buyers Make Choice

Profiles

DESCRIBING AND ANALYZING END-USERS
DESCRIBING
AND
ANALYZING
END-USERS

How

Buyers

Make

3-18 Identifying and Describing Buyers Building Customer Profiles DESCRIBING AND ANALYZING END-USERS How Buyers Make Choice

Choice

s

Environmental

Influences

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Identifying and

Describing 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

Choices

BUYING DECISION PROCESS:

1. Problem recognition

  • 2. Information search

  • 3. Alternative evaluation

  • 4. Purchase decision

  • 5. Post-purchase behavior

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Environmental

Influences

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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Building Customer

Profiles

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. 1. Define Industry

Structure and

Characteristics

2. Identify 5. Identify and New PRODUCT- Describe Competitors MARKET Key STRUCTURE Competitors AND MARKET SEGMENTS
2. Identify
5. Identify
and
New
PRODUCT-
Describe
Competitors
MARKET
Key
STRUCTURE
Competitors
AND
MARKET
SEGMENTS
4. Anticipate
Actions by
3.
Evaluate

Competitors

Key

Competitors

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Examples of

Levels of Competition Baseball cards Bottle Video water Games Fast Food Regular Diet lemon Ice colas
Levels of
Competition
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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Industry Analysis

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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Defining Industry

Structure &

Characteristics

SUPPLIERS Industry Form Industry Environment Competitive Forces PRODUCERS WHOLESALERS/ DISTRIBUTORS Value Added RETAILERS/ Chain DEALERS CONSUMER/
SUPPLIERS
Industry Form
Industry
Environment
Competitive
Forces
PRODUCERS
WHOLESALERS/
DISTRIBUTORS
Value
Added
RETAILERS/
Chain
DEALERS
CONSUMER/
ORGANIZATIONAL
END USERS

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Competitive

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 Competitor

Analysis

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

Competitor Evaluation
Competitor
Evaluation

Current

Capabilities

Customer

Satisfaction

3-29 Extent of Market Coverage Competitor Evaluation Current Capabilities Customer Satisfaction Past Performance

Past

Performance

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DEVELOPING A

STRATEGIC VISION

ABOUT THE FUTURE

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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MARKET SIZE

ESTIMATION

Product-Market Forecast Relationships

(area denotes sales in $’s)

Market Potential

Estimate

3-31 MARKET SIZE ESTIMATION Product-Market Forecast Relationships ( area denotes sales in $’s ) Market Potential
3-31 MARKET SIZE ESTIMATION Product-Market Forecast Relationships ( area denotes sales in $’s ) Market Potential
3-31 MARKET SIZE ESTIMATION Product-Market Forecast Relationships ( area denotes sales in $’s ) Market Potential

Unrealized

Potential

Company

Industry

Sales

Sales

Forecast

Forecast

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Product-Market

Forecast

Relationships for

Industrial Painting

Units

Sales (in 1000s of units)

900 800 Market 700 Potentia l 600 Sales Forecast 500 400 300 200 Company XYZ Sales
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