Lectures

STRATEGIC MARKETING
WHAT IS STRATEGY ALL ABOUT ?
• Strategy is a coherent marketing direction

• Strategy sets competitive direction
• Strategy decides product planning
• Strategy dictates communication
• Strategy determines focus areas
Lecture 1- 10 Jan 2006

Strategy is about SURVIVAL
• Explosion of choice
• Geographical spread of choice
• Mutation of choice
• Simple, focused Value Proposition
Why you instead of the competitor ?

Strategy is about PERCEPTIONS
• Minds are limited
Nobody remembers everything
The Product Ladder – ranking products and
brands in the mind.
Rungs exist ! Don’t ignore the rung above
or below you
The news factor – people will listen if they
think you have an important message to
convey
• Minds dislike confusion

Humans acquire new information thru
learning. Memory is the way that information
is retained.
Keep it simple to get remembered

• Minds are insecure

Perceived Risk :
functional/monetary/physical/social/psychological
Follow the herd

Testimonials
Heritage
Bandwagon effect

• Minds don’t change

Attitudes rest on beliefs formed over time
Attitudes exist for a wide range of issues
even if they do not affect the person
Trying to change attitudes is an uphill task

and likely to be counterproductive

• Minds lose focus

Too many brand variations can make the
brand values fuzzy till they mean nothing
The specialist focused brand usually wins out
one product, one benefit, one message
the best in the field
can become generic to the business

Strategy is about DIFFERENTIATION
• Differentiate or Die
• Differentiation is a continuing process
Quality Customer Satisfaction
First Mover Attribute Ownership
Leadership Category ownership
Heritage Method of Manufacture

Strategy is about DIFFERENTIATION
• Talk about your differentiation

Keep the message in context to the
category
Identify a differentiating idea
Ensure that you have the credentials and
can prove it
Communicate the difference

Strategy is about SPECIALIZATION
• The specialist usually wins out
one product, one benefit, one message
the best in the field
can become generic to the business
• Specialization is a differentiator
• Becoming generic is the ultimate – represent both product

and category

Strategy is about SIMPLICITY
• Common sense is the best wisdom
native good judgement free from biases or intellectual
subtlety
• Research is intelligence
tendency to rely on research in an uncertain world
data can be mesmerising
• Complex language is confusing
perceptions are the only important intelligence

Strategy is about COMPETITION
• Customer orientation is a given
• Competitor orientation is the key
•Marketing is war

THE COMPETITIVE STRATEGIC CIRCLE
Product Tgt mkts

line
Finance
&
mktg
Control
GOALS
Profitability
R&D Growth
sales
Mkt share
others
purchasing distrbn
labour mfg
Lecture 3, 17Jan, 2006

FORCES DRIVING INDUSTRY COMPETITION
POTENTIAL
ENTRANTS
Threat of new entrants
INDUSTRY
SUPPLIERS COMPETITORS
BUYERS
Bargaining power of suppliers
Bargaining power of buyers
Rivalry amongst existing

firms
Threat of substitute products or services
Lecture 3, 17jan, 2006

SUBSTITUTES
INTENSITY OF COMPETITION
STRUCTURAL DETERMINANTS
• Competition seeks to drive down rate of return to

perfectly competitive levels – competitive floor
• Competition in an industry goes beyond
established players
• All five competitive forces determine the intensity
of competition – the strongest forces are crucial
for determining strategy

DETERMINANTS OF COMPETITION
THREAT OF ENTRY
• Threat of entry depends on two factors
Barriers to entry
Reaction from existing competitors

THREAT OF ENTRY - barriers
• Economies of scale
• Product Differentiation
• Capital Requirements
• Switching Costs
• Access to Distribution channels
• Cost Disadvantages
• Government policy

• Expected Retaliation
- history of vigorous retliation
- resources to retliate
- commitment to the industry and illiquid
assets
- slow industry growth limiting ability to
absorb new entrant
• Entry deterring price
• Experience and learning curve
• Intensity of rivalry
• rivalry occurs when one or more competitors

either feels pressure or seeks to improve position
• competitive moves elicit reaction – mutually

dependent

• Intensity of rivalry - factors
many/ balanced competitors

slow industry growth
high fixed costs
lack of differentiation Special assets
low switching costs fixed cost of exit
block addition to capacity interrelationships
diversity of competitors emotional barriers
high strategic stakes govt. restrictions
social restrictions
high exit barriers
EXIT
BARRIERS
LOW HIGH
LOW Low, stable returns Low, risky returns

ENTRY
BARRIERS
High, stable returns High, risky returns
HIGH

SUBSTITUTE PRODUCTS
• Substitutes limit the potential return by placing a

ceiling on prices – price performance alternative
• Improving price performance trend increases
threat
• Higher the profits in an industry, more the leeway
to introduce substitute products

BUYER BARGAINING POWER
• Buyers compete with the industry
force down prices
ask for higher quality and value add
play one against the other

BUYER BARGAINING POWER
• Buyer power results from

- large volume purchases relative to supplier sales
- purchase volume represents a significant portion of
industry sales
- product is standard or undifferentiated
- low or few switching cost to buyer
- has low profit margins which trigger need to drive
down prices
- credible threat to backward intregation
- industry product is not important to buyer’s quality or service
- full information with buyer
- ability to influence consumer decisions ( retailers )
• Choose buyers with least power to influence !

SUPPLIER BARGAINING POWER
• Supplier power results from

- dominated by few and more concentrated than the industry it
sells to
- does not have to contend with substitute products
- the industry it sells to is not an important customer
- suppliers product is an important input to the industry it sells
to
- suppliers product is differentiated
- supplier has built up high switching costs
- supplier has built up a credible threat for forward integration

EFFECTIVE COMPETITIVE STRATEGY
• Identify strengths & weaknesses relative to

industry
• Where do you stand relative to these ?
• Effective competitive strategy takes offensive &
defensive action to create a defendable position
against the five competitive forces
- Porter

• Position for best defence

• Influence the balance of forces through strategic
moves
• Anticipate shifts in the balance and choose a
strategy appropriate to the new balance

• There are three GENERIC strategies
COST LEADERSHIP – in all areas

DIFFERENTIATION – creating something that is
perceived industrywide as unique
FOCUS

GENERIC STRATEGIES
COST LEADERSHIP
BENEFITS
PROS RISKS
Above
• Aboveaverage returns despite
average returns despite Technological change
strong competitive forces nullifying past investments or
strong competitive forces
Defence against powerful learning
• Defence against powerful
buyers Low cost learning by new
buyers
Defence against powerful entrants or followers thru
suppliers due to cushion to imitation or ability to invest in
suppliers due to cushion to cope
cope with cost increases latest eqpt.
with cost increases
Substantial entry barrier in Cost myopia can take sight
• Substantial entry barrier in
terms of economies of scale or away from marketing changes
terms of economies of scale or
cost advantages Inflation shrinks ability to
cost advantages
Creates favourable position effectively maintain price
• Creates favourable position vis
vis a vis substitutes differentials to offset
a vis substitutes
competitor brand images or
differentiation
GENERIC STRATEGIES
DIFFERENTIATION
BENEFITS RISKS
PROS
Insulatesagainst rivalry due to
brand loyalty-lower price
Cost differential between low cost
competition and differentiated firm
• sensitivity
Above average returns despite becomes too high to hold brand
strong competitive
Increases forces
margins – avoids loyalty
• need
Defence
to takeagainst
a low powerful
cost Buyers need for differentiation
position
buyers falls
• Customer

Defenceloyalty
againstcreates an
powerful Imitation narrows perceived
entry barrierdue to cushion to cope
suppliers differentiation as industries mature
Higher margins give more
with cost increases
negotiating power with
• suppliers
Substantial entry barrier in
terms ofbuyer
Mitigates economies
power ofduescale
to or
cost
lack of advantages
other alternatives
• Customer
 Creates favourable positiontovis
loyalty is a barrier
a vis substitutes
substitutes

GENERIC STRATEGIES
FOCUS
BENEFITS
PROS RISKS
Achieves differentiation Advantage
• Above average returns despite of narrow focus
and / or lower costs can be lost due to increasing
strong competitive forces
Can achieve higher margins cost differentials
by choosing targets where Differences in desired
buyers
competition is weak products between strategic mkt
suppliers due to cushion to cope and overall market narrows
with cost increases Strategic mkt gets segmented
• Substantial entry barrier in by competition

terms of economies of scale or
cost advantages
• Creates favourable position vis
a vis substitutes

GENERIC STRATEGIES
STRATEGIC ADVANTAGE
Perceived Uniqueness Low Cost position
Industrywide DIFFERENTIATION LOW COST

LEADERSHIP
STRATEGIC
TARGET
Only particular segment FOCUS

COMPETITIOR ANALYSIS
POTENTIAL
ENTRANTS
Threat of new entrants
INDUSTRY
SUPPLIERS COMPETITORS
BUYERS
Bargaining power of suppliers
Bargaining power of buyers
Rivalry amongst existing

firms
Threat of substitute products or services
Lecture 3, 17jan, 2006

SUBSTITUTES
COMPETITOR ANALYSIS
What drives the competitor What competitor is doing & can do
FUTURE GOALS CURRENT STRATEGY
COMPETITOR’S RESPONSE PROFILE

satisfied with current position ?
likely moves or strategies ?
vulnerability of competitor
what will trigger greatest and most effective retaliation ?
ASSUMPTIONS CAPABILITIES
about itself
strengths
about industry
weaknesses
COMPETITOR ANALYSIS
• Analyse all significant competition
• Analyse existing and potential competitors

- not in industry but can overcome entry barriers
- obvious synergy being in the industry
- obvious extension of corporate strategy
- customers who can integrate backward or
forward
• Try and predict mergers & acquisitions

COMPETITOR ANALYSIS
FUTURE GOALS
• Knowledge of goals helps in
- knowing state of comfort with current

position and likely changes in strategy
- intensity of reaction to events
- predicting reaction to strategic changes
- interpret seriousness of initiatives

COMPETITOR ANALYSIS
ASSUMPTIONS
• Competitors assumptions about itself

- relative position
- historical or emotional identification
- cultural, regional or national differences
affecting perceptions
• Competitors assumptions about the industry
and other players
- industry trends
- goals and capabilities of competitors

COMPETITOR ANALYSIS
CURRENT STRATEGY
• Capabilities of the competitors
- goals, assumptions & current strategy influence
likelihood, timing & intensity of reaction
- assess strengths & weaknesses with respect to
the five key competitive forces
- what are the core capabilities in each functional
area ? Will these increase or decrease over
time ?
- capacity for growth in terms of people, skills,
plant capability, etc.
- quick response capability
- ability to adapt to change
COMPETITOR ANALYSIS
CREATING THE COMPETITOR RESPONSE PROFILE
How is the competitor likely to respond ?

OFFENSIVE MOVES
- satisfaction level with current position ?
- strategic moves to change current position to align with goals
- strength and seriousness of moves based on analysis of goals
and capabilities and likely gain from these moves
DEFENSIVE MOVES
- vulnerability to others’ strategic moves, industry events,
government and macroeconomic phenomena
- what moves can provoke a reaction even though retaliation
may be costly
- what moves can he react to quickly ? What moves cannot he
react to quickly ?
COMPETITOR ANALYSIS
SELECTING THE BATTLEGROUND
• Select the battleground where the competitor is ill-

prepared, least enthusiastic or most uncomfortable
• Ideal battleground is one where the competitors are
unable to respond – existing legacies
• Creating mixed motives for the competitor puts them

in a ‘devil or deep blue sea’ situation

COMPETITOR ANALYSIS
MARKET SIGNALS
• A market signal is any action by a competitor that

gives a direct or indirect indication of intentions,
motives, goals or internal situation
- Porter
• Signals can be bluffs, warnings or stated
commitment to a course of action
• Recognizing and accurately reading signals is

an essential supplement to competitor
analysis

COMPETITOR ANALYSIS – MARKET SIGNALS
TYPES OF MARKET SIGNALS
• There are essentially two types of signals
- truthful indication of moves
- bluffs : signals others into taking or not taking

an action with the ultimate objective of
benefiting the signaller

FORMS OF MARKET SIGNALS
• Prior Announcement – formal communication that a competitor

will or will not take some action
• Reasons for prior announcement can be many
preempt competitors from taking an action
threats of action contemplated if competitor
makes a certain move
tests of competitor sentiments taking advantage
of the fact that they might not be carried out
communicating pleasure or displeasure with
competitor moves
avoid costly simultaneous moves

• Public Discussions of Industry

- may expose assumptions about the industry
- conscious or unconscious attempt to get others
to operate under same assumptions
- bluff to mask its own position
- conciliatory gesture
- build up collective image

• Competitors’ Discussions of Own Moves
- get others to fall in line
- preempt others from reading the move as a

threat

• Competitors’ Discussions of Own Moves
- get others to fall in line
- preempt others from reading the move as a

threat

COMPETITON –FRAGMENTED INDUSTRIES
• An industry in which no firm has a significant market

share and can influence industry outcome
- Porter
• An environment in which there is no market leader

REASONS FOR FRAGMENTATION
• Low overall entry barriers – anybody and everybody

can come in
• Absence of economies of scale or entry barriers
• High logistics costs – promote local distribution
• High inventory costs or erratic sales – promotes
smaller flexible units
• No size advantage in dealing with buyers or suppliers

REASONS FOR FRAGMENTATION
• Diseconomies of scale – fast changing scenarios

• Need for low overheads
• Need for diverse product line and customisation
• Local image and contacts are a key success factor
• Exit barriers – force marginal players to stay on
• Local regulations – force multitude of localised firms
• New industry

OVERCOMING FRAGMENTATION
• Consolidate the industry. Benefits can be high since

marginal players unlikely to retaliate
• Identify the reasons for fragmentation and try to take
out the most critical one
• Is the industry ‘stuck’ in a fragmented state ?
- lack of resources or skills
- complacency
- no threats of entry

• If you cannot consolidate, you have to cope with

fragmentation. How do you do it ?
low cost, efficient, multi locational standardization
increase value added
specialization in any form
product type
product segment
customer type
regional area
basic benefits
• Do not fall into the following traps

seek dominance
lose strategic focus and discipline
over centralise and lose ability to respond fast
wrong assumptions about competitors
over react to competitor moves

• Formulate strategy by asking the following questions

industry structure and competitor position
why is the industry fragmented ?
can fragmentation be overcome ? If so, how ?
is it profitable to overcome fragmentation ?
if it has to stay fragmented, what is the best
way to cope ?

COMPETITON –EMERGING INDUSTRIES
• NEWLY FORMED or RE-FORMED INDUSTRY

• Created by Technological Innovation, shifts in Cost
Relationships, New Consumer Needs or other
sociological changes
• No rules of the game ; rules to be established
• Absence of rules means opportunity and risk

• Environment is characterised by
– Technological uncertainty : what will work ?
– Strategic uncertainty : who will do what ?
– High initial costs which come down rapidly with learning &
volumes
– Many first time buyers : will needs be met ?
– Short time horizon in strategic thinking : get off the ground
as quickly as possible
– Subsidy : likely to create uncertainty since it may not be a
long term feature

• Barriers are different from those of mature industries

and likely to change rapidly
– Proprietary technology
– Access to distribution networks
– Availability of adequate and appropriate raw materials and
skilled labour
– Cost advantage
– Risk of failure

• Market segments open up gradually depending on

the NATURE OF BENEFIT
– Initial buyers are PERFORMANCE ADVANTAGE SEEKERS
• How large is the advantage ?
• Need for buyer to improve his competitive position
• Price or cost sensitivity
– Later buyers also look for COST ADVANTAGE
• How large ?
• How obvious ?
• Lasting competitive advantage ?
• Competitive pressure influencing changeover
• Cost orientation in buyer’s strategy
• Some other critical issues confronting buyers

– Technological ‘fit’ between buyers’ product and the new
introduction
– Cost of buyer product failure due to use of new introduction
– Introduction or Switching Costs
– Support services for the new product
– Cost of obsolescence
– Personal risk to decision maker

• Timing of entry is a crucial strategic choice

• Early entry benefits
– ‘pioneer’ perception
– Head start on learning curve
– High customer loyalty
– Absolute cost advantages in raw materials, distribution, etc.
• Early entry risks

– Building wrong skills
– High cost of opening markets
– Technological changes making products obsolete

COMPETITON –STRATEGIES
THE NATURE OF THE BATTLEGROUND
• The terrain is the human mind

• Map the human mind in terms of who owns
what
• Segment the customer mind in terms of who
occupies what position – include all
competition
• Ascertain where the attacks can be made
from

THE PRINCIPLE OF FORCE
• The greatest possible number of troops

should be brought into action at the decisive
point
- karl von clausewitz
• Might is right
• Winners always have the best product, the
best people, the best technology
• Perception is the reality

THE PRINCIPLE OF DEFENCE
• The defensive form of war is in itself stronger

than the offense
- karl von clausewitz
• Difficult to launch a surprise attack against a
strong defence since communicating to the
customer takes time
Attack is the best form of defence

THE PRINCIPLE OF DEFENCE
• Only the market leader can consider

defensive strategies
• The best defensive strategy is to attack
yourself – constantly ‘raise the bar’
• Always block strong competitive moves
Attack is the best form of defence
• Always try to enlarge your own share

THE PRINCIPLE OF OFFENCE
• Offence is for a strong number two or three

• Assess the strength of the leader’s position
• Find the weak point in the leader’s strength
• Keep the attack on as narrow a front as
possible

THE PRINCIPLE OF FLANKING
• The move must be made in an uncontested

territory
• Success hinges on being able to maintain
and create a separate category – something
new
• Surprise is important
• Follow through is critical
• FLANKING IS A GAMBLE

THE GUREILLA PRINCIPLE
• The segment is small for you to defend and

competition to attack
• The objective is not to take share away from
a competitor but create a small niche that you
can own and defend
• Be prepared to give up one position and
move into another
• Big fish in a small pond

• The relevant strategy depends on :

– State of the industry ( emerging, mature,
declining)
– Competitve forces in the industry
– Where are you ? Inside or outside ?
– What are your objectives ?
– What is the most cost effective way to achieve
these objectives in the short, medium and long
term ?

COMMPETITON –STRATEGIES
MARKET LEADER
• Strategies for the market leader

– Expand the total market
• New uses
• New users
• More usage
– Defend its turf
• Raise the bar
• Leave no gaps in the marketing mix
• Create a flanking defense
• Respond to competitive moves
• Moves can be real or psychological
• The terrain is the customer’s mind
MARKET CHALLENGER
• A runner up firm fighting to increase its share

• What is the objective ?
– leadership
– More share
• Who to attack ?
• What type of offensive ?

MARKET FOLLOWER
• A runner up firm that wants to hold its

share without rocking the boat
• Advantages
– Hard work done by leader
– Learn from leader’s experience
– Follow with better products and lower
capital costs

MARKET FOLLOWER
• A runner up firm that wants to hold its share without

rocking the boat
• Being a follower is not a passive strategy
• Issues
- how to hold current customers and win
new ones
- right balance between bleeding
customers from leader without inviting
retaliation
• Follower can be a target for challengers
- keep costs low
- product quality high
- service well
- enter new markets as they open up

MARKET NICHER
• A firm that serves small segments that

others overlook or ignore
• Niching is about high margins, not high
volumes
• Nichers usually have limited resources
• Profitable because the nicher knows the
target group extremely well
• Specialization is the key

COMPETITION CENTRIC
vs
CUSTOMER CENTRIC
• Competitor centred company tracks

competitors and finds strategies to counter
them
• Positives – fighter orientation
• Negatives – reactive strategies ?

COMPETITION CENTRIC
vs
CUSTOMER CENTRIC
• Customer centred company focuses on

customer developments to design strategies
• Positives
- identify new opportunities
- sees needs evolve
- focus on delivering superior value
• Negatives – blind to competiton ?
COMPETITION CENTRIC
vs
CUSTOMER CENTRIC
CUSTOMER CENTRIC
Product Focus Customer

Focus
COMPETITOR
Competitor Market
CENTRIC
Focus Focus
FIND THE RIGHT BALANCE


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STRATEGIC MARKETING

WHAT IS STRATEGY ALL ABOUT ?

• Strategy is a coherent marketing direction

Lecture 1- 10 Jan 2006

• Simple, focused Value Proposition

Why you instead of the competitor ?

Lecture 1- 10 Jan 2006

• Minds dislike confusion

Keep it simple to get remembered

Lecture 1- 10 Jan 2006

• Minds are insecure

Follow the herd

Lecture 1- 10 Jan 2006

• Minds don’t change

Trying to change attitudes is an uphill task

Lecture 1- 10 Jan 2006

• Minds lose focus

Lecture 1- 10 Jan 2006

Lecture 1- 10 Jan 2006

• Talk about your differentiation

Lecture 1- 10 Jan 2006

• Becoming generic is the ultimate – represent both product

Lecture 1- 10 Jan 2006

• Complex language is confusing

perceptions are the only important intelligence

Lecture 1- 10 Jan 2006

• Customer orientation is a given

• Competitor orientation is the key

Lecture 1- 10 Jan 2006

Product Tgt mkts

Lecture 3, 17Jan, 2006

Rivalry amongst existing

Threat of substitute products or services

Lecture 3, 17jan, 2006

• Competition seeks to drive down rate of return to

Lecture 1- 10 Jan 2006

• Threat of entry depends on two factors

Reaction from existing competitors

Lecture 1- 10 Jan 2006

Lecture 1- 10 Jan 2006

• rivalry occurs when one or more competitors

• competitive moves elicit reaction – mutually

Lecture 1- 10 Jan 2006

• Intensity of rivalry - factors

many/ balanced competitors

LOW Low, stable returns Low, risky returns

Lecture 1- 10 Jan 2006

• Substitutes limit the potential return by placing a

Lecture 1- 10 Jan 2006

• Buyers compete with the industry

force down prices

ask for higher quality and value add

play one against the other

Lecture 1- 10 Jan 2006

• Buyer power results from

• Choose buyers with least power to influence !

Lecture 1- 10 Jan 2006

• Supplier power results from

Lecture 1- 10 Jan 2006

• Identify strengths & weaknesses relative to

Lecture 1- 10 Jan 2006

• Position for best defence

Lecture 1- 10 Jan 2006