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Introduction to Marketing MM2711

Introduction to Marketing MM2711

Week 3

Marketing Analysis II: Competitors and customers

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Defining Customer Value Defining Customer Value

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Total CustomerValue

Total CustomerValue

Total CustomerCost

Total CustomerCost

(Product, Service,Personnel, &

Image Values)

(Product, Service,Personnel, &

Image Values)

(Monetary, Time,Energy, &

Psychic Costs)

(Monetary, Time,Energy, &

Psychic Costs)

CustomerDelivered Value

CustomerDelivered Value

(Profit to theConsumer)

(Profit to theConsumer)

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Customer Satisfaction Customer Satisfaction Customer Satisfaction Customer Satisfaction

Customer Satisfaction Results When a Company’s Performance Has Fulfilled a Buyer’s Expectations.

Buyer’s Expectations Are Based On:

Customer’s Past Buying Experiences Opinions of Friends & Associates Marketer/ Competitor Information & Promises

Pro

du

ct’s

Act

ual

Per

form

ance

Performance Exceeds Expectations- Customer is

Delighted

Performance Below Expectations - Customer is

Dissatisfied

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Total Customer Satisfaction Total Customer Satisfaction

• Highly satisfied (delighted) customers produce Highly satisfied (delighted) customers produce benefits:benefits:– They are less price sensitive,

– They remain customers longer,

– They talk favorably about the company and products to others.

• Delighted customers have emotional and rational Delighted customers have emotional and rational preferences for products, and this creates high preferences for products, and this creates high customer loyalty. customer loyalty.

• Therefore, the purpose of Marketing is to generate Therefore, the purpose of Marketing is to generate customer value profitably.customer value profitably.

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The Need for Customer Retention The Need for Customer Retention

NewCustomer

Costs

NewCustomer

Costs

LostCustomer

Costs

LostCustomer

Costs

CustomerLifetime

Value

CustomerLifetime

Value

The Key to Customer Retention is Superior Customer Value and Satisfaction. Companies Must Consider:

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Competitive Advantage & Competitive Analysis Competitive Advantage & Competitive Analysis

• Competitive Advantage– An advantage over competitors gained by offering

consumers greater value and satisfaction than competitors offer.

• Competitive Analysis– The process of identifying key competitors;

assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.

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Steps in Analyzing Competitors Steps in Analyzing Competitors

Identify the company’scompetitors

Select whichcompetitors toattack or avoid

Avoid “competitor myopia”“competitor myopia” – define competition broadly, market point-of-view – indirectindirect competitors as well as those in “strategic group” and industry

Competitive intelligence,benchmarking

Some competition is a good Some competition is a good thing:thing:(market development, avoid anti-trust)

Marketing conceptMarketing concept – “satisfy customers … better than competitors”Market-centered companyMarket-centered company – balance

Assess competitors’ objectives, strategies,strengths and weaknesses,and reaction patterns

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Identifying Competitors 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

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Direct competitor

Indirect competitors ……

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Assessing Competitors

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Assessing Competitors

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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 company’s and competitors’ performance on the valued attributes

• Competitors may be– Strong or weak– Close or distant

Selecting Competitors to Attack and Avoid

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Overall costOverall costleadershipleadership

Low prices through lowest costproduction & distribution

Overall costOverall costleadershipleadership

Low prices through lowest costproduction & distribution

DifferentiationDifferentiationPerceived as product class leader,

perceived as superior

DifferentiationDifferentiationPerceived as product class leader,

perceived as superior

FocusFocusMarket nicher, specialist in

serving a small market

FocusFocusMarket nicher, specialist in

serving a small market

Middle of the roadMiddle of the roadAvoid – do the worst

No clear strategy or advantage(e.g., moderate quality,

moderate price, mass market)

Middle of the roadMiddle of the roadAvoid – do the worst

No clear strategy or advantage(e.g., moderate quality,

moderate price, mass market)

Basic Competitive StrategiesMichael Porter, Competitive Advantage

Basic Competitive StrategiesMichael Porter, Competitive Advantage

3 “winning strategies,” 1 “losing strategy”

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Overall cost leadership strategy is when a company achieves the lowest production and distribution costs and allows it to lower its prices and gain market share

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

Focus strategy is when a company focuses its effort on serving few market segments well rather than going after the whole market

Porter considered no clear strategy to be “middle of the road”

Basic Competitive Strategies

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Differentiation

Overall cost leadership

Focus

Middle Middle of the of the roadroad

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Basic Competitive Strategies – Value DisciplinesTreacy & Wiersema, HBR

Basic Competitive Strategies – Value DisciplinesTreacy & Wiersema, HBR

Operational Operational ExcellenceExcellence

Lean and efficient –

low price, convenienceCustomer IntimacyCustomer IntimacyTarget customer knowledge –

service and relationship focus

Product LeadershipProduct LeadershipInnovation – continuous stream

of

leading edge products

Leading companies focus on and excel at one; meet industry standards on the others

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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

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

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

Basic Competitive Strategies

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Firms competing in a given market differ in their resources and objectivesresources and objectives, so may

pursue different competitive positions

Firms competing in a given market differ in their resources and objectivesresources and objectives, so may

pursue different competitive positions

Market Leader

Market Challengers

Market Followers

Market Nichers

Pursue largemarket segments(or several smaller ones)

Pursue smallsegments notpursued byothersA company may hold different A company may hold different

competitive positions in different competitive positions in different marketsmarkets

A company may hold different A company may hold different competitive positions in different competitive positions in different

marketsmarkets

Competitive Positions Competitive Positions

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Market LeaderMarket LeaderFirm with the Largest

Market Share

Market LeaderMarket LeaderFirm with the Largest

Market Share

Expand Total MarketProtect Market ShareExpand Market Share

Expand Total MarketProtect Market ShareExpand Market Share

Competitive Positions Competitive Positions

Market ChallengerMarket ChallengerRunner-Up Firms thatFight Hard to Increase

Market Share

Market ChallengerMarket ChallengerRunner-Up Firms thatFight Hard to Increase

Market Share

Market FollowersMarket FollowersRunner-Up Firms that Wantto Hold Their Share Without

Rocking the Boat

Market FollowersMarket FollowersRunner-Up Firms that Wantto Hold Their Share Without

Rocking the Boat

Market NichersMarket NichersFirms that Serve SmallSegments Not Being

Pursued by Other Firms

Market NichersMarket NichersFirms that Serve SmallSegments Not Being

Pursued by Other Firms

Follow CloselyFollow at a Distance

Follow CloselyFollow at a Distance

By Customer, Market,Quality-Price, Service

Multiple Niching

By Customer, Market,Quality-Price, Service

Multiple Niching

Full Frontal AttackIndirect Attack

Competitive Positions Competitive Strategies

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Expand the total market• Finding new users

• Discovering and promoting new product uses• Encouraging greater product usage

Expand the total market• Finding new users

• Discovering and promoting new product uses• Encouraging greater product usage

Protect market share

• Prevent or fix weaknesses• Fulfill value promise

• Keep prices consistent with value• Build relationships

• Continuous innovation

Protect market share

• Prevent or fix weaknesses• Fulfill value promise

• Keep prices consistent with value• Build relationships

• Continuous innovation

Expand market share

• In served market• Profitability rises with market share

Expand market share

• In served market• Profitability rises with market share

Largest market share; strategy leaderBut, not easy

• not automatically most profitable • must build market

• must defend

Largest market share; strategy leaderBut, not easy

• not automatically most profitable • must build market

• must defend

Competitive Strategies for Leaders Competitive Strategies for Leaders

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Leaders of supermarkets in Hong Kong Leaders of supermarkets in Hong Kong

Leaders of PC operating system Leaders of PC operating system

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Attack the leader

• Frontal attack (attack strengths)(risky – leader usually retaliates

and the one with the most strengthand endurance wins)

• Indirect attack(attack weaknesses)

Attack the leader

• Frontal attack (attack strengths)(risky – leader usually retaliates

and the one with the most strengthand endurance wins)

• Indirect attack(attack weaknesses)

Avoid the leader

• Attack others• Acquire others

Avoid the leader

• Attack others• Acquire others

Aggressively try to build market share

• Challenge the market leader• High-risk but high-gain

• Sustainable competitive advantage over the leader is key to success• Challenge firms of the same size or smaller regional and local firms

Aggressively try to build market share

• Challenge the market leader• High-risk but high-gain

• Sustainable competitive advantage over the leader is key to success• Challenge firms of the same size or smaller regional and local firms

Competitive Strategies for Challengers Competitive Strategies for Challengers

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Challenger of free TV in Hong Kong Challenger of free TV in Hong Kong

Challenger of PC operating system Challenger of PC operating system

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Not too close

Not too distant

Not too close

Not too distant

• Often very profitable

• Sometimes target of challengers

• Often very profitable

• Sometimes target of challengers

Offer distinctiveadvantage

Offer distinctiveadvantage

Want to hold sharewithout aggressively challenging

• Learn from the market leader’s experience• Copy or improve on the leader’s offerings

Want to hold sharewithout aggressively challenging

• Learn from the market leader’s experience• Copy or improve on the leader’s offerings

Competitive Strategies for Followers Competitive Strategies for Followers

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Follower of convenience store in HK Follower of convenience store in HK

Follower of PC hardware Follower of PC hardware                                                                         

 

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End-userspecialistEnd-userspecialist

Customer-sizespecialist

Customer-sizespecialist

Specialists – serve small segments not pursued by other firms

• Serving market niches means targeting sub-segments• Good strategy for small firms with limited resources

• Earns high margins rather than high volume

Specialists – serve small segments not pursued by other firms

• Serving market niches means targeting sub-segments• Good strategy for small firms with limited resources

• Earns high margins rather than high volume

Geographicmarket

specialist

Geographicmarket

specialist

• Often high margins and profits

• Ideal niche – big enough to be profitable, likely to grow

• Risks - niche may dry up, or may become target of larger firms

• Often high margins and profits

• Ideal niche – big enough to be profitable, likely to grow

• Risks - niche may dry up, or may become target of larger firms

Quality-price

specialist

Quality-price

specialistService

specialistService

specialist

Competitive Strategies for Nichers

Competitive Strategies for Nichers

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Nicher of PC hardware Nicher of PC hardware

Nicher of supermarkets in Hong Kong Nicher of supermarkets in Hong Kong

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Balancing Customer and Competitor Orientations

Balancing Customer and Competitor Orientations

• Types of companies:–Competitor-centered companies

–Customer-centered companies

–Market-centered companies

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Balancing Customer and Competitor Orientations Balancing Customer and Competitor Orientations

Competitor-centered company spends most of its time tracking competitor’s 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

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

Market-centered company spends most of its time focusing on both competitor and customer developments in designing strategies

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Balancing Customer and Competitor OrientationsBalancing Customer and Competitor Orientations

ProductOrientation

ProductOrientation

CompetitorOrientation

CompetitorOrientation

CustomerOrientation

CustomerOrientation

MarketOrientation

MarketOrientation

Co

mp

etit

ion

-Cen

tere

dC

om

pet

itio

n-C

ente

red

NoNo YesYes

Customer-CenteredCustomer-Centered

NoNo

YesYes