18-Creating Competitive Advantage

18
Principles of Marketing
Creating Competitive
Advantage
Chapter Outline
1.
2.
3.
Competitor Analysis
Competitive Strategies
Balancing Customer and
Competitor Orientations
18-3
Competitor Analysis
Steps in Analyzing Competitors
18-4
Competitor Analysis
Identifying Competitors
Competitors can include:
All firms making the same product or

class of products
All firms making products that supply

the same service
All firms competing for the same

consumer dollars
18-4
Competitor Analysis
Competitor myopia refers to a firm
focusing on what it considers to be its
direct competition and not being aware
of indirect or new competitors
18-5
Competitor Analysis
Industry point of view refers to
competitors within the same industry
Market point of view refers to
competitors trying to satisfy the same
customer need or build relationships
with the same customer group
18-6
Competitor Analysis
Market point of view is considered to
provide a broader set of actual and
potential competitors, and a
competitor map illustrates the steps
buyers take in obtaining the product
18-7
Competitor Analysis
Competitor map highlights both competitive
opportunities and challenges facing the
firm
Center is the list of consumer activities
First outer ring lists main competitors
Second outer ring lists indirect

competitors
18-8
Competitor Analysis
Assessing Competitors
Competitors
Competitors
Competitors
weaknesses
Competitors
objectives
strategies
strengths and
actions and reactions
18-9
Competitor Analysis
Determining Competitors Objectives
Competitors objectives include:
Profitability
Market share growth
Cash flow
Technological leadership
Service leadership
18-10
A Competitors Expansion Plans

This is an elaboration of
Ansoffs Product-Market Matrix
Products
Markets
Competitor Analysis
Identifying Competitors Strategies
A strategic group is a group of firms in an
industry following the same or similar
strategy in a given target market
Competition is most intense within a strategic

group
Competition among strategic groups is due to

overlapping customers and lack of perceived
differentiation and expansion of one strategic
group into new segments
18-11
Strategic Groups in the Major

Appliance Industry
Quality
A
High Group
Narrow line
Lower mfg. cost

Very high service
High price
Group B
Full line
Low mfg. cost
Good service
Medium price
Low
Group C
Moderate line
Medium mfg. cost
Medium service
Medium price
Group D
Broad line
Medium mfg. cost
Low service
Low price
High
Low
Vertical Integration
Competitor Analysis
Identifying Competitors Strategies
Companies need to understand the competitors
ability to deliver value to its customers
Product quality
Product features
Customer service
Pricing policy
Distribution coverage
Sales force strategy
Promotion programs
Financial strategies
R&D
18-12
Competitor Analysis
Assessing Competitors Strengths and Weaknesses
Primary data
Secondary data
Personal experience
Word of mouth
Benchmarking is the comparison of the
companys products or services to
competitors or leaders in other industries to
find ways to improve quality and performance
18-13
Competitor Analysis
Estimating Competitors Reactions
Marketing managers need to develop an
understanding of a given competitors
mentality, culture, values, and way of
doing business to anticipate how the
competitor will react to the companys
marketing strategies
18-14
Competitor Analysis
Selecting Competitors to Attack and Avoid
Customer value analysis determines the
benefits that target customers value and how
customers rate the relative value of various
competitors offers.
Identification of major attributes that customers

value and the importance of these values
Assessment of the companys and competitors

performance on the valued attributes
18-15
Competitor Analysis
Close or Distant Competitors
Close competitors resemble the
company the most
18-16
Competitor Analysis
Good or Bad Competitors
Good competitors:
Increase total demand
Share costs of market and product development
Legitimize new technologies
Serve less attractive market segments
Provide more product differentiation
Lower the anti-trust risk
Improve bargaining power versus legislators

and regulators
18-17
Competitor Analysis
Good or Bad Competitors
Bad competitors:
Try to share rather than earn in the

market
Take large risks
Create disruption
18-18
Competitor Analysis
Selecting Competitors to Attack and Avoid
Finding uncontested market spaces

called blue ocean strategy
No direct competitors
Competitor Analysis
Designing a Competitive Intelligence System
Identifies competitive information and the best

sources of this information
Continually collects information
Checks information for validity and reliability
Interprets information
Organizes information
Sends key information to relevant decision
makers
Responds to inquiries about competitors
18-19
Approaches to Marketing Strategy
Stages of approaches to marketing
strategy include:
Entrepreneurial marketing
Formulated marketing
Intrepreneurial marketing
18-20
Approaches to Marketing Strategy
Entrepreneurial marketing involves visualizing an
opportunity and constructing and implementing
flexible strategies
Formulated marketing involves developing formal
marketing strategies and following them closely
Intrepreneurial marketing involves the attempt to
reestablish an internal entrepreneurial spirit and
refresh marketing strategies and approaches
18-21
Basic Competitive Strategies
Michael Porters four basic competitive
positioning strategies
Overall cost leadership
Differentiation
Focus
Middle-of-the-roaders
18-22
Developing
Developing Competitive
Competitive Marketing
Marketing
Strategies
Strategies
Basic
Basic Competitive
Strategies
Overall
Overall Cost
Cost
Leadership
Leadership
Focus
Focus
Differentiation
Differentiation
Middle
Middle of
of
the
the Road
Road
Three generic competitive strategies by Michael Porter
Wal-Mart and Volkswagen

Which of Porters generic business strategies
do these firms use?
Slide 22-23
Overall cost leadership strategy is
when a company achieves the lowest
production and distribution costs and
allow it to lower its prices and gain
market share
18-23
Differentiation strategy is when a
company concentrates on creating a
highly differentiated product line and
marketing program so it comes across
as an industry class leader
18-24
Focus strategy is when a company
focuses its effort on serving few
market segments well rather than
going after the whole market
18-25
Porter believed that companies that pursued
a clear strategy would achieve superior
performance and that companies without
a clear strategy would not succeed
Porter considered them to be middle-ofthe-roaders
18-26
Michael Treacy and Fred Wiersema suggest
companies can gain leadership positions
by delivering superior value to their
customers in three strategies or value
disciplines
Operational excellence
Customer intimacy
Product leadership
18-27
Operational excellence refers to a
company providing value by leading its
industry in price and convenience by
reducing costs and creating a lean and
efficient value delivery system
18-28
Customer intimacy refers to a company
providing superior value by
segmenting markets and tailoring
products or services to match the
needs of the targeted customers
18-29
Product leadership refers to a company
providing superior value by offering a
continuous stream of leading edge
products or services. Product leaders
are open to new ideas and solutions
and bring them quickly to the market.
18-31
Developing
Developing Additional
Additional Competitive
Competitive
Marketing
Marketing Strategies
Strategies
Value
Value Disciplines
Disciplines
Operational
Operational
Excellence
Excellence
Product
Product
Leadership
Leadership
Customer
Customer
Intimacy
Intimacy
Competitive Positions
Market
Market
Market
Market
leader strategy
challenger strategy
follower strategy
nicher strategy
18-32
Hypothetical Market Structure
Expand Market Size

Defend Market Share
Expand Market Share
Attack Leader
Status Quo
Imitate
Specialize
18-33
Competitive Positions
Market leader is the firm with the largest market
share and leads the market price changes,
product innovations, distribution coverage, and
promotion spending
Market challengers are firms fighting to
increase market share
Market followers are firms that want to hold
onto their market share
Market nichers are firms that serve small market
segments not being pursued by other firms
18-33
Market Leader Strategies
Expand total demand

Protect their current market
Expand market share
Toyota
Coca-Cola
Nike
IBM
18-34
Expanding Total Demand
Expand total demand by developing:
New users
New uses
More usage of its products
18-35
Protecting Market Share
Protect current market by:
By adopting defense strategies
Through continuous innovation
18-36
Protecting Market Share Defense Strategies
Position Defense
Mobile Defense
Flanking Defense
Contraction Defense
Pre-emptive Defense
Counter-Offensive Defense
18-36
Defense Strategies by Market Leader
Position Defense
Involves setting up barriers to entry around a

product, brand, market or market segment
Weak defense because one becomes a sitting
duck
Mercedes was using a position defense until
Toyota launched a frontal attack with its Lexus
18-36
Mobile Defense
Constantly shifting resources and developing

new strategies and tactics
Creates a moving target that is hard to
successfully attack. Also one becomes more
flexible in the event of an attack
18-36
Flanking Defense
Redeploying resources to deter a flanking

attack
Strengthen the flank if it is vulnerable
18-36
Contraction Defense
Withdraw from the most vulnerable segments

and redirect resources to those that are more
defendable
Tata Group sold its soaps & personal care
products business to Hindustan Lever in 1993
18-36
Pre-emptive Defense
Detect potential attackers and attack the

enemies first
Let it be known how one will retaliate
Introduce new products or brands
(product/brand proliferation)
18-36
Counter Offensive Defense
Respond to competitors head on attack by

identifying the attackers weaknesses and
launching a counter attack
18-36
Expanding Market Share
Expand market share by:
Increasing market share in served markets,

thus increasing profitability
Producing high-quality products
Creating good service experiences
Building close customer relationships

18-37
Market Challenger Strategies
Challenge the leader with an aggressive bid
for more market share high risk but high
gain
Challenge firms of the same size, smaller
size, or challenge regional or local firms
(Direct or indirect attacks)
18-38
Attack Strategies by Market Challenger
Market Challenger Strategies Frontal Attack
Match the competitors product, advertising, price
and distribution efforts
Attack the competitors strengths rather than the
weaknesses
Can succeed only if challenger has sufficient fire
and staying power
Japanese and Korean firms attacking western
firms
Pepsi attacking Coke; Nirma vs HLL; Rin & Tide;
Ujala vs Robin Blue
18-38
Market Challenger Strategies Flank Attack
Attack the enemy at its weak points or blind
spots, i.e., its flanks
Ideal for a challenger who does not have the
resources for a frontal attack
Geographical Flanking Coca-Cola; Segment
Flanking Red Bull
18-38
Market Challenger Strategies Encirclement Attack
Attack the enemy on many fronts at the same
time
Possible for a challenger with superior resources
Product encirclement Java by Sun
Microsystems
Market encirclement Seiko watches
18-38
Market Challenger Strategies Bypass Attack
By diversifying into products or markets
neglected by the leader
Could overtake the leader by using new
technologies
Setting up bottling plants in interior locations
Skype Niche area in telephony services
through new technology
ITC Diversification into FMCG products
18-38
Market Challenger Strategies Guerilla Attack
By launching small, intermittent hit and run
attacks to harass and destabilize the
leader
Short term promotions, when demand is low
Jyoty Laboratories launched Maxo mosquito
coil against Reckitt Benckisers Mortein to
reduce the latters focus on the fabric
whitener market
18-38
Specific Attack Strategies
Price-discount
Cheaper goods
Prestige goods
Product proliferation
Product innovation
Improved services
Distribution innovation
Manufacturing cost reduction
Intensive advertising promotion
Be the Opposite
7Ups Uncola strategy

Dells direct distribution
Market Challenger Strategies
Second mover advantage occurs when
a market follower observes what has
made the leader successful and
improves on it
18-39
Market Follower Strategies
Focus is mainly on increasing profit rather than
market share
Advantages:
Learn from market leaders experience
Copy or improve on the leaders offering
Higher profitability
Cloner, Imitator, Adapter, Counterfeiter

18-40
Market Nicher Strategies
Ideal market niche (sub-segment) is big enough to be
profitable with high growth potential and has little
interest from competitors
Good for small firms with limited resources.
Offers high margins.
Key to market niching is specialization
Market
Customer
Product
Multiple Niching
18-40
Nichemanshi
p
End-user specialist
Vertical-level specialist
Customer-size specialist
Specific-customer specialist
Geographic specialist
Product or product-line specialist
Product-feature specialist
Job-shop specialist
Quality-price specialist
Service specialist
Channel specialist

Companies need to continuously adapt
strategies to changes in the
competitive environment
Competitor-centered company
Customer-centered company
Market-centered company
18-41

Competitor-centered company spends
most of its time tracking competitors
moves and market shares and trying to
find ways to counter them
Advantage is that the company is a fighter
Disadvantage is that the company is

reactive
Also, may lose customer focus

18-42

Customer-centered company spends
most of its time focusing on customer
developments in designing strategies
Provides a better position than competitorcentered company to identify
opportunities and build customer
relationships
18-43

Market-centered company spends
most of its time focusing on both
competitor and customer
developments in designing strategies
18-44
Balancing
Balancing Customer
Customer and
and
Competitor
Orientations
Competition-Centered
Competition-Centered
Customer-Centered
Customer-Centered
No
No
Yes
Yes
No
No
Product
Product
Orientation
Orientation
Customer
Customer
Orientation
Orientation
Yes
Yes
Competitor
Competitor
Orientation
Orientation
Market
Market
Orientation
Orientation
Balance
Customer
+ ID opportunities
+ Long-run profit
+ Emerging needs & groups
Competition
+ Fighter orientation
+ Alert
+ Exploit weaknesses
- Reactive
The End

18-Creating Competitive Advantage

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18

All firms making the same product or

All firms making products that supply

All firms competing for the same

Center is the list of consumer activities

First outer ring lists main competitors

Second outer ring lists indirect

Market share growth

A Competitors Expansion Plans

Competition is most intense within a strategic

Competition among strategic groups is due to

Strategic Groups in the Major

Lower mfg. cost

Identification of major attributes that customers

Assessment of the companys and competitors

Increase total demand

Share costs of market and product development

Legitimize new technologies

Serve less attractive market segments

Provide more product differentiation

Lower the anti-trust risk

Improve bargaining power versus legislators

Try to share rather than earn in the

Take large risks

Finding uncontested market spaces

Identifies competitive information and the best

Overall cost leadership

Three generic competitive strategies by Michael Porter

Wal-Mart and Volkswagen

Expand Market Size

Expand total demand

Expand total demand by developing:

More usage of its products

By adopting defense strategies

Through continuous innovation

Defense Strategies by Market Leader

Involves setting up barriers to entry around a

Constantly shifting resources and developing

Redeploying resources to deter a flanking

Withdraw from the most vulnerable segments

Detect potential attackers and attack the

Respond to competitors head on attack by

Increasing market share in served markets,

Producing high-quality products

Creating good service experiences

Building close customer relationships

Attack Strategies by Market Challenger

Specific Attack Strategies

Manufacturing cost reduction

Intensive advertising promotion

7Ups Uncola strategy

Learn from market leaders experience

Copy or improve on the leaders offering

Cloner, Imitator, Adapter, Counterfeiter

Balancing Customer and

Balancing Customer and

Advantage is that the company is a fighter

Disadvantage is that the company is

Also, may lose customer focus

Balancing Customer and

Balancing Customer and

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