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Chapter 18 CREATING COMPETITIVE ADVANTAGE

MARKETING STARTER: CHAPTER 18


Four Seasons: Inspiring Everyone to Create Customer Satisfaction and Value
Synopsis At a Four Seasons hotel, every guest is a somebody. As a result of its customer intimacy strategy, Four Seasons has a cult-like customer clientele. Whats the secret to bringing the Four Seasons customer intimacy strategy to life? Its really no secret. Just ask anyone who works there. Just as it does for customers, Four Seasons respects and pampers its employees. It knows that happy, satisfied employees make for happy, satisfied customers. Four Seasons brings this customer-service culture to life by hiring the best people, orienting them carefully, instilling in them a sense of pride, and motivating them by recognizing and rewarding outstanding service deeds. Once on board, all new employees receive three months of training, including improvisation exercises that help them to fully understand customer needs and behavior. Creating customer satisfaction and value involves more than just crafting a lofty competitive marketing strategy and handing it down from the top. At Four Seasons, creating customer value is a whole-company affair.

Discussion Objective
A discussion of the Four Seasons story provides an example of how a company creates an infectious culture of superior customer service by treating its employees so well they fall in love with the organization and the guests they serve. As a result, they become Four Seasons top brand ambassadors, whether they are on the job or not. This story also underscores the lesson that training and compensating good employees is not just an expense it is a marketers best investment.

Starting the Discussion


To start the discussion, ask students how they are treated by their current employers. How does that treatment make them feel about the jobs they do? How do those feelings in turn affect the way they treat clients or customers? Responses will vary widely from positive to negative. Go online and visit the Four Seasons website at www.fourseasons.com. As a group, explore how the companys customer intimacy strategy pulls through every aspect of the website and the hotel groups various properties. Which elements of excellent customer service are evident here? Next, visit www.tripadvisor.com. Read customer reviews on several of the properties. Again, how does Four Seasons customer intimacy strategy surface in the guest reviews? Use the following questions to guide the discussion.

Discussion Questions
1. What is the Four Seasons customer intimacy strategy? (This strategy means pampering customers to keep them coming back. Explain that the luxury chain enlists everyone from the CEO to the doorman in its mission to create superior customer value and keep customers coming back. Its mission is to perfect the travel experience through the highest standards of hospitality. As a result of its customer intimacy strategy, Four Seasons has built a cult-like customer clientele.) Four Seasons founder and CEO Isadore Sharp says, How you treat your employees is a reflection of how you expect them to treat customers. What does this quote mean? (The Four Seasons customer-service legacy is deeply rooted in the companys culture, which in turn is grounded in the Golden R ule. Just as it does for customers, Four Seasons respects and pampers its employees. Remind students that happy, satisfied employees make for happy, satisfied customers. Ask students how Four Seasons brings this customer-service culture to life. Its done by hiring the best people, orienting them carefully, instilling in them a sense of pride, and motivating them by recognizing and rewarding outstanding service deeds.) Copyright2014 Pearson Education

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How does the Four Seasons story relate to the competitive strategy concepts in Chapter 17? (This chapter is all about developing and creating competitive advantage. Four Seasons has crafted a competitive marketing strategy that is right for its customers and the competitive hospitality marketplace.)

CHAPTER OVERVIEW
Use Power Point Slide 18-1 here This chapter pulls all of the marketing basic together. Understanding customers is an important first step in developing profitable customer relationships, but it is not enough. To gain competitive advantage, companies must use this understanding to design marketing offers that deliver more value than the offers of competitors seeking to win the same customers. This chapter looks at competitor analysis, the process companies use to identify and analyze competitors. Then, the chapter moves to competitive marketing strategies by which companies position themselves against competitors to gain the greatest possible competitive advantage.

CHAPTER OBJECTIVES
Use Power Point Slide 18-2 here 1. Discuss the need to understand competitors as well as customers through competitor analysis. 2. Explain the fundamentals of competitive marketing strategies based on creating value for customers. 3. Illustrate the need for balancing customer and competitor orientations in becoming a truly market-centered organization.

CHAPTER OUTLINE
p. 526 INTRODUCTION At Four Seasons, creating customer satisfaction and value involves more than just crafting a lofty competitive marketing strategy and handing it down from the top. Here, creating customer value is a whole-company affair. Four Seasons brings its customer intimacy strategy to life by hiring the best people, orienting them carefully, instilling in them a sense of pride, and motivating them by recognizing and rewarding outstanding service deeds. Four Seasons founder and CEO Isadore Sharp says, When we say people are our most important assetits not just
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p. 525 Photo: Four Seasons

talk. Just as it does for customers, Four Seasons respects and pampers its employees. It knows that happy, satisfied employees make for happy, satisfied customers. Assignments, Resources Use Web Resources 1 and 2 here Opening Vignette Questions 1. What unique consumer insights helped Four Seasons produce its winning customer intimacy strategy? 2. Can you picture any circumstances under which the companys lavish treatment of employees might not pay off? Explain. 3. What is Four Seasons next marketing move at this stage? What might you envision for them moving forward? p. 525 Todays companies face their toughest competition ever. To win in todays marketplace, companies must become adept not just in managing products, but in managing customer relationships in the face of determined competition. p. 525 Key Term: Building profitable customer relationships and gaining Competitive competitive advantage requires delivering more value and Advantage satisfaction to target consumers than competitors do. p. 526 Customers will see competitive advantages as customer Key Terms: advantages. Competitor Analysis, The first step is competitor analysisthe process of Competitive identifying, assessing, and selecting key competitors. Marketing Strategies The second step is developing competitive marketing strategies that strongly position the company against competitors and give it the greatest possible competitive advantage. Troubleshooting Tip It is important for students to really understand what competitive advantage and competitor analysis mean. Be sure to carefully cover the introduction to the chapter so these concepts are fully understood.
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PPT 18-3

p. 526 PPT 18-4

COMPETITOR ANALYSIS

Chapter Objective 1

p. 527

As shown in Figure 18.1, competitor analysis involves first p. 526 identifying and assessing competitors and then selecting Figure 18.1: Steps which competitors to attack or avoid. in Analyzing Competitors Identifying Competitors At the narrowest level, a company can define its competitors as other companies offering similar products and services to the same customers at similar prices. p. 527 Ad: Dole But companies actually face a much wider range of competitors. The company might define competitors as all firms making the same product or class of products. Even more broadly, competitors might include all companies making products that supply the same service. Finally, and still more broadly, competitors might include all companies that compete for the same consumer dollars. Companies must avoid competitor myopia. A company is p. 528 more likely to be buried by its latent competitors than its Photo: Kodak current ones. Companies can identify their competitors from the industry point of view. A company must understand the competitive patterns in its industry if it hopes to be an effective player in that industry. Companies can also identify competitors from a market point of view. Here they define competitors as companies that are trying to satisfy the same customer need or build relationships with the same customer group. In general, the market concept of competition opens the companys eyes to a broader set of actual and potential competitors.

PPT 18-5

p. 529

Assessing Competitors Determining Competitors Objective

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Each competitor has a mix of objectives. PPT 18-6 The company wants to know the relative importance that a competitor places on current profitability, market share growth, cash flow, technological leadership, service leadership, and other goals. Knowing a competitors mix of objectives reveals whether the competitor is satisfied with its current situation and how it might react to different competitive actions. p. 529 A company must also monitor its competitors objectives Key Term: Strategic for various segments. Group Identifying Competitors Strategies The more that one firms strategy resembles another firms strategy, the more the two firms compete. A strategic group is a group of firms in an industry following the same or a similar strategy in a given target market. Some important insights emerge from identifying strategic groups. For example, if a company enters one of the groups, the members of that group become its key competitors. Although competition is intense within a strategic group, there is also rivalry among groups. Some of the strategic groups may appeal to overlapping customer segments. The customers may not see much difference in the offers of different groups. Members of one strategic group might expand into new strategy segments. p. 529 Ad: Viking

The company needs to look at all of the dimensions that identify strategic groups within the industry. p. 530 PPT 18-7 Assessing Competitors Strengths and Weaknesses Marketers need to assess each competitors strengths and weaknesses carefully in order to answer the critical question: What can our competitors do? As a first step, companies can gather data on each competitors goals, strategies, and performance over the last few years.
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Companies normally learn about their competitors p. 530 strengths and weaknesses through secondary data, Key Term: Benchmarking personal experience, and word of mouth. They can conduct primary marketing research with customers, suppliers, dealers, and social networking sites. They can benchmark themselves against other firms, comparing the companys products and processes to those of competitors or leading firms in other industries to find ways to improve quality and performance.

Estimating Competitors Reactions p. 530 Next, the company wants to know: What will our p. 530 competitors do? A competitors objectives, strategies, and strengths Photo: Competitor and weaknesses go a long way toward explaining its reactions likely actions. They also suggest its likely reactions to company moves such as price cuts, promotion increases, or new-product introductions. In addition, each competitor has a certain philosophy of doing business, a certain internal culture, and guiding beliefs. Each competitor reacts differently. Assignments, Resources Use Discussion Question 1 here Use Critical Thinking Exercise 1 here Use Marketing Ethics here Use Marketing by the Numbers here Use Small Group Assignment 1 here Use Individual Assignment 1 here Use Think-Pair-Share 1, 2, and 3 here Use Web Resources 3 here Troubleshooting Tip Use Figure 18.1 to lie out the steps in analyzing competitors. Once students are clear on the direction of exploration, the path will be easier to follow. Use the various student projects suggested in this supplement to practice students on identifying competitors (both direct and indirect). Once identification has been accomplished, move students to a discussion of how to assess competitors. For many students, using an example from the sports world or information technology will be appropriate
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because students are generally familiar with the various competitive environments in these two fields. p. 531 PPT 18-8 Selecting Competitors to Attack and Avoid Strong or Weak Competitors The company can focus on one of several classes of competitors. Most companies prefer to compete against weak competitors. This requires fewer resources and less time. But in the process, the firm may gain little. p. 531 Key Term: A useful tool for assessing competitor strengths and Customer Value weaknesses is customer value analysis. Analysis The aim of customer value analysis is to determine the benefits that target customers value and how customers rate the relative value of various competitors offers. The key to gaining competitive advantage is to take each customer segment and examine how the companys offer compares to that of its major competitor. The company is searching for that strategic sweet spot. Close or Distant Competitors Most companies will compete with close competitors those that resemble them the mostrather than distant competitors. At the same time, the company may want to avoid trying to destroy a close competitor. Good or Bad Competitors The existence of competitors results in several strategic benefits: They may share the costs of market and product development and help to legitimize new technologies. They may serve less-attractive segments or lead to more product differentiation. Competitors may help increase total demand. However, a company may not view all of its competitors as
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PPT 18-9

p. 532 Photo: Good or bad competitors

beneficial. An industry often contains good competitors and bad competitors. Good competitors play by the rules of the industry. Bad competitors break the rules. They try to buy share rather than earn it, take large risks, and in general, shake up the industry. p. 532 Finding Uncontested Market Spaces

PPT 18-10 Rather than competing head to head with established competitors, many companies seek out unoccupied p. 532 positions in uncontested market spaces. They try to create Photo: Cirque du products and services for which there are no direct Soleil competitors. Called a blue-ocean strategy, the goal is to make competition irrelevant. Designing a Competitive Intelligence System p. 533 The competitive intelligence system: Identifies the vital types of competitive information PPT 18-11 and the best sources of this information Continuously collects information from the field and from published data Checks the information for validity and reliability, interprets it, and organizes it in an appropriate way Sends relevant information to decision makers and responds to inquiries from managers about competitors Smaller companies that cannot afford to set up formal competitive intelligence offices can assign specific executives to watch specific competitors. Assignments, Resources Use Discussion Question 2 here Use Critical Thinking Exercise 2 here Use Additional Project 1 here Use Outside Example 1 here Use Web Resources 4 here p. 533 COMPETITIVE STRATEGIES Having identified and evaluated its major competitors, the company now must design broad competitive marketing strategies by which it can gain competitive advantage by offering superior customer value.
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Chapter Objective 2

p. 533

Approaches to Marketing Strategy No one strategy is best for all companies. Each company must determine what makes the most sense given its position in the industry and its objectives, opportunities, and resources. Even within a company, different strategies may be required for different businesses or products. Many large firms develop formal competitive marketing strategies and implement them religiously. However, other companies develop strategy in a less formal and orderly fashion. Approaches to marketing strategy and practice often pass through three stages: 1. Entrepreneurial marketing: Most companies are started by individuals who live by their wits. They visualize an opportunity, construct flexible strategies on the backs of envelopes, and knock on every door to gain attention. 2. Formulated marketing: As small companies achieve success, they inevitably move toward moreformulated marketing. They develop formal marketing strategies and adhere to them closely. 3. Intrepreneurial marketing: Many large and mature companies get stuck in formulated marketing. These p. 534 companies sometimes lose the marketing creativity Photo: Virgin and passion that they had at the start. They need to Group reestablish within their companies the entrepreneurial spirit and actions that made them successful in the first place. There will be constant tension between the formulated side of marketing and the creative side. Assignments, Resources Use Discussion Question 3 here

PPT 18-12

p. 535

Basic Competitive Strategies Three decades ago, Michael Porter suggested four basic competitive positioning strategies that companies can followthree winning strategies and one losing one.
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PPT 18-13 Winning strategies are: PPT 18-14 PPT 18-15 Overall cost leadership: The company works hard to achieve the lowest production and distribution costs. Differentiation: The company concentrates on creating a highly differentiated product line and marketing program. Focus: The company focuses on serving a few market segments well rather than going after the whole market.

The losing strategy is: PPT 18-16 Middle-of-the-road: The company tries to be good on all strategic counts, but ends up being not very good at anything.

More recently, a new classification of competitive PPT 18-17 marketing strategies has been offered. It suggested companies gain leadership positions by delivering superior value to their customers. Companies can pursue any of three strategiescalled value disciplinesfor delivering superior customer value. PPT 18-18 Operational excellence: The company provides superior value by leading its industry in price and convenience. PPT 18-19 Customer intimacy: The company provides superior value by precisely segmenting its markets and tailoring its products or services to match exactly the needs of targeted customers. PPT 18-20 Product leadership: The company provides superior value by offering a continuous stream p. 537 Photo: Product of leading-edge products or services. Leadership, Apple Some companies successfully pursue more than one value discipline at the same time. However, such companies are rarefew firms can be the best at more than one of these disciplines. Assignments, Resources Use Real Marketing 18.1 here Use Video Case here Use Discussion Question 4 here
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Use Additional Projects 2, 3, and 4 here Use Think-Pair-Share 4 and 5 here Use Outside Example 2 here Use Web Resources 5 here p. 536 Competitive Positions

Firms competing in a given target market, at any point in p. 538 time, differ in their objectives and resources. Key Terms: Market Leader, Market PPT 18-21 Firms can base their competitive strategies on the roles they Challenger, Market play in the target marketmarket leader (40 percent), Follower, Market market challenger (30 percent), market follower (20 Nicher percent), or market nicher (10 percent). Table 18.1 shows specific marketing strategies that are available to market leaders, challengers, followers, and nichers. Remember, however, that these classifications often do not apply to a whole company, but only to its position in a specific industry. p. 538 Market Leader Strategies p. 536 Figure 18.2: Competitive Market Positions and Roles

PPT 18-22 Most industries contain an acknowledged market leader. p. 538 Competitors focus on the leader as a company to challenge, Table 18.1: imitate, or avoid. Strategies for Market Leaders, To remain number one, leading firms can take any of three Challengers, actions. Followers, and 1. They can find ways to expand total demand. Nichers 2. They can protect their current market share through good defensive and offensive actions. 3. They can try to expand their market share further, even if market size remains constant. p. 539 Ad: WD-40 Expanding Total Demand PPT 18-23 The leading firm normally gains the most when the total market expands. Market leaders can expand the market by developing new users, new uses, and more usage of its products. p. 540 Protecting Market Share While trying to expand total market size, the leading firm
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PPT 18-24 also must protect its current business against competitors attacks. What can the market leader do to protect its position? It must prevent or fix weaknesses that provide opportunities for competitors. It must always fulfill its value promise. Its prices must remain consistent with the value that customers see in the brand. It must work to keep strong relationships with valued customers. It should plug holes so that competitors do not jump in. p. 540 Photo: P&G

The best defense is a good offense, and the best response is continuous innovation. p. 540 Expanding Market Share

PPT 18-25 Studies have shown that, on average, profitability rises with increasing market share. Some studies have found that many industries contain one or a few highly profitable large firms, several profitable and more focused firms, and a large number of medium-sized firms with poorer profit performance. It appears that profitability increases as a business gains share relative to competitors in its served market. Companies must not think that gaining increased market share will improve profitability automatically. Much depends on their strategy for gaining increased share. Assignments, Resources Use Discussion Question 5 here Use Think-Pair-Share 6 here Troubleshooting Tip There may be a lack of understanding of strategies that can be used to combat competition and how to correctly identify competitors and their associated strategies. This barrier can be overcome with careful consideration of the material summarized by Table 18.1. It will be useful to assign specific students the task of discussing specific strategies, options, and competitive types from this section of the chapter.
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The instructor will find that students will do a very good job of explaining and characterizing when given the task. This will allow the instructor the opportunity to interject examples and correct misperceptions. Time should be spent on this area because of its importance to overall strategic planning in marketing. p. 541 Market Challenger Strategies Firms that are second, third, or lower in an industry are sometimes quite large. These runner-up firms can adopt one of two competitive strategies: 1. They can challenge the leader and other competitors in an aggressive bid for more market share (market challengers). 2. They can play along with competitors and not rock the boat (market followers). A market challenger must first define which competitors to challenge and its strategic objective. PPT 18-26 The challenger can attack the market leader, a high-risk but potentially high-gain strategy. Its goal might be to take over market leadership. Or the challengers objective may simply be to wrest more market share. The challenger observes what has made the leader successful and then improves upon it. This is known as the second-mover advantage. Alternatively, the challenger can avoid the leader and instead challenge firms its own size, or smaller local and regional firms. These smaller firms may be underfinanced and not serving their customers well. The challenger must choose its opponents carefully and have a clearly defined and attainable objective. How can the market challenger best attack the chosen competitor and achieve its strategic objectives? It may launch a full frontal attack, matching the competitors product, advertising, price, and distribution efforts. It attacks the competitors strengths rather than its
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weaknesses. Rather than challenging head-on, the challenger can make an indirect attack on the competitors weaknesses or on gaps in the competitors market coverage. p. 542 Market Follower Strategies PPT 18-27 Not all runner-up companies want to challenge the market leader. Challenges are never taken lightly by the leader. A follower can gain many advantages. The market leader often bears the huge expenses of developing new products and markets, expanding distribution, and educating the market. By contrast, the market follower can learn from the leaders experience. It can copy or improve on the leaders products and programs, usually with much less investment. Although the follower will probably not overtake the leader, it often can be as profitable. Following is not the same as being passive or a carbon copy of the leader. Each follower tries to bring distinctive advantages to its target market. The follower is often a major target of attack by challengers. Therefore, the market follower must keep its manufacturing costs low and its product quality and services high. It must also enter new markets as they open up. p. 542 Market Nicher Strategies Almost every industry includes firms that specialize in PPT 18-28 serving market niches. Instead of pursuing the whole market, or even large segments, these firms target subsegments. Nichers are often smaller firms with limited resources. But smaller divisions of larger firms also may pursue niching strategies. Why is niching profitable? The main reason is that the market nicher ends up knowing the target customer group so well that it meets their needs better than other firms that casually sell to this niche.
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p. 542 Ad: Red Bull

p. 543 As a result, the nicher can charge a substantial markup over Ad: Zipcar costs because of the added value. Whereas the mass marketer achieves high volume, the nicher achieves high margins. Nichers try to find one or more market niches that are safe and profitable. An ideal market niche is big enough to be profitable and has growth potential. Perhaps most important, the niche is of little interest to major competitors. The key idea in niching is specialization. A market nicher can specialize along any of several market, customer, product, or marketing mix lines. Niching carries some major risks. For example, the market niche may dry up, or it might grow to the point that it attracts larger competitors. That is why many companies practice multiple niching. By developing two or more niches, a company increases its chances for survival. Assignments, Resources Use Real Marketing 18.2 here Use Critical Thinking Exercise 3 here Use Marketing Technology here Use Think-Pair-Share 7 here Use Outside Example 1 here Use Web Resources 6 here p. 543 BALANCING CUSTOMER ORIENTATIONS AND COMPETITOR Chapter Objective 3

Whether a company is a market leader, challenger, follower, PPT 18-29 or nicher, it must watch its competitors closely and find the competitive marketing strategy that positions it most effectively. And it must continually adapt its strategies to the fast-changing competitive environment. A competitor-centered company is one that spends most PPT 18-30 of its time tracking competitors moves and market shares and trying to find strategies to counter them. This approach has pluses and minuses.
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p. 543 Key Terms:

On the positive side, the company develops a fighter orientation. On the negative side, the company becomes too reactive.

CompetitorCentered Company, Customer-Centered Company

PPT 18-31 A customer-centered company focuses more on customer p. 544 developments in designing its strategies. Figure 18.3: Clearly, the customer-centered company is in a better Evolving Company position to identify new opportunities and set long-run Orientations strategies that make sense. In practice, todays companies must be market-centered PPT 18-32 companies, watching both their customers and their competitors. But they must not let competitor watching blind them to customer focusing. Figure 18.3 shows how companies might move through four PPT 18-33 orientations over the years. 1. In the first stage, they were product oriented, paying little attention to either customers or competitors. 2. In the second stage, they became customer oriented and started to pay attention to customers. 3. In the third stage, when they started to pay attention to competitors, they became competitor oriented. 4. Today, companies need to be market oriented, paying balanced attention to both customers and competitors. Assignments, Resources Use Discussion Question 6 here Use Additional Project 5 and 6 here Use Small Group Assignment 2 here Use Individual Assignment 2 here Use Company Case here p. 544 Key Term: Market-Centered Company

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END OF CHAPTER MATERIAL


Discussion Questions 1. Which point of view is best for identifying competitorsindustry or market? (AASCB: Communication) Answer: Companies can identify their competitors from the industry point of view. They might see themselves as being in the oil industry, the pharmaceutical industry, or the beverage industry. A company must understand the competitive patterns in its industry if it hopes to be an effective player in that industry. Companies can also identify competitors from a market point of view. Here they define competitors as companies that are trying to satisfy the same customer need or build relationships with the same customer group. From an industry point of view, Pepsi might see its competition as Coca-Cola, Dr Pepper, 7UP, and the makers of other soft drink brands. From a market point of view, however, the customer really wants thirst quenching. This need can be satisfied by bottled water, energy drinks, fruit juice, iced tea, or many other fluids. Similarly, Hallmarks Binney & Smith, maker of Crayola crayons, might define its competitors as other makers of crayons and childrens drawing supplies. But from a market point of view, it would include all firms making recreational and educational products for children. In general, the market concept of competition opens the companys eyes to a broader set of actual and potential competitors. 2. Explain the difference between a good and a bad competitor. (AACSB: Communication; Reflective Thinking) Answer: The existence of competitors results in several strategic benefits. Competitors may share the costs of market and product development and help to legitimize new technologies. They may serve less-attractive segments or lead to more product differentiation. Finally, competitors may help increase total demand. For example, you might think that an independent coffee house surrounded by Starbucks stores might have trouble staying in business. But thats often not the case. However, a company may not view all of its competitors as beneficial. An industry often contains good competitors and bad competitors. Good competitors play by the rules of the industry. Bad competitors, in contrast, break the rules. They try to buy share rather than earn it, take large risks, and play by their own rules. 3. Name and describe the three stages that marketing strategy and practice often pass through. (AACSB: Communication) Answer: Approaches to marketing strategy and practice often pass through three stages: entrepreneurial marketing, formulated marketing, and intrepreneurial marketing.
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Entrepreneurial marketing: Most companies are started by individuals who live by their wits. Formulated marketing: As small companies achieve success, they inevitably move toward more-formulated marketing. They develop formal marketing strategies and adhere to them closely. Intrepreneurial marketing: Many large and mature companies get stuck in formulated marketing. These companies sometimes lose the marketing creativity and passion they had at the start. They now need to reestablish within their companies the entrepreneurial spirit and actions that made them successful in the first place. They need to encourage more marketing initiative and intrepreneurship at the local level. 4. Describe the three value disciplines for delivering superior customer value and explain why classifying competitive strategies in this way is appealing. (AACSB: Communication) Answer: Companies can pursue any of three strategiescalled value disciplinesfor delivering superior customer value. These are: Operational excellence: The company provides superior value by leading its industry in price and convenience. It works to reduce costs and to create a lean and efficient valuedelivery system. It serves customers who want reliable, good-quality products or services, but who want them cheaply and easily. Examples include Wal-Mart, Southwest Airlines, and Dell. Customer intimacy: The company provides superior value by precisely segmenting its markets and tailoring its products or services to match exactly the needs of targeted customers. It specializes in satisfying unique customer needs through a close relationship with and intimate knowledge of the customer. It builds detailed customer databases for segmenting and targeting, and empowers its marketing people to respond quickly to customer needs. Customer-intimate companies serve customers who are willing to pay a premium to get precisely what they want. They will do almost anything to build longterm customer loyalty and to capture customer lifetime value. Examples include Nordstrom, Lexus, American Express, British Airways, and Ritz-Carlton hotels. Product leadership: The company provides superior value by offering a continuous stream of leading-edge products or services. It aims to make its own and competing products obsolete. Product leaders are open to new ideas, relentlessly pursue new solutions, and work to get new products to market quickly. They serve customers who want state-of-the-art products and services, regardless of the costs in terms of price or inconvenience. Examples include Samsung and Apple. Classifying competitive strategies as value disciplines is appealing because it defines marketing strategy in terms of the single-minded pursuit of delivering superior value to customers. Each value discipline defines a specific way to build lasting customer relationships.

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5. Describe market leaders and the actions they can take to maintain that position. (AACSB: Communication) Answer: The leader has the largest market share and usually leads other firms in price changes, newproduct introductions, distribution coverage, and promotion spending. The leader may or may not be admired or respected, but other firms concede its dominance. Competitors focus on the leader as a company to challenge, imitate, or avoid. To remain number one, leading firms can take any of three actions. First, they can find ways to expand total demand. Market leaders can expand the market by developing new users, new uses, and more usage of its products. Second, they can protect their current market share through good defensive and offensive actions. It must prevent or fix weaknesses that provide opportunities for competitors. It must always fulfill its value promise and work tirelessly to keep strong relationships with valued customers. Its prices must remain consistent with the value that customers see in the brand. The leader should plug holes so that competitors do not jump in. But the best defense is a good offense, and the best response is continuous innovation. Third, they can try to expand their market share further, even if market size remains constant. Companies must not think, however, that gaining increased market share will automatically improve profitability. Much depends on their strategy for gaining increased share. There are many high-share companies with low profitability and many low-share companies with high profitability. The cost of buying higher market share may far exceed the returns. Higher shares tend to produce higher profits only when unit costs fall with increased market share or when the company offers a superior-quality product and charges a premium price that more than covers the cost of offering higher quality. 6. Compare and contrast competitor-centered, customer-centered, and market-centered companies. Which orientation is best? (AACSB: Communication; Reflective Thinking) Answer: A competitor-centered company is one that spends most of its time tracking competitors moves and market shares and trying to find strategies to counter them. This approach has some pluses and minuses. On the positive side, the company develops a fighter orientation, watches for weaknesses in its own position, and searches out competitors weaknesses. On the negative side, the company becomes too reactive. Rather than carrying out its own customer relationship strategy, it bases its own moves on competitors moves. As a result, it may end up simply matching or extending industry practices rather than seeking innovative new ways to create more value for customers. A customer-centered company, by contrast, focuses more on customer developments in designing its strategies. Clearly, the customer-centered company is in a better position to identify new opportunities and set long-run strategies that make sense. By watching customer needs evolve, it can decide what customer groups and what emerging needs are the most important to serve. Then it can concentrate its resources on delivering superior value to target customers.
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In practice, todays companies must be market-centered companies, watching both their customers and their competitors. They must not let competitor watching blind them to customer focusing.

Critical Thinking Exercises 1. Form a small group and discuss the differences between increasing market share and increasing share of customer. What factors should a company consider when deciding upon which one to focus? (AACSB: Communication; Reflective Thinking) Answer: Market share is covered in the chapter but students will have to learn about share of customer. Market share is a percentage that is determined by taking a companys sales in a specific market and dividing it by the overall sales in the market. So a company intent on increasing market share would try to increase sales by gaining more customerseither ones who dont currently buy the product or those who switch from a competitor. If there is high growth potential in a market, this strategy is fine. However, if the market is saturated, it could be costly to steal competitors customers. Share of customer looks at how much of a customers expenditures in a product category are garnered by a specific company. That is, the company would focus on selling more to current customers rather than try to get more customers. This could be done by getting customers to purchase more of the product they already purchase or to offer customers other products to increase their expenditures with the company. Financial services companies, like insurance companies, now offer investment services and banking services to customers to increase their share of wallet in financial services. In addition to cable television, cable companies offer customers Internet service and phone service. The goal in increasing customer share is to meet more of customers needs so that they stay loyal to the company. 2. Form a small group and conduct a customer value analysis for five local restaurants. Who are the strong and weak competitors? For the strong competitors, what are their vulnerabilities? (AACSB: Communication; Reflective Thinking) Answer: If students need more structure, you can tell them the following: Begin by creating a list of local restaurants. Next, determine the attributes that customers use when evaluating a restaurant. Finally, rate each restaurant on a scale from 1-5 on each attribute. Ideally, they should also ask other students to rate their restaurants so that they have more data points. 3. One source of competitive information is product teardowns. Information such as a bill of materials (BOM)a listing all the elements of a product and their costscan be very useful. Find an example of a product teardown with cost information and discuss the value of that
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information for competitors. (AACSB: Communication; Reflective Thinking) Answer: Students can find information by searching product teardowns. Not all sources provide a bill of materials (BOM) or state it as such specifically. Many sources list the components and their costs but might not state is as the bill of materials, however. For an example of a teardown and BOM of Googles Nexus 7 tablet versus Amazons Kindle Fire, see www.isuppli.com/Teardowns/News/pages/Low-End-Google-Nexus-7-Carries-$157-BOMTeardown-Reveals.aspx. The accompanying article discusses how Google is probably breaking even on smaller models of its Nexus 7 tablet but experiencing increased margins on the higher-memory model priced $50 more but just adding $7.50 in costs.

Marketing Technology: Gene Patents Can a company patent a human gene? According to a federal appeals court, they can. In fact, 80 percent of our genes are patented and owned by companies. The latest battle has been with biotechnology company Myriad Genetics. Myriad has been fighting for several years over its patents for two genesBRCA1 and BRCA2that the company has isolated and found to signal a womans risk of developing breast and ovarian cancers. The process of isolating genes is complex and very costly, and patenting the isolated genes allows Myriad exclusivity in providing genetic screenings for these diseases. The American Civil Liberties Union filed a lawsuit claiming that Myriad is trying to patent products of nature and that many women will not be able to afford potentially life-saving screening. Legal experts predicted that a loss for Myriad in this case would have severely threatened DNA-related research in the agricultural, biopharmaceutical, and cosmetics industries. Dissenters argue that patents limit genetic research because only the patent owners are allowed to conduct research on those genes. 1. Debate the pros and cons of allowing companies to patent genes. Communication; Ethical Reasoning; Reflective Thinking) Answer: Students can search genetic patents on the Internet and find considerable information on this debate. The cons are numerous and include reduced research, conflicts of interest, higher prices and limited options for patients, and company interference with medical care. However, without the patent protection, there would be no financial incentive for companies to spend the millions on research to uncover genetic mutations and their relation to disease and subsequently developing the tests and possibly treatments. If another company can come in and undercut the company that spent on the research that discovered the mutation, research will be severely limited. Profits earned because of patent protections can then be used to fund further research. (AACSB:

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See the 60 Minutes video: www.cbsnews.com/video/watch/?id=6362525n. Note that this video is from 2010, and Myriad won its appeal in 2012. Find information on the 2012 decision in favor of Myriads patent: www.reuters.com/article/2012/08/16/us-myriad-patent-idUSBRE87F12K20120816 2. The U.S. Patent and Trademark Office has granted several patents for DNA sequences in the past. Discuss one example and explain how a patent gives a company a competitive advantage. (AACSB: Communication; Reflective Thinking) Answer: The key advantage given by any patent is protection for competition for a period of time. For example, Myriad has protection from competitors until 2018. For a comprehensive explanation of how gene patenting works, a history of genetic patents, and several examples, see: http://science.howstuffworks.com/environmental/life/genetic/gene-patent.htm.

Marketing Ethics: Right to Repair Automobiles have become so complicated that mechanics need computers to diagnose problems. Independent car mechanics may have the computers, but they dont have the codes or tools necessary to diagnose and fix problems on newer model cars. Those are reserved for car makers dealerships. Some critics claim that creates an unfair advantage for auto dealerships over independent mechanics and auto-parts retailers and keeps repair prices higher for consumers. The Massachusetts Right to Repair Coalition put a stop to that by first getting a right to repair initiative on the November 2012 ballot, but it then got the states legislature and governor to sign it into law before the vote even took place. In that state, car makers must make the diagnostic information available. On a national level, the Motor Vehicle Owners Right to Repair Act was introduced in the House of Representatives in 2011. Of course, automakers and dealerships oppose these initiatives. Opponents claim right to repair initiatives will allow auto-parts makers access to manufacturers proprietary information as well as endanger the safety of consumers resulting from possibly faulty repairs. Supporters of the initiatives say manufacturers are just looking to keep their unfair advantage and protect their repair business. 1. What is the status of the Motor Vehicle Owners Right to Repair Act? If it has not become law, explain why. If it has, what are the implications of the law? (AACSB: Communication; Reflective Thinking) Answer: At the time of this writing, the bill was still in committee. Information on the bill can be found at the following sources: The bill can be found at www.gpo.gov/fdsys/pkg/BILLS112hr1449ih/pdf/BILLS-112hr1449ih.pdf. Students can track the status of the HR 1449 bill at www.govtrack.us/congress/bills/112/hr1449
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Marketing by the Numbers: Market Share Consumers will always need to purchase groceries, making this a $700 billion industry. But where they shop for groceries has changed with the entry of big-box discounters such as Walmart and Target. Almost 25 years ago, executives at Walmart made a strategic decision to expand into the grocery industry. Now more than half of Walmarts sales are from this category. Walmart has more than 3,000 Supercenters with full grocery stores and another 200 smaller Neighborhood Markets that offer primarily groceries. Walmart captures more than $145 billion of the $700 billion U.S. consumers spend on groceries annually. Walmarts Sams Club grabs another $30 billion of annual groceries sales. As a result, the share of grocery sales captured by traditional supermarkets fell to 51 percent in 2011, a 23 percent drop from 2000. 1. Calculate Walmarts market share in the grocery industry. How much sales revenue is each share point worth in this industry? (AACSB: Communication; Analytical Reasoning) Answer: Market share = company sales market sales MSWalmart = $145 billion $700 billion = 0.2071 = 20.71% Including sales through Sams Clubs increases market share to 25%: MSWalmart and Sams = $175 billion $700 billion = 0.25 = 25% One share point represents 1 percent of a total markets sales. Total market sales equal $700 billion, so one percent of that is $7 billion (that is, $700 billion x 0.01 = $7 billion). 2. How have traditional supermarkets responded to the threat posed by Walmarts entry into this industry? Suggest strategies to help stem the loss of market share to superstores such as Walmart and Target. (AACSB: Communication; Reflective Thinking) Answer: An excellent description of the evolution of the grocery industry can be found at http://paulellickson.com/SMEvolution.pdf. There has been considerable consolidation in this industry. This article points out that supermarkets at the high end, such as Whole Foods, and at the extreme low end seem to be performing well after the growth of big-box discounters entry into this industry. Another Wall Street Journal article describes how Kroger is succeeding because of insights culled from its loyalty card data. Insights from that information have helped the retailer to tailor merchandise offerings to better meet the needs of a specific store rather than using a
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one-size-fits-all approach. See that article at http://online.wsj.com/article/SB10001424052702304373804577522912244866078.html.

Company Case Notes


Ford: Resurrecting an Iconic Company Synopsis Ford Motor Company is an iconic company. Ford is an iconic brand. In the late 1990s, Ford was number 2 on the Fortune 500 (GM was #1). Its market share was 25 percent, it market valuation was $73 billion and it was the 6th most valuable brand in the world at $36 billion. But the bigger they are, the harder they fall. In just 10 years, Fords market share dropped to 14 percent, it lost 93 percent of its market valuation, and its brand value had fallen to $7 billion and the 49th position. Its revenues were actually lower than they had been 10 years prior. And Ford was losing money hand over fist. There are many reasons for Fords fall, and it certainly wasnt alone. GM and Chrysler experienced similar fates. This case chronicles Fords attempt at a come-back, starting with the hiring of Alan Mulally as CEO in 2006. As an industry outsider, Mullaly went to work to make drastic changes at Ford. And as the case ends, it appears that those changes are making a difference.

Teaching Objectives The teaching objectives for this case are to: 1. 2. 3. 4. Give students the opportunity to assess the competitive strategy of an iconic company. Assess the basic competitive strategies for Ford. Consider the nature of a market-centered company and apply it to a major corporation. Analyze a company in terms of competitive advantage.

Discussion Questions 1. Where would you put Ford in terms of competitive position? Why? Ford was once an undisputed market leader, even though it never surpassed GM as number one. Its position today is more difficult to analyze. In spite of the fact that Ford (and GM for that matter) have fallen so far so fast, they are still at the top of the heap. Its just that the top of the heap is more crowded in terms of market share. According to Edmunds.com, the 2010 year end forecast for the auto industry has GM at 18.12 %, Ford at 16.57%, Toyota at 16.45%, and Honda at 11.32% with Chrysler a distant fourth at 9.16%. Toyota was number one for a while. But its recall problems have set it back a bit. And with the Americans back on the rise, they have picked up share. But it should be noted that Toyota (and Honda for that matter) are not down and out. The competition at
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the top is more fierce than ever and it is more global (whereas the Big Three dominate prior to this century). So while Ford is back at #2, it seems that the company has more of the characteristics of a market challenger (fighting hard to increase market share in the industry) than a market leader. 2. Is Ford a market-centered company? How can it improve in this area? By definition, a market-centered company is one that pays balanced attention to both customers and competitors in designing its marketing strategies. True attention to customers comes from research that produces genuine insight. This case doesnt mention such efforts. Some assumptions can be made based on the changes at Ford. For example, Mulally has made it clear that the company needs to shift to smaller, more fuel-efficient vehicles in response to consumer trends. However, the company had previously painted itself in to a corner with trucks and SUVs based on consumer trends. Thus, recognizing and following trends is not always a safe strategy, or a truly customer-centric one. But it is apparent with Fords new strategy that the company is more about balance, competing in every market segment with carefully defined products. Thus, if it does this correctly, it wont have all its eggs in one basket. But more importantly, the Sync represents a real move toward customer centricity (see below). The Sync also was designed competition in mind (see below). Thus, It seems that Ford is on the right track toward a balanced attention to customers and competition. But it is only just starting anew. 3. How does Fords Sync contribute to its competitive advantage? Is this a sustainable advantage? The Sync is one of the most innovative ideas in vehicles in decades. It is also really strong in terms of competitive advantage. For starters, as Mulally points out, Its past cool. Its a reason to buy. Tech is why people are going to buy Ford! Sync moves a vehicle beyond just being a vehicle. In one fell swoop, it incorporates the vehicle into a persons total and complete life. And because tech is so important to younger buyers, this gives Ford a strong hand in terms of building future sales. And this also works because Ford has bucked the trend by introducing such a system in all its vehicles, not just the highend. Sync is a competitive advantage because it is truly distinctive. No other vehicle manufacturer has anything like it. And compared to other in-car tech systems, it is also cheaper given that most of the tech lies in the consumers existing gadgets. One concern is how quickly and easily other manufacturers can replicate such a system. It would seem that any given car company could come online with something similar in a matter of a few years. Ford has the pioneer advantage and this may just propel Ford to #1. But at the point that Fords system is on longer so distinctive, then Ford must go beyond Sync to retain competitive advantage.

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4. Can Mulally succeed with small world cars? Time will tell. Honda did it and for the most part has stayed away from truly big cars and SUVs. Toyota became an Asian version of GM or Ford, with good small cars but heavy on full-sized trucks and SUVs. But the type of small car that Mulally is talking about is a premium small car. There is little precedence in the U.S. for such a car to succeed on a mass scale, the scale that Ford needs. So while it may seem that the U.S. market is ripe for this type of vehicle, it remains to be seen. 5. What other recommendations would you make to Mulally and Ford? Allow students to form groups to develop sound recommendations, then share them with the class. Teaching Suggestions Paint students a picture of Fords rise and fall. Create a slide comparing Fords stats in 1998 to those a decade later. A fall this far and this fast is rare, especially for such a large and powerful company. Conduct a discussion around the question, why? Use that discussion as a springboard into the case itself.

ADDITIONAL PROJECTS, ASSIGNMENTS, AND EXAMPLES


Projects
1. For a product category of your choosing, select companies that compete against each other. Include strong and weak competitors, close and distant competitors, and good and bad competitors. (Objective 1) 2. Does an intrepreneurial company always have to pass through the entrepreneurial and formulated marketing stages? Why or why not? (Objective 2) 3. Apply Michael Porters competitive positioning strategies. Find an example of each. Can you think of an example of a genuine middle-of-the-roader that is successful? (Objective 2) 4. Research at least one company for each of the Treacy and Wiersema value disciplines. Write a short paper justifying why each company fits the designation that you suggest. (Objective 2) 5. Explain the difference between a customer-centered and market-centered company. Find two examples of each. (Objective 3) 6. What is a competitor-centered company? Give and support three examples. (Objective 3)

Small Group Assignments


Form students into groups of three to five. Each group should consider the following questions, prepare their answers, and share those answers with the class. (Objective 1)
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a. What is a strategic group? Your text mentions Viking Appliances in the context of strategic groups. What strategic group does Viking belong to? What other companies are in the same group? b. What is benchmarking? If you were going to benchmark an automobile, what automobile would you select and why? If you were going to benchmark a shampoo, what shampoo would you select and why? Form students into groups of three to five. Each team should consider the following question, prepare their answer, and share their answers with the class. (Objective 3) Figure 18.3 (p. 546) shows that companies have moved through four orientations over the years. Many colleges and universities have done the same. Consider your university. Using Figure 18.3, show how your university has moved through the four orientations, if it has. If it has not, through with orientations has it passed and where is it now?

Individual Assignments
1. Identifying competitors is the first stage in competitor analysis. Consider the clothing retailer Forever 21 (www.forever21.com). Who do you consider to be the major competitors to this trendy store? Why? (Objective 1) 2. Consider Figure 18.4 (Evolving Company Orientations). Ford Motor Company (www.ford.com) is a company that has actually moved through the four orientations depicted. Review the history of Ford and discuss how Ford has evolved over time through the four evolving company orientations. What is next for the company? (Objective 3)

Think-Pair-Share
Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor. 1. 2. 3. 4. List the steps in analyzing competitors. (Objective 1) What is competitor myopia? (Objective 1) What is a strategic group? (Objective1) List and describe Michael E. Porters four basic competitive positioning strategies. Which of the four strategies is to be avoided? Why? (Objective 2) 5. How do Porters strategies match those of Treacy and Wiersema? How are they different? (Objective 2) 6. List and describe each of the competitive position strategies described in the chapter. Demonstrate the advantages/disadvantages of each position and associated strategies employed by each of the positions. See Table 18.1. (Objective 2) 7. What strategies can a market nicher use to succeed against their larger, more powerful rivals? (Objective 2)

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Outside Examples
1. What is the blue ocean strategy? Cirque du Soleil has used this to strategy to great advantage. Find another company that you believe has used this strategy and discuss them. (Objective 1) Possible Solution: There are any number of possible solutions to this question that students may come up with. The home page for the company formed by the creators of this innovative strategy is www.blueoceanstrategy.com and can provide you with more information. The IPL Cricket Tournament is interesting for a couple of reasons: (1) it showed how innovation in services can be appealing to consumers, and (2) it showed how competition and globalization can bring about improvements. The innovation is the most striking aspect. By repackaging the sedate game of cricket to something with non-stop action, and by reducing the time investment that spectators need to put in for the event, the IPL administrators have modernized it. It has also converted attending the game into a family event like going to the movies, whether you watch at home or in the stadium. This, for instance, has increased the appeal to women, because three hour time requirement is much more doable than an entire day of watching the game. Besides, fastmoving games have instinctive appeal, which is why soccer finds such a ready audience everywhere. 2. Treacy and Wiersema have offered a classification of competitive strategies that are decidedly customer oriented. They suggest that companies gain leadership positions by delivering superior value to their customers. One of those strategies is known as customer intimacy. What is customer intimacy and give an example of a company you believe is using this strategy. (Objective 2) Possible Solution: Companies following a customer intimacy strategy strive to provide superior value by precisely segmenting its markets and tailoring its products or services to match exactly the needs of targeted customers. Many examples exist of companies that have chosen to follow a customer intimacy strategy. One such example is Wyndham Hotels & Resorts (www.wyndham.com). Several years ago, Wyndham introduced its very successful ByRequest program. As a Wyndham ByRequest member, you receive personalized services and amenities during your stay in many ways. You automatically receive benefits, including:
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10 points per dollar spent or 500 miles per stay Free Internet access Expedited check- in Free domestic long-distance calls Online access to hotel receipts Welcome snack and drink (such as cheese, crackers, and wine) Your room the way you prefer it (extras towels, and feather pillows)

These services and amenities are given at no charge to the guest. It is an attempt to build customer loyalty by providing (no cost) extras and services that matter to the guest because the guest has chosen them.

Web Resources
1. http://247.prenhall.com This is the link to the Prentice Hall support link. 2. www.fourseasons.com Check out the portal to the world of Four Seasons. 3. www.vikingrange.com Take a look at Viking and determine its strategic group, and then look at its competitors. 4. http://www.cirquedusoleil.com/ Experience Cirque du Soleil and take a look at the uncontested market and unoccupied position they have filled. 5. http://www.ritzcarlton.com Enter into the luxury world of the Ritz Carlton. Here you can learn about how they achieve customer intimacy. 6. www.logitech.com/ At the Logitech Web site determine the market niche they have filled.

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