strategic marketing jan 2010
TRANSCRIPT
STRATEGIC MARKETING
Eastern Institute of Management2nd Year 2nd Semester
January 2010
Objectives
• The basic objective of this course is to develop skills for analyzing market competition and design appropriate competitive marketing strategies for higher market share
What’s expected during this course ?
What we plan to do this term
• Understand some of the Key Concepts of Strategic Marketing through examples
• Inputs in the form of Theory and Case Studies• One Project that we will complete during the
term that will help in comprehending what we have learnt
• Read references from what is taught in class with selected reading list
Course Content1. Market Situation Analysis2. Analysis of Competitor’s Strategies and Estimating
their Reaction Pattern and Competitive Position3. Market Leader Strategies – Expanding the Total
Market, Protecting Market Share, Expanding Market Share
4. Market Challenger Strategies – Choosing and Attack Strategy for Emerging Industries, Declining Industries and Fragmented Industries
5. Balancing Customer and Competitor Orientation6. Industry Segmentation and Competitive Advantage7. Product Differentiation and Brand Positioning8. Competitive Pricing9. Competitive Advertising10.Role of Sales Promotion in Competitive Marketing
Selected Reading Material
1. Strategic Marketing – D W Cravens & Nigel F Piercy
2. Comparative Marketing Systems – Kaynak E and Savitt R
3. Marketing Management – Analysis, Planning, Implementation and Control – Philip Kotler
4. Competitive Strategy : Techniques for Analyzing Industries, Competitors– Michael Porter
5. Competitive Advantage : Creating and Sustaining Superior Performance– Michael Porter
Any Questions ?Please make suggestions at this stage before
we proceed furtherRequest : No mobile phones to be kept on
during class hoursAttendance is important if you want to learn
this subjectWill treat you as Managers in a Corporate
Firm
Expectations from you…Read
ObserveExperience
ApplyAsk Questions
Let’s discuss
More examples
Industry vs Corporation
Consumer vs Lifestyle Environment
Consumer vs Industry vs Mobility Environment
Another real life example…
Background
Competition – Film Industry/Entertainment/Leisure
Consumer – Indian and NRIAudiences
Consumer
Competition
Brand – Aamir KhanCategory – Film Ghajini
Corporation
Environment
• Industry : Big opening weekends have become essential for the films' financial success, one needs to create an urgency in people to see the film in the first couple of weeks.
• Social : Style, Trends, Fashion, Lifestyle, Health Fitness 8 packs
• Youth : Style Icons and technologically savvy• Brand Experience : At the site and thereafter : post
sales of music CD’s, VCD’s DVD’s and merchandise• Cross Promotion : Telecom Service, Retail Outlets,
Malls,
What was Ghajini’s Marketing Strategy?
– Ghajini producers conceptualized the film's marketing strategy in a way that it targets maximum number of people to spread awareness about the movie in an engaging manner, where each touch-point with the film is designed to occupy the mind-space of the audience.
– Flaunting his pumped up body, clothes and hairstyle that he sports in the movie, Khan has been out there to woo audience well in advance before the movie hits theatres.
– Speaking to Businessofcinema.com about the hype around Ghajini, producer Madhu Mantena said, "I think at a time Our marketing strategies are focused on creating this urgency."
What was Ghajini’s Marketing Strategy?
• Assuming that the product and brand are good– Media spend : 14 crores to promote the film– Brand Experience : Life-size statues at
multiplexes, ushers at multiplexes sporting Ghajini hairstyles, a special 3-D PC game, amongst others.
– Brand Tie-Ups : Tata Indicom voicemail using Aamir’s voice, Samsung Handsets L700 & M200 models preloaded with Ghajini songs, pictures and ringtones, Van Heusen formal wear based on Aamir’s costumes in the film, Indiagames : Ghajini games
– Merchandise : Produced and imported from China
• Sold for Rs.90 crores, Returns in the first week : Rs.100 crores, till date Rs.200 crores !
Is Ghajini a success ??
Sold for Rs.80 crores– Domestic : Rs.40 crores to Studio 18, – Overseas : Rs. 10 crores to Big Pictures, – Satellite Rights : Rs. 10 crores to Studio 18– Audio Rights : Rs.20 crores to T-Series– Home Video Rights – Not sold as yet
Returns in the first week : Rs.100 crores– Rs.30-32 crores alone on Christmas Day
2008
What is Strategic Marketing ?
What is Strategic Marketing ?
• Strategy : Is the science and art of assessing your organization's situation, setting goals and using available resources to accomplish those goals
• Marketing : Is the aggregate of functions involved in differentiating (branding), selling and moving the goods from producer to consumer
• Strategic Marketing : Is using your strategy to make your marketing totally effective
Strategic Marketing Helps
• Realize Market Opportunities• Leverage the Organizations Strengths• Stay on Target• Stay on Budget
• Finally : Achieve the organizations goals
Keep in mind that Strategy does not have to be complicated as long as it is effective.
Building A StrategyWhat to address in your planning ?• Your Organization (Corporation): Strengths,
Weaknesses, Opportunities and Threats• Your Products/Services (Corporation) :
Benefits, Features, Strengths and Weaknesses• Your Markets : (Consumer) Size, Attitude,
Consumers, Trends, Wants, Needs, Specifics• Your Competition : Current, Possible, Future,
SWOT, Probable Responses• In Your Environment : Government, Economy,
Technology, Others
Learning Objectives
• Recognize the three strategic “C’s”.• Understand the importance of Strategic
Marketing• Determine the characteristics of Strategic
Marketing• Visualize the future of Strategic Marketing• Comprehend the process of Strategic
Marketing
Concept of Strategic Marketing
• Within a given environment, marketing strategy deals essentially with the interplay of three forces known as the strategic three Cs: the consumer, the competition, and the corporation.
• Marketing strategies focus on ways in which the corporation can differentiate itself effectively from its competitors, capitalizing on its distinctive strengths to deliver better value to its consumers.
Characteristics of Marketing Strategy
Having
• A clear market definition;
• A good match between corporate strengths and the needs of the market;
• And superior performance, relative to the competition.
Importance of Strategic Marketing
• Marketing plays a vital role in the strategic management process of the firm.
• The experience of companies well versed in strategic planning indicates that failure in marketing can block the way to goals established by strategic planning.
Characteristics of Strategic Marketing
• Emphasis on Long-Term Implications.
– Strategic marketing is a commitment, not an act.
• Varying Roles for Different Products /Markets.
– Strategic marketing starts from the premise that different products have varying roles in the company.
• Organizational Level.
– Strategic marketing is conducted primarily at the business unit level in the organization.
Characteristics of Strategic Marketing
• Corporate Inputs:
– Corporate Culture ~ refers to the style, whims, traits, taboos, customs, and rituals of top management.
– Corporate Publics ~ are the various stakeholders with governments and society constitute and organization’s stakeholders.
– Corporate Resources ~ include the human, financial, physical, and technological assets/experience of the company.
Characteristics of Strategic Marketing
• Relationship to Finance.– Strategic marketing decision making is
closely related to the finance function.– Its very important of maintaining a close
relationship between marketing and finance, and, with other functional areas of a business.
– In recent years, frameworks have been developed that make it convenient to simultaneously relate marketing to finance in making strategic decisions.
Future of Strategic Marketing
• The battle for marketing share is intensifying in many industries as a result of declining growth rates.
• Deregulation in many industries is mandating a move to strategic marketing.
• Many companies in hitherto non-marketing-oriented industries are attempting to gain market share through strategic marketing.
Future of Strategic Marketing
• Shifts in the channel structure of many industries have posed new problems.
• More and more countries around the world are developing the capacity to compete aggressively in world markets.
• The fragmentation of markets - the result of higher per capita incomes and more sophisticated consumers.
Future of Strategic Marketing
• In planning an early entry in the marketplace, strategic marketing achieves significance.
• To successfully develop corporate imagination, companies need strategic marketing.
The Process of Strategic Marketing
Market Situation Analysis
Market Vision, Structure and Analysis
• Markets are becoming increasingly complex and interrelated, creating challenges for managers in regard to understanding market structure and identifying opportunities for growth.– Consider the impact of digital technology on
• Computers• Telecommunications• Photography• Office Equipment• Entertainment : Film making
Market Vision
• The importance of forming a vision about the future can be understood with the help of the following example– Eastman Kodak : Conventional Film
material manufacturer• Electronic imaging vs conventional film• Compete aggressively in the
conventional film market Fuji• New arena positions Kodak against Sony,
HP, Sanyo, Olympus – electronic imaging
Markets and Strategies
• Market knowledge is essential in guiding businesses and market strategies.
• How do markets impact strategy ? • What is the concept of value migration and
how does it effect market opportunities ?• What is a shared vision about how the market
is expected to change in the future?
Strategies and Markets are Interlinked
• Market changes often require altering business and marketing strategies
• Managers who do not understand their markets and how they will change in the future may find the strategies they are using for competing inadequate as buyers needs and wants change and alternative products are available in the market place.
• Forces that precipitate change– Deregulation – MNC’s, imports etc.,– Excess Global capacity – Polymer products from China– Global competition - Nike– M&A’s – Steel Industry– Changing customer expectations – Convergence of
technology– Technological discontinuities - Photography– Disintermediation – Organised Retail– Demographic and Changing Life styles – Indian Middle class
Examples• EBI : Encyclopedia Britannia – 200 old publishing
company• In 1990 the CD ROM technology impacted the
traditional encyclopedia market and EBI did not respond to this challenge
• By 1994 - 16 million households had CD drives in US homes : Encarta, Wikipedia
• EBI’s sales dropped and slaes force declined from 2300 to 1100
• CD ROMS priced at $100-400 while EBI at $ 1500• In 1996 it eliminated its sales force and EBI was
sold by Scottish publishing house to Swiss billionaire Jacqui Safra
• Where do you see the future of the print business going 20 years from now ?
Value Migration
• Value Migration is the process of customers shifting their purchases away from products generated by outmoded business designs to new ones that offer superior value.– Examples : Migration from Typewrites to
Word processing to computers– Official memos and mail from conventional
print to electronic mailing via internet and email
• What will be the impact of environment & infrastructure on the auto industry ?
Shared Vision about the Market
• Organizations ability to develop a vision about the future markets that they wish to be in and directions of change.
• Team work rather than an individual : Arcelor Mittal• To develop a future vision one must
– Identify and analyse the forces of change that are expected to transform industry boundaries and create new competitive space eg : Nokia Health
– Form a vision about the future eg : Stress and Mortality and Health consciousness
Mapping Product Markets
Mapping the Product Market
Market Structure Analysis
Market Forecasts
Future Vision About the Market
Question 1
• Who sells the largest number of cameras in India today ?
• Sony, Canon or Nikon ?
• The correct answer is Nokia whose main line of business in India is not cameras but cell phones.
• Reason being cameras bundled with cell phones are outselling stand alone cameras. Now, what prevents the cell phone from replacing the camera outright? Nothing at all. One can only hope the Nikon’s and Canon’s are taking note.
Question 2
• Who is the biggest in the Music business in India today ?
• HMV, SaReGaMa or Sony ?
• The answer is Airtel. By selling caller tunes (that play for 30 seconds) Airtel makes more than what music companies make by selling music albums (that run for hours).
• Incidentally Airtel is not in music business. It is the mobile service provider with the largest subscriber base in India . That sort of competitor is difficult to detect, even more difficult to beat (by the time you have identified him he has already gone past you).
Question 3
• What Apple did to Sony, Sony did to Kodak. Explain.
• Sony earlier defined its market as ‘audio’ (music from the walkman). They never expected an IT company like Apple to encroach into their audio domain. Come to think of it, is it really surprising? Apple as a computer maker has both audio and video capabilities. So what made Sony think he won't compete on pure audio?
• So also Kodak defined its business as film cameras, Sony defines its businesses as ‘digital’
Question 4
• In 2008 who was the toughest competitor for British Airways in India?
• Singapore Airlines, Emirates or Air India ?
• The answer is videoconferencing and tele-presence services of HP and Cisco. Travel dropped due to recession. Senior IT executives in India and abroad were compelled by their head quarters to use videoconferencing to shrink travel budget. So much so, that the mad scramble for American visas from Indian techies was nowhere in sight in 2008.
• Note : Prices of PC’s/Mobile Communication/Digital Cameras etc., dropped….If tele-presence prices crash. Imagine the fate of airlines then.
Point to Note - 1• India has two passions. Films and cricket. The two
markets were distinctly different. So were the icons. • That was, when cricket was fundamentally test
cricket or at best 50 over cricket. Then came IPL and the two markets collapsed into one. IPL brought cricket down to 20 overs. Suddenly an IPL match was reduced to the length of a 3 hour movie. Cricket became film's competitor. On the eve of IPL matches movie halls ran empty. Desperate multiplex owners requisitioned the rights for screening IPL matches at movie halls to hang on to the audience. If IPL were to become the mainstay of cricket, as it is likely to be, films have to sequence their releases so as not clash with IPL matches.
• As far as the audience is concerned both are what in India are called 3 hour "tamasha" (entertainment) . Cricket season might push films out of the market.
Point to Note - 2
• One last illustration. 20 years back what were Indians using to wake them up in the morning?
• The answer is "alarm clock." The alarm clock was a monster made of mechanical springs. It had to be physically keyed every day to keep it running. It made so much noise by way of alarm, that it woke you up and the rest of the colony.
• Then came quartz clocks which were sleeker. They were much more gentle though still quaintly called "alarms."
• What do we use today for waking up in the morning? Cellphone! An entire industry of clocks disappeared without warning thanks to cell phones. Big watch companies like Ajanta were the losers.
• You never know in which bush your competitor is hiding!
Case StudyVivometrics California – Life
Shirt• Wants to manufacture shirts• Not an ordinary shirt but embedded are 4
balck bands equipped with electrodes to monitor more than 40 vital signs in your body, fluid in the heart, oxygen consumption etc.,
• Blazing R&D on e-health• Bathroom scales, blood sugar of diabetics,
portable BP machines, EKG’s• Future : Electronic Care will will save lives –
future of medicine and technology
Case StudyVivometrics California – Life
Shirt• Wants to manufacture shirts• Not an ordinary shirt but embedded are 4
balck bands equipped with electrodes to monitor more than 40 vital signs in your body, fluid in the heart, oxygen consumption etc.,
• Blazing R&D on e-health• Bathroom scales, blood sugar of diabetics,
portable BP machines, EKG’s• Future : Electronic Care will will save lives –
future of medicine and technology
Matching Needs with Product Benefits
• Product Market – markets exist only when there are buyuers with needs who have the ability to purchase products and those that satisfy their needs.
• Have the ability and willingness to buy as they have a need
• Needs that satisfies a benefit– Benefit must satisfy otherwise only people with
needs• Alternatively they express a demand for that product
and can be substituted by other competitive brands• Positioning strategy, substitutability, • Eg : Campbell Soup : Discuss : Share of Throat in
Summer in India
Mapping Product Market Boundaries and StructuresStart with the Generic Need satisfied by the product
category of interest to managementPerform various kitchen functions - appliances
Identify the product categories (types) that canSatisfy the generic need
Heating, cooling, washing, drying, cooking
Form the specific product-markets withinthe generic product market
Cooling : refrigerators
AFrost free
BDouble Door
APUF, Freshness
Guidelines for Definition
• In mapping product markets it is helpful to determine– The basis for identifying buyers in the
product market (geographical area, buyer characteristics such as age etc.,)
– The market size and characteristics– The brands/product categories that are
competing for needs and wants of the buyer
Forming Product Markets
• The factors that influence product market boundaries must be determined in addition to the rate of change in market composition over time and the extent of market complexity
Example : If a company is deciding to exit from a business it will look at financial performance and competitive position
If the company wants to enter a new product segment a much more detailed analysis is required
Changing Composition of Markets
• Product market composition may change as new technologies become available, new competition emerges, new customer needs become evident due to change in lifestyle etc.,
• For example : Single unit families, they may meet their needs for food from products from different industries and not just from brands of the same product category
• DISCUSS
Mapping Product Market Boundaries and Structures
Fast Food
SupermarketSpencer Delis
ConvenienceFood Stores
prepared food
Micro waveOvens
TraditionalRestaurantsTakeaways
KFC vs Mc Donalds
Extent of Market Complexity
• Three characteristics of markets capture a large proportion of the variation of a market’s complexity– Customer function considers what the product or
service does : Example : Desktop Computer at home DISCUSS
– Different technologies may satisfy the use situation of the customer : Example : Sending a letter DISCUSS
– Customer segment recognizes the diversity of the needs of customers for a particular product Example : Automobiles DISCUSS
Illustrative Product Market Structure
Personal CareProducts Generic Product Class
ShampoosSoaps
Lotions
Powder
Creams
Product Type
Bar Soaps Liquid SoapsPaper Soaps Variant A
Hygiene Freshness Beauty Variant B
LuxNirmaVivel Brands
Identifying and Describing Buyers
DemographicsFamily Size, Age, Income, LocationSex, Occupation
PsychographicsAttitude, Beliefs, Values,
LifestylesHow they holiday, where they eat, what types of clothes they buy, what cars they possess
Needs and Want AnalysisConvergence of technology, Experimental, Traditional, Conservative
How Buyers Make Choices
• Problem recognition : Doesn’t like the sound of this conventional magnetic tape music system and desires a CD player
• Information Search : Uses past experience of friends, ads, to seek information and discover alternatives
• Alternative Evaluation : Alternative players are then decided based on attributes, price, availability
• Purchase Decision : Selected, bought and installed in his room
• Post Purchase Behaviour : May be satisfied and advocates or returns the same
Environmental Influences
• Analysis of the identify the external factors that influence the buyers choice– Government : Fuel prices – Social Change : Big Bazaar– Economic Shifts : PPP– Technology : Convergence
Analyzing Competition
Define the competitive arena for generic, specific and variant product markets
Identify and describe key competitors
Evaluate Key Competitors
Anticipate Action by Competitors
Identify Potential Competitors
Example : Competition for Diet Colas
Diet Coke
Diet Rite
Diet Pepsi
CompetitionDiet Cola
FruitFlavoured
Cola
LemonLimes
Reg.Colas
Diet Lemon Limes
CompetitionSoft Drinks
CompetitionBeverages
CompetitionFood & Ent
Wine
BottledWater
CoffeeJuices Tea
Product Form
Product Category Generic
Product BudgetCompetition
IceCream
FastFood
Video
FilmPopcorn
Candy
Industry Analysis
• Competitor analysis is conducted from the point of view of the firm. However, with the example shown earlier, it is necessary to now look at competition from the point of view of competing industries and thus a need for an industry analysis– Profile of the industry– Analysis of the value chain
• Horizontal analysis – similar types of firms• Vertical Analysis - Different industries
reaching the same end user
Industry Analysis
• The industry analysis includes – Industry characteristics and trends such as
sales, number of firms, growth rates– Operating practices of firms in the industry,
including product mix, services provided, barriers to entry and geographical scope
– Industry Size and Growth– Marketing Practies– Industry changes that are anitipated– Strengths and Weaknesses– Strategic Alliances amongst competitors
Industry Analysis
• Analysis of the Value Added Chain : Supplier and Distribution channels is important to understanding and servicing product markets. Example : ITC vs Coca Cola
• Competitive Forces : Need to recognize the five competitive forces that affect industry performance– Rivalry among existing firms Eg. Coke vs Pepsi– Threat of New Entrants Eg. Kodak vs HP/Sony– Threat of Substitute Products Eg. Ency. Brit vs CD
Rom– Bargaining Power of Suppliers Eg. Commercial
Airlines– Bargaining Power of Buyers Eg. Walmart with
suppliers
Key Competitor Analysis
• Competitor analysis is conducted for firms that compete directly with each other. Eg. Nike vs Reebok, Unilever vs P&G
• The aspects of competitor analysis that is important are – Preparation of descriptive profile for each
competitor– Evaluating the competitors strengths and
weaknesses
Describing the Competitor
• A key competitor is any organization going after the same target market as the firm conducting the analysis. Jet, Kingfisher and Air India are key competitors on many Indian routes and certain international routes.
• Key competitors are often brands that compete in the same product market or in segments within the market. Surf Excel and Ariel
• Different product types that satisfy the same need or want may also actively compete with each other. Sony Walkman and Apple i-pod
Information needed to Describe Key Competitors
• Business Scope and objectives• Management experience, capabilities and
weaknesses• Market position and trends• Market target and customer base• Marketing programme and positioning strategy• Financial, technical and operating capabilities• Key competitive advantage
– Sources : Annual Reports, Industry reports, Articles, Interviews, etc.,
Evaluating the CompetitorEvaluation considers the strengths and weaknesses of each competitorin the areas shown below :
Scope of Market
CoverageMarket Share
CustomersValue
Proposition
DistinctiveCapabilities
PastPerformance
Perceptual MapsPerceptual Maps are useful in analyzing the competitive positioningof competing brands. Analgesics brand in the US
Tylenol o
Aspirin Free Excedrin o
Bufferin o
Anacin oBayer o
Ecotrin o
o Extra Strength Tylenol
o Extra Strength Bayer
o Extra Strength Anacin
Gentleness
Efficacy
Advil o
Nuprin o
Area of Vulnerability
Anticipating Competitors Actions
• Estimating Competitors’ Future Strategies– May be in the same direction. Assuming
this may not be wise as their current action may signal probable future threats. Eg. Swatch introduced the plastic lifestyle brands. Timex licensed Nautica, Timeberland, offered $40 Expedition range. Customers moved to metal watches.
– Surf vs Nirma, Maruti vs Tata Motors
Anticipating Competitors’ Actions
• Identifying Potential Customers : May come from four major sources a) companies competing in a related market b) companies with related technologies c) companies targeting similar customer groups with other products d) companies competing in similar geographical regions with similar products
• Market entry by new players is under the following conditions a) High profit margins b) Future growth opportunities c) No high market entry barriers d) Few Players
Strategic Vision about the Future
• Are industry boundaries clear and static ? Are customers and competitors identifiable? Or are industry boundaries blurring and evolving?
• Do firms compete as distinct entities or as families of suppliers and end product firms ?
• Is there competition for managing migration paths ?• Is competition taking place at product line, business
and corporate levels ? Do these levels influence each other?
• Can there be competition to influence industry standards and evolutions?
Phases of Competition
• Phase 1 : Initial Stages : companies compete in identifying product concepts, making technology choices and building competencies. This phase involves experimentation with ideas and the path to market leadership is not clearly defined
• Phase 2 : Involves Partnering of companies to controlling industry standards
• Phase 3 : As markets become clearly defined the competitive process concentrates on market share for end products and profits
Anticipating the Future
• Hamel and Prahalad Model– What are the influences (discontinuities)
present in the product market that have the potential to profoundly transform market/competitor structure ?
– Investigate each discontinuity in substantial depth• Affect on customers• Economic impact• How fast, who is exploiting this trend• Who gains, who loses• New opportunities ??
Market Size Estimation
• Market Potential : is the maximum amount of product sale that can be obtained from a defined product market during a specific time period.
• Sales Forecast : expected sales for a defined product market during a specified time period
• Market Share : Company sales divided by the total sales of all firms for a specified time period.
• Forecasting
Summary
• See Handout
Internal Assignment • Read the Hindustan Motors Case Study• List the reasons and explanations of what you thought
the company did right and what they did wrong to end up in the situation as they did by the early 2000’s
• In the current context of the Automobile Industry in India what would be your advice to them for a revival and why?
• To be submitted before class on 23rd March 2010• Marks – 30• No copying from each other. Your own analysis. Please
refer books/internet for any help that you require.• Handwritten/typed assignments on A4 sheets with
name and roll/registration number mentioned on top RHC
Assignment – Any 1
• Select an industry in India (Paint, Cement, Steel, Detergents Aerated Drinks, etc. )and describe its characteristics, participants and structure.
OR• Using the approach to product market definition
and analysis, select a brand and describe the generic, product type and brand product markets of which the brand is a part.
• Search the net, read but do not COPY directly !!! Submission by 23rd March 2010
Analysis of Competitor’s Strategies & Estimating
their Reaction Pattern and Competitive Position
Identifying the Company’s Competitors
In the words of Albert W. Emery
‘Marketing is merely a civilized form of warfare in which most battles are won with words, ideas and disciplined thinking’
What do organizations need to know ?
• Who are our competitors ?• What are their strategies ?• What are their objectives ?• What are their strengths and weaknesses ?• What are their reaction patterns ?
We will now examine how this information helps shape the organizations’ marketing strategy.
Competitor Myopia• Four levels of competitors based on the concept of
‘product substitution’ : Broader levels as we move down the list– Companies offering a similar product and service
to the same customer at similar prices. Eg : Maruti Alto with Tata Indica and not Tata Indigo
– Companies making the same product or a class of products Eg : Maruti vs Tata Motors
– Companies manufacturing products that supply the same service. Eg : Maruti vs 2 wheelers/3 wheelers/cycles/trains/airlines etc.,
– Companies that compete for the same consumer rupee. Eg : Maruti vs Consumer Durable, foreign vacations, new homes, home repairs and uplift etc.,
Industry Concept of Competition
• An industry is defined as a group of firms that offer a product or class of products that are close substitutes of each other.
• Auto industry, Steel Industry, Pharmaceutical Industry etc.
• Economists define ‘close substitutes’ as products with ‘high cross elasticity of demand’
• Coffee vs tea• A company must strive to undertsand the
competitive pattern of its industry if it hopes to be an effective player.
Model of Industrial Organizational Analysis
SupplyRaw Materials, Technology,
Unionizations, Product Durability, Public Policy,
Business Attitudes,
DemandPrice Elasticity, Substitutes,
Rate of Growth, Cyclical and Seasonality, Purchase
Method, Marketing Type
Basic Conditions
Industry StructureNumber of Sellers, Product
Differentiation, Entry and mobility barriers, Exit and shrinkage barriers,
Cost Str, Global reach, Vertical Integration
ConductPricing Behaviour, Product Strategy and
Advertising, Research and Innovation, Plant Investment, Legal
Tactics
PerformanceProduction and efficiency, Progress, Full Employment,
Equity
Number of Sellers and Degree of Product Differentiation : 5 Industry
Structure TypesOne Seller Few Sellers Many Sellers
Undifferentiated Product
Differentiated Product
Pure Monopoly
Pure Oligopoly
Pure Competitive
DifferentiatedOligopoly
MonopolisticCompetitive
• Pure Monopoly : When only one firm provides a certain product or service in a certain country or area Eg : Indian Post, CESC in WB etc.,
• Pure Oligopoly : Few companies producing the same commodity Eg : Steel, Coal, Oil : lower costs high volume
• Differentiated Oligopoly : Few companies producing products that are partially differentiated Eg : Automobile companies, Camera
• Monopolistic Competition : Many competitors able to differentiate their offers in whole or part Eg : Restaurants, Beauty Salons,
• Pure Competition : Many competitors offering the same product & service. No basis for differentiation. Eg : Telecom,
Number of Sellers and Degree of Product Differentiation
Example : Dynamism
One Seller Few Sellers Many Sellers
Undifferentiated Product
Differentiated Product
Pure MonopolySony Walkman
Pure Oligopoly
Pure Competitive
DifferentiatedOligopoly
MonopolisticCompetitive
Others enter
Shakeout happens
Other Industry Structure Parameters
• Entry & Mobility Barriers : Ease of entry into industries prevents current firms from extracting excess profits in the long run – however it is easier to open a restaurant than to set up an automobile plant. The reasons are as follows :– High capital requirements– Economies of scale– Patents and licensing requirements– Scarcity of locations, raw materials, – Distribution network
Other Industry Structure Parameters
• Exit & Shrinkage Barriers : Ease of exit from industries that provide low and unattractive profits. Exit barriers could be due to the following reasons :– Legal and moral obligations to customers,
creditors and employees– Government restrictions– Low salvage value of assets due to over
specialization or obsolescence– Lack of alternative opportunitiesThey may ‘shrink’ in size if they cannot exit.
Other Industry Structure Parameters
• Cost Structures : Each industry will have a certain cost mix that will drive much of its strategic conduct. For example : making steel involves heavy manufacturing and raw material costs whereas an FMCG company will have high distribution and marketing costs.
• Firms in an industry will pay great attention to the high cost areas
• Thus a steel company with a most modern plant and machinery and ownership of raw material will be more competitive than others.
Other Industry Structure Parameters
• Vertical Integration : In some industries such as the Oil Industry, companies will find it advantageous to integrate backward and/or forward. Major oil producers carry oil exploration, oil drilling, oil refining, and chemical manufacture. Eg : Reliance Industries.
• Vertical Integration often effects lower costs and also more control over the value added stream. In addition, these firms can manipulate their prices and costs in different segments of their business to earn profits where taxes are the lowest.
Other Industry Structure Parameters
• Global Reach : Some industries are highly local : Biscuits and Packaged Snacks and others are highly global Automotive.
• Companies in the global market must compete globally if they are to enjoy economies of scale and keep up with the latest advances in technology.
Market Concept of Competition
• Instead of looking at companies making the same product we can look at companies that are trying to satisfy the same customer need or serve the same customer group.
• In general, the market concept of competition opens the company’s eyes to a broader set of actual and potential competitors and stimulates more long-run strategic market planning.
• The key is to link industry and market analysis through mapping the ‘product/market battlefield’
Product Market Battlefield for Toothpaste
Pro
du
ct
Seg
men
tati
on
Children/Teens
Age 19 to 35 Age 35 plus
Customer Segmentation
Plain Toothpaste
Toothpaste with Flouride
Gel Toothpaste
Striped Toothpaste
Smoker’s Toothpaste
Colgate-PalmoliveP&G
Beecham Beecham
Topol Topol
Colgate-PalmoliveP&G
Colgate-PalmoliveP&GUnilever
Colgate-PalmoliveP&G
Colgate-PalmoliveP&G
Colgate-PalmoliveP&G
Colgate-PalmoliveP&G
Colgate-PalmoliveP&GUnilever
Colgate-PalmoliveP&GUnilever
Identifying the Competitors’ Strategy
Identification
• There is a close relationship between who the company’s competitors are and the strategies that other firms are pursuing.
• The more that one firm’s strategy resembles another firm’s strategy, the more they compete.
• In most industries, competitors can be sorted into groups that pursue different strategies.
• A strategic group is a group of firms in an industry following the same or a similar strategy along key dimensions
Strategic Groups in an Appliance Industry
Quality
Vertical Integration
High
Low
High Low (Assembler)
Group ANarrow lineLower manufacturing costVery High ServiceHigh Price
Group CModerate lineMed manufacturing costMedium ServiceMedium Price
Group BFull lineLow manufacturing costGood ServiceMedium Price
Group DBroad lineMed manufacturing costLow ServiceLow Price
Determining the Competitors’ Objectives
Objectives
• What is each competitor seeking in the marketplace?
• What drives each competitor’s behaviour?A useful initial assumption is that competitors strive
to maximize their profits and choose their actions accordingly.
• Long term vs short term• Weights on current profitability, market share,
technology, cash flow etc.,• Must monitor its competitors objectives with
respect to attacking new product/market segments.
Assessing the Competitors’ Strengths & Weaknesses
Competitors S&W
• Must gather data on– Sales– Market Share– Profit Margin– ROI– Cash Flow– New Investments– Capacity Utilization
• Often through secondary data, experience, hearsay, Institutional bodies etc.,
Competitors S&W
• Market Share, Mind Share and Heart Share (Brands)– A measure of the sales share– A measure of the TOP awareness– A measure of whom would you buy the product
from• Financial Parameters
– Liquidity Ratio : Short Term– Leverage Capital Structure Ratio : Long Term– Profitability Ratio : ROE, ROI– Turnover Ratio : Assets being utilized well
Estimating the Competitors’ Reaction Pattern
Common Reaction Profiles
• The Laid Back Competitor : Do not react quickly or strongly to a given competitor move. Loyal Customers, Lack of Funds
• The Selective Competitor : Reacts only to certain types of assaults and not others. Respond to price cuts but not advtg expense increase.
• The Tiger Competitor : The competitor reacts swiftly and strongly to any assault on its terrain.
• The Stochastic Competitor : Some competitors do not exhibit a predictable reaction pattern. May or may not react
Competitive Equilibrium
• Bruce Henderson one of the founding members of the Boston Consulting Group thinks that much of competitive spirit among organizations depends of the industry’s ‘competitive equilibrium’ – If competitors are nearly identical and make their living in the
same way, then their competitive equilibrium is unstable– If a single major factor is the critical factor, then competitive
equilibrium is unstable– If multiple factors may be critical factors, then it is possible for
each competitor to have some advantage and be differentially attractive to some customers. Relatively stable
– The fewer the number of competitive variables that are critical they fewer the number of competitors
– A ratio of 2:1 of market share between any two competitors seems to be the equilibrium point
Designing the Competitive Intelligence System
Intelligence System
• Setting up the System : Calls for identifying vital types of competitive information and assigning a person who will manage the same
• Collecting the Data : Various Sources both Primary, Secondary and Hearsay. Has to develop ways of documenting the information
• Evaluating and Analyzing : Checked for validity and reliability
• Disseminating and Responding : Sent to key decision makers at appropriate intervals
Selecting Competitors to Attack and Avoid
Customer Value Analysis
• Identify the major attributes that the customer values
• Assess the customers ratings of the importance of different attributes
• Assess the company’s and competitors performances of different attributes against each rated importance
• Examine how customers in a specific segment rate the company’s performance against a specific major competitor on an attribute by attribute basis
• Monitor changing customer attributes and importance ratings over time
Classes of Competitors
• Strong vs Weak : Surf vs Ghari Detergent i/o Ariel
• Close vs Distant : Coke vs Mineral Water, Museums vs Malls, Tata Steel vs Hindalco/Reliance Petro
• Good vs Bad : Good ones play by same rules where as Bad ones take short cuts etc. Q. Infosys vs TCS or Satyam ???
Balancing Customer & Competitor Orientations
Competitor Centred Company
• A competitor centred company is one whose moves are basically dictated by competitors actions and reactions. For example
Situation• Competitor W is going all out to crush us in Mumbai• Competitor X is improving distribution coverage in Nagpur and
hurting our sales• Competitor Y is has cut its price in Pune and we lost share• Competitor Z has introduced a new product feature in AhmedabadSolution• We will withdraw from Mumbai as we cannot afford to fight them• We will increase our advertising expenses in Nagpur• We will match the price cut in Pune• We will increase our sales promo budget in Ahmedabad
Customer Centred Company
• A company who would focus more on customer developments to formulate its strategy
Situation• The total market is growing at 4 % annually• The fastest growing segment is the quality sensitive segment, growing 8%
annually• The deal prone customer segment also growing but do no loyalty• A number of customers have expressed a 24 hr helpline no one has it as
yetSolution• Focus more on quality, improve QC, buy better, advertise on the quality
aspects• Avoid cutting prices and making deals as we do not want such customers• We will work on a Cost Benefit analysis before introducing the 24 hr
helpline
Evolution of OrientationsC
om
peti
tor
Cen
tred
Customer Centred
No
No
Yes
Yes
ProductOrientation
CustomerOrientation
CompetitorOrientation
MarketOrientation
Designing Competitive Strategies
Part 2
Classification of Roles in Target Markets
40%
30%
20%
10%
Market Leader
Market Challenger
Market Follower
Market Nichers
Classification of Strategies
40%
30%
20%
10%
Market Leader
Market Challenger
Market Follower
Market Nichers
Expand the Market
Defend & Protect Share
Increase Market Share
New Users, More Usage, New Uses
Position, Flank, Preemptive, Counteroffensive, Mobile & Contraction
Attack to gain share
Not attack
Frontal, Flank, Encirclement,
Bypass, Guerrilla
Imitation vs InnovationCounterfeiter, Cloner,
Imitator,Adapter
Specialization
Market Leader Strategies
Who is a Market Leader • Many industries contain one company that is the acknowledged
market leader• This company has the largest market share in the relevant product
market and usually leads the other firms in prices changes, new product introductions, distribution coverage and promotional intensity
• Example : Photography Material : Kodak– Computer Software : Microsoft– Microprocessor : INTEL– FMCG : P&G– Soft Drinks : Coca Cola– Earth Moving Equipment : Caterpillar– Fast Food : Mc Donalds’s
• Unless the dominant firm is vigilant it can be hurt due to the following reasons– Product Innovation : Motorola (Analog Phones) to Nokia (Digital)– Challenger Spends : Pepsi to Coca Cola (India only)– Changing Customer Styles : Levis to Tommy Hilfiger/Calvin
Klein/GAP• To remain number one calls for action on three fronts
– Expand Market Demand– Defend/Protect Current Share : Defensive and Offensive
Actions– Increase Market Share
Expanding the Total Market• Dominant firm gains the most when the total
market expands Eg : Surf vs Nirma in the 80’s• Market Leader needs to look for New Users,
New Uses and More Usage of its products
Expanding the Market through New Users
• Markets can be expanded through discovering and promoting new uses for the current products
• Eg : Cereals into Energy Bars and Snacks, Vaseline from lubricant in machine shops to personal moisturizer
• Any other examples ??
Expanding the Market through More Usage
• Convince people to use more product per use of the occasion.
• Eg : Shampoo : Typically in their communication ‘Lather, Rinse and Repeat’ – are we sure of the benefits of shampooing our hair twice??
• Eg : Michelin Tyres : French Tyre Company : Michelin Guide
• Eg : Gillete Mach 3 Blades : Blue Strip fades after 12 shaves ‘alerts consumers that they are getting the most optimal Mach 3 shaving experience’…they more they change the more we sell
Expanding through New Uses
• New Users : Market Penetration Strategy: those who may use it but do not
• New Market Segment Strategy : those who have never used it
• Geographical Expansion Strategy : those who live elsewhere
• Eg : Colgate Toothpaste• Eg : Khadim’s Footwear
Defending Market Share
• While trying to expand the total market size, the dominant market leader must also protect its own turf and current share.
• Coca Cola vs Pepsi, Gillete vs Bic, Hertz vs Avis, Mc Donalds vs Burger King, GM vs Ford/Toyota, Kodak vs Fuji
• Sometimes the competitor is domestic and sometimes foreign
• ‘The best defense of good offense’ – Art of War by Sun Tsu Chinese Military Strategist
• Eg : Johnson and Johnson – cardiac stent from 90% share dropped to 8% - why ?
The 6 Defense (Leader) Strategies
ATTACKER
DEFENDER
(1)Position
(2)Flank
(5)Mobile
(6)Contraction
(3) Preemptive
(4) Counteroffensiv
e
The 6 Defense Strategies (Position & Flank)
• Position Defense : Building superior brand power, making the brand almost impregnable : Eg :Heinz (50%) vs Hunt (17%) Ketchup market in the US
• Flank Defense : Instead of building fortifications around its product, it should erect outposts to protect a weak front.: Eg. Smirnoff Vodka (23%) vs Wolfschmidt who lowered $1 per bottle, What was Smirnoff’s strategy ? Goodyear vs Michelin/Bridgestone – product innovation Extended Mobility tyre, Aquatred Tyre and Dunlop Acquisition
The 6 Defense Strategies (Pre emptive)
• Pre emptive Defense : A more aggressive maneuver is to attack before the enemy starts its offensive. Can be done in the following way – Guerrilla Attack : attacking different
competitors in different markets and keep everyone off balance.
– Grand Market Envelopment : Seiko has done with 2300 watch models available worldwide
– Sustained Price Attacks– Sending out Market Signals : Eg : Chrysler
Minivan price vs lower price minivan
The 6 Defense Strategies (Counter Offensive)
• Counter Offensive Defense : When attacked, most market leaders will respond with a counter attack. It can be frontally (head on), hit competitors flanks or launch a pincer movement.
• Eg : Northwest Airline Minneapolis – Atlanta : most profitable, smaller airline cut fares, NW cut fares on Minneapolis-Chicago route hurting the smaller airline so that they cam back to normal pricing
The 6 Defense Strategies (Mobile Defense)
• Mobile Defense : The leader stretches its domain over new territories that can serve as future centres for defense and offense. It spreads through market broadening and market diversification.– Market Broadening : Focus on R&D and
product based on the technology that addresses the need : Refrigerators not just cooling but bio fresh, etc.
– Market Diversification : Into unrelated industries is another alternative : Eg : ITC Limited
The 6 Defense Strategies (Contraction)
• Contraction Defense : Large companies sometime recognize that they can no longer defend all of their territory. The best course of action then appears to be planned contraction (also known as strategic withdrawal). Planned contraction means giving up weaker territories and reassigning resources to stronger territories.
• Eg : HUL moved out of Dalda, Hindustan Motors exited Contessa etc.,
Increasing Market Share
• Market leaders can improve their profitability by increasing their market share.
• A study by Strategic Planning Institute USA called PIMS (Profit Impact of Market Strategy) found that a company’s profitability, measured by pre tax return on investment rises with its relative market share of the markets served. It showed that companies with a 40% market share earned an average 30% ROI.
• Eg : GE strategy to exit out of businesses if they were not No1 in market share. Divested it’s A/C and computer businesses
• Profitability depends on the strategy to gain Market Share and not an Increase in Market Share alone
Market Challenger Strategies
Who is a Market Challenger ?
• Companies that occupy second, third and lower ranks in an industry are often called runner up or trailing companies.
• 2nd run companies/brands such as Pepsi, Ford, Avis etc., are quite large in themselves. They can either attack the leader aggressively to garner higher market share or they can sit back and not ‘rock the boat’ (market followers)
• Many challengers have overtaken the leaders – Eg : Toyota over General Motors– British Airways (then BOAC) over Pan Am (no
longer exists)
Market Challengers• Competitive Rivalry and price cutting are
most intense in industries with high fixed costs, high inventory costs and stagnant primary demand. Eg : Steel, Auto, Paper, Chemicals etc.,
• The Challenger must decided its strategic objective and whom does it wish to attack– It can attack the market leader : High risk
but high potential payoff : Eg : Photocopying Industry Xerox from 3M and then Canon from Xerox
– It can attack firms of its own size and are underfinanced :
– It can attack small local/regional firms
The 5 Attack (Challenger) Strategies
Attacker(Challenger) Defend
er(Leader
)
1)Frontal Attack
4) Bypass Attack
2) Flank Attack
3) Encirclement Attack
5) Guerrilla Attack
The 5 Attack Strategies (Frontal)
• Frontal Attack : In pure frontal attack, the attacker matches its opponent's product, advertising, price and distribution. The principle of force says that the side with the greater manpower (resources) will win.
• A modified frontal attack can work by cutting prices, only if the leader does not counter the move. Helene Curtis does it successfully for lower priced products.
The 5 Attack Strategies (Flank)
• Flank Attack : The major principle of warfare is concentration of strength against weakness. Find a chink in the armour. The leader’s weak spots are the challenger’s opportunity. This can be along two strategic dimensions– Geographical : Areas where leader is
underperforming. Eg : Honeywell focussed on smaller markets where IBM was weak
– Segmental : Newer customer segments : Toyota entered with more fuel efficient cars to counter GM in US
The 5 Attack Strategies (Encirclement)
• Encirclement Attack : Is an attempt to capture a wide slice of the enemy’s territory through a ‘blitz’. Grand offensive on several fronts.
• Makes sense when the challenger commands superior resources.– Eg : Nestle vs Cadbury in India for the
chocolate market
The 5 Attack Strategies (Bypass)• BypassAttack : The most indirect assault is the
bypass strategy. It is to bypass the leader and attack easier markets to broaden one’s resource base. This strategy offers three lines of approach :– Diversifying into unrelated products. Eg : Pepsi
bought Tropicana in 1998 (42% market share) over Minute Maid from Coca Cola (24%)
– Diversifying into new geographical markets : Eg : Pepsi entering India before Coke
– Leapfrogging into new technologies to supplant exisiting products : Eg. SCA in Sweden over P&G for their Diaper market through innovative interactive Web Site Strategy
The 5 Attack Strategies (Guerrilla)
• Guerrilla Attack : Consists of waging small, intermittent attacks to harass and demoralize the leader and eventually secure permanent footholds. Eg : Kaplan Educational Centre (Stanley Kaplan) vs Princeton Review. Ad which said ‘Friens don’t let friends take Kaplan’
More Specific Challenger Strategies
• The challenger must go beyond the 5 broad strategies and develop more specific strategies such as :– Price Discount– Lower priced goods– Prestige Goods : Mercedes vs Cadillac GM– Product Proliferation : Baskin Robbins 31 flavours– Product Innovation : 3M– Improved Services : Avis vs Hertz ‘We are No.2.
We try harder’– Distribution Channel : Avon’s door to door selling
over conventional stores– Manufacturing Cost Reduction : Tata Steel– Intensive advertising : Miller Lite over Budweizer
Who is a Market Follower ?
• Theodore Levitt has coined the word ‘Innovative Imitation’ where he argued that a strategy of product imitation might be as profitable as product innovation.
• Quite prevalent in capital intensive, homogenous-product industries such as steel, fertilizer, cement, chemicals etc.,
• Product differentiation low, service comparable, price sensitivity runs high– Eg : Tata Steel innovated and launched TISON –
TMT bars, SRMB, TIMCON, Rathi TOR, Elegant• 4 strategies : Counterfeiter, Cloner, Imitator, Adapter
4 Follower Strategies
• Counterfeiter : Duplicates the leader’s product and package and sells it through disreputable dealers : Rolex Watches, CD’s etc.,
• Cloner : Emulates the leaders products, name and packaging with slight variations.
• Imitator : Copies from the leader but maintains a differentiation in terms of packaging, price etc.,
• Adapter : Takes the leader’s products and adapts or improves them significantly to offer a new product. Eg : What Japanese Electronics Industry did to Germany/England
Who is a Niche Player ?
• An alternative to being a follower in a large market, is to be a leader in a small market – that is the concept of a niche player.
• Eg : Logitech International : Specialist in manufacture and variations of a ‘computer mouse’ and then onto all computer peripherals such as keyboards, speakers, joystick, webcams, etc., - has become a US$ 750 billion company
• The key strategy for a niche player is ‘specialization’
Niche Player Strategies
• End User Specialist : Logitech International• Vertical Level Specialist : Making Copper Wires• Customer Size Specialist : Minority Group Hotels• Specific Customer Specialist : Sona Steering for
Maruti• Geographic Specialist : Sreeleathers• Product or Product Line Specialist : Carl Zeiss
Lenses• Quality Price Specialist : Mont Blanc Pens
Product Life Cycle
Product Life Cycle
• Product Life Cycle – shows the stages that products go through from development to withdrawal from the market
• Product Portfolio – the range of products a company has in development or available for consumers at any one time. Managing product portfolio is important for cash flow
Product Life Cycle (PLC)– Each product may have a different life cycle– PLC determines revenue earned– Contributes to strategic marketing planning– May help the firm to identify when a product
needs support, redesign, reinvigorating, withdrawal, etc.
– May help in new product development planning– May help in forecasting and managing cash flow
Product Life Cycle Fundamentals
The Stages of the Product Life Cycle– Development– Introduction/Launch– Growth– Maturity– Saturation– Decline– Withdrawal
Product Life Cycle Fundamentals
The Development Stage• Initial Ideas – possibly large number• May come from any of the following –
– Market research – identifies gaps in the market
– Monitoring competitors– Planned research and development
(R&D)– Luck or intuition – stumble across ideas?– Creative thinking – inventions, hunches?– Futures thinking – what will people be
using/wanting/needing 5,10,20 years?
Product Life Cycle Fundamentals
Product Development: Stages– New ideas/possible inventions– Market analysis – is it wanted? Can it be
produced at a profit? Who is it likely to be aimed at?
– Product Development and refinement– Test Marketing – possibly local/regional– Analysis of test marketing results and
amendment of product/production process– Preparations for launch – publicity, marketing
campaign
Product Life Cycle Fundamentals
Introduction/Launch:– Advertising and promotion campaigns– Target campaign at specific audience? – Monitor initial sales– Maximise publicity– High cost/low sales– Length of time – type of product
Product Life Cycle Fundamentals
Growth:– Increased consumer awareness– Sales rise– Revenues increase– Costs - fixed costs/variable costs, profits
may be made– Monitor market – competitors reaction?
Product Life Cycle Fundamentals
Maturity– Sales reach peak– Cost of supporting the product declines– Ratio of revenue to cost high– Sales growth likely to be low– Market share may be high– Competition likely to be greater– Price elasticity of demand?– Monitor market –
changes/amendments/new strategies?
Product Life Cycle Fundamentals
Saturation• New entrants likely to mean market is ‘flooded’• Necessity to develop new strategies becomes
more pressing:– Searching out new markets:
• Linking to changing fashions• Seeking new or exploiting market
segments• Linking to joint ventures – media/music,
etc.– Developing new uses– Focus on adapting the product– Re-packaging or format– Improving the standard or quality– Developing the product range
Product Life Cycle Fundamentals
Decline and Withdrawal:– Product outlives/outgrows its
usefulness/value– Fashions change– Technology changes– Sales decline– Cost of supporting starts to rise too far– Decision to withdraw may be dependent
on availability of new products and whether fashions/trends will come around again?
Product Life Cycle Fundamentals
Sales
Time
Development Introduction Growth Maturity Saturation Decline
Product Life Cycle Fundamentals
Sales
Time
Effects of ExtensionStrategies
Product Life Cycle Fundamentals
Generic Industry Environments
Types of Industry Environment
• Fragmented• Emerging• Declining• Mature• Global
Challenges for Fragmented Industries
What is a Fragmented Industry?
• Is an industry where no particular firm or organization has any significant market share and therefore cannot strongly influence the industry outcome.
• No single precise quantitative definition of a fragmented industry – but an industry that does not have any significant leader– Canned fruits– Toilet and Tissue paper– Machine Tools– Costume Jewellery
What makes an Industry Fragmented
• Low Overall Entry Barriers (not the most important one)
• Absence of Economies of Scale or Experience Curve• High Transportation Costs• Erratic Sales Fluctuations • No Advantage of Size in Dealing with Buyers/Suppliers• Diverse Market Needs (Uniforms for Local State/City
Police)• No Exit Barriers • Local Regulation (Liquor Retailing : Goan Wine in
Kolkata)• Newness (Solar cookers)
How to overcome Fragmentation?
• Create economies of Scale : eg : Kid’s Apparel Market
• Standardize diverse Market Needs : eg : Modular Kitchens
• Make Acquisitions for critical Mass : Steel• Recognize Industry Trends early if newness
was the cause : Dot Coms Amazon.com
How do your cope with Fragmentation?
• Tightly Managed Decentralisation• Formula Facilities (Common Warehousing)• Increased Value Added• Specialization by Product Type or Product
Segment (Furniture)• Specialization by Customer Type• Specialization by Type of Order (Small
Order/Custom Order)• Focussed Geographic Area• Bare Bones/No Frills (Low Overhead Costs –
Travel Trade)
Potential Strategic Traps
• Seeking Dominance• Lack of Strategic Discipline• Overcentralization• Assumption that Competitors have the Same
Overhead and Objectives• Overreactions to New Products
Formulating Strategy for Fragmented Industries
• Step One : What is the structure of the industry and the positions of competitors?
• Step Two : Why is the industry fragmented?• Step Three : Can fragmentation be overcome?
How?• Step Four : Is overcoming fragmentation
profitable? Where should the firm be positioned to do so?
• Step Five : If fragmentation is inevitable, what is the best alternative for coping with it?
Challenges for Emerging Industries
What is an Emerging Industry?
• Emerging industries are newly formed or re-formed industries that have been created by technological innovations, shifts in relative cost relationships, emergence of new consumer needs or other economic or sociological changes that elevate a product or service to the level of a potentially viable business opportunity.
• Solar Heating• Alternative Fuels• Internet based services• Fibre Optics• Packaged Drinking Water
Common Structural Characteristics
• Technological Uncertainty• Strategic Uncertainty• High Initial Costs Embryonic Companies
(Infosys at the time of launch)• First Time Buyers• Short Term Horizon• Subsidy
Problems Constraining Emerging Industries
• Inability to obtain Raw Material• Absence of Infrastructure• Absence of Product Standardization’• Perceived likelihood of Obsolescence• Customers Confusion• Erratic Product Quality• High costs• Image and Credibility with Financial
Community
Strategic Choices
• Shaping Industry Structure• Changing Role of Suppliers and Channels• Shifting Mobility barriers
• Timing Entry• Coping with Competitors• Forecasting• Which emerging Industry to enter??
Challenges for Declining Industries
What is a Declining Industry?
• Declining Industries can be described as those which have experienced an absolute decline in unit sales over a sustained period. Here the end game strategies must be developed.– Postal Services in Developed Nations– Hand Driven Ploughs in India– Magnetic Cassette Tapes in Developed
Nations– Glass containers for Milk and Packaged Water– Propeller Engines to Jet Engines
Causes of Decline
• Technological Advancement and Substitution• Demographics• Shift in needs
Strategic Choices
Favourable IndustryStructure for
Decline
Unfavourable IndustryStructure for
Decline
Has Strength RelativeTo Competitors for Remaining Pockets
Lacks Strength RelativeTo Competitors for Remaining Pockets
LeadershipOr
Niche
NicheOr
Harvest
HarvestOr
Divest Quickly
Divest Quickly
Strategy Analysis and Choice
Strategy Analysis and Choice
Strategic management is not a box of tricks or a bundle of techniques. It is analytical thinking and commitment of resources to action. But quantification alone is not planning. Some of the most important issues in strategic management cannot be quantified at all.Peter Drucker
Strategy Analysis and Choice
The Nature of Strategy Analysis and Choice Strategy analysis and choice seeks to
determine alternative courses of action that could best enable the firm to achieve its mission and objectives.
During this process the idea is to establish long-term objectives generate alternative strategies select appropriate strategies to
pursue.
Strategy Analysis and Choice
Alternative strategies are derived from the firm’s vision the firm’s mission the firm’s objectives the external audit the internal audit past strategies that have worked well.
The Strategy-Formulation Analytical Framework
Stage 1:The Input Stage
Stage 2:The Matching Stage
Stage 3:The Decision Stage
Stage 1: The Input Stage
Stage 1:The Input Stage
Internal Factor EvaluationCorporation VMV, Objectives
And Resources (IFE)
External Factor Evaluation(EFE), Industry Structure, PLC, Environment, Market Mapping
Competitive Profile (CPE), Key Competitor Analysis,
Competitive Strategy Anlysis
Stage 2: The Matching Stage
Stage 2:The Matching Stage
Porter’s Generic Strategy Matrix (SBU’s)
SWOT Matrix (Corporation)
Ansoff’s Matrix (Market/Product)
BCG Matrix (Product/Brand Portfolio)
Porter’s 5 Forces Matrix (Industry)
Porter’s 5 Forces Model
Five Forces Determining Segment Structural
AttractivenessPotential Entrants
(Threat ofNew Entrants)
Buyers(Bargaining power
Of Buyers)
Substitutes(Threat of SubstituteProducts/Services)
Suppliers(Bargaining Power
Of Suppliers)
IndustryCompetitors
(Rivalry amongExisting firms)
Threat of Entry
• Barriers to Entry– Economies of Scale– Product Differentiation (Strong Brands)– Switching Costs (Buyers to buy the new
product)– Access to Distribution Channels– Cost Disadvantage (Depreciated Assets)– Government Policy (Airline to non metro
routes)
Rivalry Among Existing Firms
• Numerous or equally balanced competitors• Slow Industry Growth (Fight for market
share)• High Fixed Costs• Lack of Differentiation (Coke vs Pepsi)• Diverse Competitors• High Exit Barriers
Others
• Threat from Substitute Products (Sugar and Sugar Free)
• Bargaining power of Buyers (Organized Retail)
• Bargaining Power of Suppliers (Steel pre liberalization)
SWOT Analysis
The SWOT Matrix
In this Matrix we seek to match the organization’s internal resources and skills and the opportunities and risks created by the industry’s external environment.
S = Strengths W = Weaknesses O = Opportunities T = Threats
The SWOT Matrix A SWOT Matrix produces four types of
strategies SO Strategy use a firm’s internal strengths to
take advantage of external opportunities. WO Strategy aim at improving internal
weaknesses by taking advantage of external opportunities.
ST strategy use a firm’s strengths to avoid or reduce the impact of external threats.
WT strategy are defensive strategies directed at reducing internal weaknesses and avoiding external threats.
Developing the SWOT Matrix List the firm’s key external opportunities. List the firm’s key external threats. List the firm’s key internal strengths. List the firm’s key internal weaknesses. Match internal strengths with external
opportunities, and record the resultant SO strategy in the appropriate cell.
Match internal weaknesses with external opportunities, and record the resultant WO strategy.
Match internal strengths with external threats, and record the resultant ST strategy.
Match internal weaknesses with external threats, and record the resultant WT strategy.
SWOT Matrix
Leave Blank Strengths – S
List strengths
Weaknesses – W
List weaknesses
Opportunities – O
List opportunities
Threats – T
List threats
SO Strategy
Use strengths to takeadvantage of opportunities
WO StrategyOvercoming weaknesses by taking advantage of opportunities
ST Strategy
Use strengths to avoid threats
WT Strategy
Minimize weaknesses and avoid threats
SWOT Matrix
The purpose of each stage is to generate feasible alternative strategies, not to select or determine which strategies are best.
Not all of the strategies developed in the SWOT Matrix, therefore, will be selected for implementation.
Porter’s Generic Strategy
Porter’s Generic Strategy
Cost LeadershipStrategy
Cost Focus Strategy
DifferentiationStrategy
Focussed Differentiation
Strategy
Porter’s Generic Strategy
• Cost Leadership : is a low cost competitive start that aims at the broad mass market and requires aggressive construction of efficient scale facilities, cost reduction, and cost minimization in areas like R&D, Sales force and Advertising
• Because of its lower cost, the cost leader is able to charge a lower price for its products than its competitors and still make a satisfactory profit. Gives it a good defense against rivals.
• Eg : Dell Computers, Tata Steel
Porter’s Generic Strategy
• Differentiation : is a a generic strategy that involves the creation of a slightly or significantly differentiated offering for which the company may charge a premium.
• This specialty can be associated with design, brand image, technology feature, dealer network or customer service.
• Differentiation is a viable strategy for earning above average returns in a specific business because the resulting brand loyalty lowers the customers sensitivity to price
• Eg : Rolex Watches
Porter’s Generic Strategy
• Cost Focus : is a low cost strategy that focuses on a particular buyer group or geographic market and attempts to service only this niche to the exclusion of others.
• Eg : Nokia – lower end handsets for India
Porter’s Generic Strategy
• Focussed Differentiation : like cost focus, concentrates on a particular buyer group, product line segment or geographic market. Segment targets buyers with unusual needs which are different from others in the industry. Not necessarily on price.
• Eg : Beauty products that have collagen or aloe vera…L’Occitane, Professional Cameras from Nikon, Pentax
Ansoff’s Matrix
Ansoff’s Concepts
• Market Penetration : selling more of the companies products in the existing market which means increasing the level of penetration in these segments. Eg : P&G and HUL
• Product Development : developing additional or new products to serve existing market segments. Eg : Coke into Minute Maid
• Market Development : concentrates on the present product range by searches for new segments. Eg Telecom Sector
• Diversification : marketing of new products into new markets. Eg : ITC : Apparel, Personal care from Cigarettes
Ansoff’s Matrix
Old New
Old
New
MarketPenetration
MarketDevelopment
ProductDevelopment
Diversification
PRODUCT
MA
RK
ET
BCG Matrix
The Boston Consulting GroupGrowth/Share Matrix
The Boston Consulting Group Matrix: A means of analyzing the product portfolio
and informing decision making about possible marketing strategies
Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968
Links growth rate, market share and cash flow
BCG Matrix
When a firm’s divisions compete in different industries, a separate strategy often must be developed for each business.
The BCG Matrix is designed to enhance a multidivisional firm’s efforts to formulate strategies.
Allows a multidivisional organization to manage its portfolio of businesses
Focuses on relative market share position and the industry growth rate.
BCG Matrix
High Low
Hig
hL
ow
Stars
Problem Child/Question Marks
Cash Cows
Dogs
MARKET GROWTH
MA
RK
ET
SH
AR
E
Classifies Products into four simple categories: Stars – products in markets experiencing high
growth rates with a high or increasing share of the market- Potential for high revenue growth
BCG Matrix
Cash Cows– High market share– Low growth markets – maturity stage of PLC– Low cost support– High cash revenue – positive cash flows
BCG Matrix
Dogs– Products in a low growth market – Have low or declining market share (decline
stage of PLC)– Associated with negative cash flow– May require large sums of money to support
BCG Matrix
Problem Child- Products having a low market share in a high
growth market- Need money spent to develop them- May produce negative cash flow- Potential for the future?
BCG Matrix
Implications Dogs
– Are they worth persevering with?– How much are they costing?– Could they be revived in some way?– How much would it cost to continue to
support such products?– How much would it cost to remove from the
market?
BCG Matrix
Implications Problem Children:
What are the chances of these products securing a hold in the market?
How much will it cost to promote them to a stronger position?
Is it worth it?
BCG Matrix
Implications Stars
– Huge potential– May have been expensive to develop– Worth spending money to promote– Consider the extent of their product life
cycle in decision making
BCG Matrix
Implications Cash Cows
– Cheap to promote– Generate large amounts of cash – use for further
R&D?– Costs of developing and promoting have largely
gone– Need to monitor their performance – the long term?– At the maturity stage of the PLC?
BCG Matrix
Sales
Time
AB
C
D
The product portfolio – four products in the portfolio
(1)
(1) ‘A’ is at maturity stage – cash cow. Generates funds for the development of ‘D’
(2)
(2) Cash from ‘B’ used to support ‘C’ through growth stage and to launch ‘D’. ‘A’ now possibly a dog?
(3)
(3) Cash from ‘C’ used to support growth of ‘D’ and possibly to finance extension strategy for ‘B’?
Importance of maintaining a balance of products in the portfolio at different stages of the PLC – Boston Matrix helps with the analysis
BCG Matrix
BCG Matrix
The major benefit of the BCG matrix is that it draws attention to the cash flow, investment characteristics, and needs of an organization’s various divisions.
Over time, organizations should strive to achieve a portfolio of divisions that are Stars.
BCG Matrix Limitations
Viewing every business as a star, cash cow, dog, or question mark is overly simplistic.
Many businesses fall right in the middle of the BCG matrix and thus are not easily classified.
The BCG matrix does not reflect whether or not various divisions or their industries are growing over time.
Other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions.
Let’s discuss the Retail Industry
Strategic Brand Positioning
Questions ?
• How can a firm choose and communicate an effective positioning in the market?
• How are brands differentiated?• What marketing strategies are
appropriate at each stage of the product life cycle?
• What are the implications of market evolution for marketing strategies?
Introduction• If your product is the same as your
competitors then you cannot win.• Your product must be different. There must
be a remarkable difference otherwise you will just compete on price with your competitors.
• Once you know that you are different then you can advertise it.
• All marketing strategy is built on Segmentation, Targeting and positioning (STP) of ones product/service.
• If a company does a poor job on positioning its product/service – the market will be confused.
What is Positioning?
• Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the mind of the target market.
Value Propositions
• Perdue Chicken– More tender golden chicken at a
moderate premium price• Domino’s
– A good hot pizza, delivered to your door within 30 minutes of ordering, at a moderate price
Defining Associations
Points-of-difference (PODs)
• Attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe they could not find to the same extent with a competitive brand
Points-of-parity (POPs)
• Associations that are not necessarily unique to the brand but may be shared with other brands
Conveying Category Membership
• Announcing category benefits• Comparing to exemplars• Relying on the product descriptor
Consumer Desirability Criteria for PODs
• Relevance• Distinctiveness• Believability
Deliverability Criteria for PODs
• Feasibility• Communicability• Sustainability
Examples of Negatively Correlated Attributes and Benefits
• Low-price vs. High quality
• Taste vs. Low calories
• Nutritious vs. Good tasting
• Efficacious vs. Mild
• Powerful vs. Safe• Strong vs. Refined• Ubiquitous vs.
Exclusive• Varied vs. Simple
Addressing negatively correlated PODs and POPs
• Present separately• Leverage equity of another entity• Redefine the relationship
Differentiation Strategies
• Product• Channel• Personnel• Image
Product Differentiation
• Product form• Features• Performance• Conformance• Durability• Reliability• Reparability
• Style• Design• Ordering ease• Delivery• Installation• Customer training• Customer consulting• Maintenance
Claims of Product Life Cycles
• Products have a limited life• Product sales pass through distinct stages
each with different challenges and opportunities
• Profits rise and fall at different stages • Products require different strategies in each
life cycle stage
Strategies for Sustaining Rapid Market Growth
• Improve product quality, add new features, and improve styling
• Add new models and flanker products• Enter new market segments• Increase distribution coverage• Shift from product-awareness advertising to
product-preference advertising• Lower prices to attract the next layer of price-
sensitive buyers
Stages in the Maturity Stage
• Growth• Stable• Decaying maturity
Marketing Product Modifications
• Quality improvements• Feature improvements• Style improvements
Marketing Program Modifications
• Prices• Distribution• Advertising• Sales promotion• Services
Ways to Increase Sales Volume
• Convert nonusers• Enter new market segments• Attract competitors’ customers• Have consumers use the product on more
occasions• Have consumers use more of the product on
each occasion• Have consumers use the product in new ways
Market Evolution Stages
• Emergence• Growth• Maturity• Decline
Emerging Markets
• Latent• Single-niche• Multiple-niche• Mass-market
Maturity Strategies
• Market fragmentation stage• Market consolidation stage
Competitive Pricing
Pricing Situations
• Deciding on how to price a new product or line of products
• Evaluating the need to adjust price as the product moves through the product life cycle
• Changing the positioning strategy that requires modifying the current price strategy
• Deciding on how to respond to the pressures of competitiveness
Examples
• Gillette : Sensor Excel, Mach 3 (35% higher) Mach 3 Turbo
• Nokia Handsets• FMCG products • Airline Fare• Hotel Tariffs• Steel• Consumer Durables
Pricing Objectives
• Gain Market Position : Big Bazaar – low prices• Achieve Financial Performance : Increasing
Margins• Product Positioning :
Premium/Leisure/Designer Products• Stimulate Demand : Discounts/Offers• Influence Competition : Cartels
Factors Affecting Pricing Situation
PricingSituation
CustomerPrice Sensivity
Legal &Ethical
Constraints
Competitor’sLikely
Response
Product Cost
Pricing Strategy
Passive Strategy
Active StrategyL
ow
Rela
tive
Pri
ceH
igh
Rela
tive P
rice
High ActiveStrategy
LowActiveStrategy
High PassiveStrategy
LowPassiveStrategy
Pricing Strategy
• High Active Strategy : Emphasizing High Price Product Positioning/High Margin Low Volume, Less subject to retaliation : High End Alcohol/Perfume/Apparel
• High Passive Strategy : Positioning focussing on non-price factors such as esteem, prestige. BMW, Mercedes, Watches
• Low Active Strategy : Discount Stores, where price is an important factor. Big Bazaar
• Low Passive Strategy : Products which have lower cost features. Do not emphasize the low price as it may give a wrong indication to quality.
• Neutral Pricing : Or at near the prices of the key competitor
All the best !!