Today’s topic:Today’s topic:Analyzing and Beating Analyzing and Beating

the Competitionthe Competition

How companies (beneficially) How companies (beneficially) distinguish themselves distinguish themselves from their competitors from their competitors

in order to generate in order to generate superior revenues & earningssuperior revenues & earnings

Second Course ModuleSecond Course Module

Market/customer analysis Market/customer analysis (DLJdirect case – online brokerage)(DLJdirect case – online brokerage)

Competitive analysis Competitive analysis --- today--- today (Airborne Express case – package delivery)(Airborne Express case – package delivery)

Making product decisions Making product decisions (Techsonic case – depthsounders/fishfinders)(Techsonic case – depthsounders/fishfinders)

Midterm exam Midterm exam on making product decisionson making product decisions (THINK case – electric cars)(THINK case – electric cars)

What we’re learning…...What we’re learning…...

(previously)(previously) DifferentiationDifferentiation of the “whole of the “whole product” from competitors is the key product” from competitors is the key driver of success……driver of success……

(last week)(last week) ….. …..whichwhich differentiators to differentiators to choose depends on what the choose depends on what the target target customerscustomers value…..value…..

(this week)(this week) ….and what ….and what competitorscompetitors offer offer to those customersto those customers

Course Concepts (13)Course Concepts (13)

Definition of Definition of product successproduct success

Whole productWhole product Product plan: key Product plan: key

success factorssuccess factors DifferentiationDifferentiation Market Market

attractivenessattractiveness Target customersTarget customers

Competitive Competitive advantageadvantage

Marketing mix Marketing mix (C+4P)(C+4P)

Product positioningProduct positioning Sales functionsSales functions Channel optionsChannel options Channel value-Channel value-

addedadded Operations balanceOperations balance

Course Methods/Tools (13)Course Methods/Tools (13)

Income statement Income statement analysisanalysis

Financial Financial benchmarksbenchmarks

Target customer Target customer descriptiondescription

Target customer Target customer selectionselection

5 Forces analysis5 Forces analysis Competitive analysis Competitive analysis

(10 dimensions)(10 dimensions)

Identifying Identifying competitive optionscompetitive options

Decision criteriaDecision criteria Product decisionsProduct decisions Product competitive Product competitive

positioningpositioning Channel economicsChannel economics Process dimensionsProcess dimensions Product Product

development best development best practicespractices

Today’s AgendaToday’s Agenda

Sustainable Sustainable competitive advantagecompetitive advantage: : understanding, developing and using itunderstanding, developing and using it

Analyzing competitive positionAnalyzing competitive position, and , and making subsequent business decisions making subsequent business decisions (Airborne Express case)(Airborne Express case)

Next week’s case (Techsonic): making Next week’s case (Techsonic): making decisions about products decisions about products --- financial, --- financial, market and competitive considerationsmarket and competitive considerations

Today’s Learning ObjectivesToday’s Learning Objectives

Competitive advantageCompetitive advantage, and its , and its relationship to differentiationrelationship to differentiation

Performing a Performing a competitive analysiscompetitive analysis

Identifying competitive options Identifying competitive options and and making making business decisionsbusiness decisions based on based on competitive analysis resultscompetitive analysis results

Inter-Industry DifferencesInter-Industry DifferencesOperating Income/Assets (%)Operating Income/Assets (%)

High (15-30%) : Pharmaceuticals, High (15-30%) : Pharmaceuticals, Packaged software, SemiconductorsPackaged software, Semiconductors

Medium (8-15%) : Restaurant chains, Medium (8-15%) : Restaurant chains, Petroleum/natural gas, Engineering Petroleum/natural gas, Engineering servicesservices

Low (2-7%) : CATV service, Motor Low (2-7%) : CATV service, Motor vehicles, Airlinesvehicles, Airlines

Market/Industry Attractiveness:Market/Industry Attractiveness:Porter’s “Five Forces” ModelPorter’s “Five Forces” Model

Threat from substitute productsThreat from substitute products Degree of competitive rivalryDegree of competitive rivalry Bargaining power of buyersBargaining power of buyers Bargaining power of suppliersBargaining power of suppliers Ease of entry Ease of entry (and exit)(and exit)

Statistical analysis of Statistical analysis of profit variation across firms…..profit variation across firms…..

10-20%10-20% explained by differences explained by differences between between industriesindustries (market, industry rivalry, gov’t (market, industry rivalry, gov’t regulation,…)regulation,…)

30-45%30-45% explained by measureable explained by measureable differences differences within industry within industry (size, share, (size, share, cost position,…)cost position,…)

remainderremainder “explained” by other factors “explained” by other factors

Conclusion: Impact on Conclusion: Impact on Earnings/ProfitsEarnings/Profits

The firm’s industry has a The firm’s industry has a noticeable but not noticeable but not dominating effect dominating effect (market, rivalry, assets)(market, rivalry, assets)

The largest differences stem from performance The largest differences stem from performance relative to a firm’s industry competitorsrelative to a firm’s industry competitors

Therefore, some “Therefore, some “competitive advantage”competitive advantage” (vs. (vs. other participants in the industry) is key to other participants in the industry) is key to achieving superior revenue and earnings achieving superior revenue and earnings performanceperformance

A company’s A company’s competitive competitive advantagesadvantages allow it to allow it to createcreate differentiatorsdifferentiators,,

the key drivers of successthe key drivers of success

Example:Example:

success = high earnings/growthsuccess = high earnings/growth

differentiation differentiation = best product features= best product features

comp adv comp adv = best market research = best market research

(best understanding of customers (best understanding of customers and their needs)and their needs)

How the concepts relate…...How the concepts relate…...

CompetitiveAdvantage(s) Differentiators

Success(superiorearnings)

DefinitionsDefinitions

DifferentiatorDifferentiator = a = a dimension dimension of the “whole of the “whole product”product” that is that is unique or bestunique or best compared to compared to competitive offerings (whole product competitive offerings (whole product differentiation; as measured by the value differentiation; as measured by the value assessed by the targeted end-customers) assessed by the targeted end-customers)

Competitive advantage Competitive advantage = a = a capability, capability, competency, process, skill or position competency, process, skill or position of a of a companycompany that enables creation of one or more that enables creation of one or more differentiatorsdifferentiators

Core CompetenciesCore Competenciesvs.vs.

Competitive AdvantagesCompetitive Advantages

CoreCompetencies

CompetitiveAdvantages - capability - process - skill - position

Competitive Advantage andCompetitive Advantage andDifferentiators: ExamplesDifferentiators: Examples

CompanyCompany Comp adv’sComp adv’s DifferentiatorsDifferentiators

FHP WirelessFHP Wireless ?? -lowest lifecycle -lowest lifecycle costcost

-fastest/cheapest -fastest/cheapest installationinstallation

DLJdirectDLJdirect ?? -best finc’l analysis-best finc’l analysis

-best website -best website performanceperformance

AirborneAirborne

ExpressExpress ?? ??

From the Customer’s Perspective…From the Customer’s Perspective…

Customers identify Customers identify their options/choices their options/choices amongst: like-products, substitute amongst: like-products, substitute products and doing nothingproducts and doing nothing

For each option, they For each option, they comparecompare

their assessment of the value (to them)their assessment of the value (to them)

of each whole-product of each whole-product

to to

its price (or lifecycle cost)its price (or lifecycle cost)

So, companies create So, companies create “economic value” …“economic value” …

Define a whole product that customers Define a whole product that customers value highly value highly (market/customer analysis)(market/customer analysis)

Design the whole product to minimize cost Design the whole product to minimize cost to produce to produce (design and operations engineering)(design and operations engineering)

Produce the whole product at minimum Produce the whole product at minimum acceptable cost acceptable cost (manufacturing and opns (manufacturing and opns engineering)engineering)

Efficiently promote, sell, deliver and Efficiently promote, sell, deliver and support the product support the product (marketing, sales, service (marketing, sales, service operations)operations)

Creating Economic ValueCreating Economic Value

Create a (whole) product thatCreate a (whole) product that

provides potential provides potential customerscustomers

a better a better ”value minus price” proposition”value minus price” proposition

than than competitorscompetitors

while managing while managing costs and expensescosts and expenses

so as to so as to make profits (earnings)make profits (earnings)

Competitive AdvantageCompetitive Advantage

ValuableValuable things that a company things that a company does/knows does/knows betterbetter than its rivals than its rivals

Opportunities for competitive Opportunities for competitive advantage are advantage are numerousnumerous (but often (but often temporal/replicable)temporal/replicable)

Possibilities can be identified via Possibilities can be identified via analysis of the analysis of the value chainvalue chain

Sustaining/renewing/evolvingSustaining/renewing/evolving an an advantage is criticaladvantage is critical

A Firm’s Value ChainA Firm’s Value ChainHow the firm’s How the firm’s activitiesactivities can lead to the can lead to the

creation of value (and added value)creation of value (and added value)

Primary activitiesPrimary activities: design/development, : design/development, inbound/ outbound logistics, inbound/ outbound logistics, operations/manuf, marketing, sales, operations/manuf, marketing, sales, serviceservice

Support activitiesSupport activities: procurement, IT/ : procurement, IT/ technology development, HR, legal, technology development, HR, legal, finance/accounting, quality office, …..finance/accounting, quality office, …..

Sustaining AdvantageSustaining AdvantageMost advantages are temporal/replicable, Most advantages are temporal/replicable,

so they must be so they must be sustained/strengthened/evolved/changedsustained/strengthened/evolved/changed

SizeSize: scale/scope economics, : scale/scope economics, experience effects, customer baseexperience effects, customer base

AccessAccess: know-how, inputs, markets: know-how, inputs, markets Competitors’ optionsCompetitors’ options: public policy, : public policy,

competitors’ defense, response lagscompetitors’ defense, response lags

Airborne Express: Case SummaryAirborne Express: Case Summary

The timeframe is 1997The timeframe is 1997

The market is the $16-17B U.S. express mail delivery The market is the $16-17B U.S. express mail delivery (letter, package) market(letter, package) market

Airborne is the smallest of the three major competitors Airborne is the smallest of the three major competitors with 16% market share (FedEx 45%; UPS 25%)with 16% market share (FedEx 45%; UPS 25%)

It is recently the fastest growing, but historically the It is recently the fastest growing, but historically the least profitable, of the Big 3least profitable, of the Big 3

The US Postal Service is threatening to enter the The US Postal Service is threatening to enter the marketmarket

Assignment QuestionsAssignment Questions

Perform a Perform a Five Forces analysis Five Forces analysis of the US express mail of the US express mail industryindustry

Perform a Perform a competitive analysis competitive analysis of FedEx, UPS and of FedEx, UPS and Airborne in the 10 dimensions shown on the next slide Airborne in the 10 dimensions shown on the next slide

(display as a 3 x 10 matrix)(display as a 3 x 10 matrix)

Based on the competitive analysis, what are Based on the competitive analysis, what are Airborne’s Airborne’s competitive strengths competitive strengths vis-à-vis FedEx and vis-à-vis FedEx and UPS?UPS?

How is Airborne’s “whole product” How is Airborne’s “whole product” differentiateddifferentiated ? ?

What does Airborne need to do What does Airborne need to do to assure that it to assure that it survives and thrives in the future?survives and thrives in the future?

Market/Industry Attractiveness:Market/Industry Attractiveness:Porter’s “Five Forces” ModelPorter’s “Five Forces” Model

Threat of substitutesThreat of substitutes Degree of rivalryDegree of rivalry Bargaining power of buyersBargaining power of buyers Bargaining power of suppliersBargaining power of suppliers Ease of entry/exitEase of entry/exit

Competitive Analysis Competitive Analysis DimensionsDimensions

Products offeredProducts offered

Target customersTarget customers

Competitive positioning Competitive positioning (incl. price & cost)(incl. price & cost)

Financial performanceFinancial performance

Culture & human Culture & human resource managementresource management

Operations: pickup & Operations: pickup & deliverydelivery

Operations: air & hub Operations: air & hub operationsoperations

Marketing & salesMarketing & sales

Customer serviceCustomer service

Information technologyInformation technology

Airborne’s Target CustomerAirborne’s Target Customer(list of target customer descriptors)(list of target customer descriptors)

Identifying Airborne’s OptionsIdentifying Airborne’s Options

OpportunitiesOpportunities

??

ChallengesChallenges

??

Identifying Competitive OptionsIdentifying Competitive Options

Products

Customers

Current

Position

Currentproducts

Current target customers

Today’s Learning ObjectivesToday’s Learning Objectives

Competitive advantageCompetitive advantage, and its , and its relationship to differentiationrelationship to differentiation

Performing a Performing a competitive analysiscompetitive analysis

Identifying competitive options Identifying competitive options and and making making business decisionsbusiness decisions based on based on competitive analysis resultscompetitive analysis results

Course Concepts (13)Course Concepts (13)

Definition of Definition of product successproduct success

Whole productWhole product Product plan: key Product plan: key

success factorssuccess factors DifferentiationDifferentiation Market Market

attractivenessattractiveness Target customersTarget customers

Competitive Competitive advantageadvantage

Marketing mix Marketing mix (C+4P)(C+4P)

Product positioningProduct positioning Sales functionsSales functions Channel optionsChannel options Channel value-Channel value-

addedadded Operations balanceOperations balance

Course Methods/Tools (13)Course Methods/Tools (13)

Income statement Income statement analysisanalysis

Financial Financial benchmarksbenchmarks

Target customer Target customer descriptiondescription

Target customer Target customer selectionselection

5 Forces analysis5 Forces analysis Competitive analysis Competitive analysis

(10 dimensions)(10 dimensions)

Identifying Identifying competitive optionscompetitive options

Decision criteriaDecision criteria Product decisionsProduct decisions Product competitive Product competitive

positioningpositioning Channel economicsChannel economics Process dimensionsProcess dimensions Product Product

development best development best practicespractices

Topic for Next Class:Topic for Next Class:Making Product DecisionsMaking Product Decisions

Pulling together the things we’ve Pulling together the things we’ve learned so farlearned so far to make decisions about to make decisions about

product definition and product product definition and product priorities……priorities……

this is also the topic for thethis is also the topic for the

mid-term exammid-term exam

What are we “pulling together”?What are we “pulling together”?

FinancialFinancial: income statement analysis, : income statement analysis, objectives and constraints, growth objectives and constraints, growth challengeschallenges

MarketMarket: market attractiveness (5 forces), : market attractiveness (5 forces), target customers, needs/value analysistarget customers, needs/value analysis

CompetitiveCompetitive: competitive analysis, : competitive analysis, strengths/weaknesses, competitive strengths/weaknesses, competitive advantage, differentiationadvantage, differentiation

Product decisionsProduct decisions: whole product concept, : whole product concept, differentiation sources, opportunity differentiation sources, opportunity assessmentassessment

Making Product DecisionsMaking Product Decisions

FinancialAnalysis (health,

challenges)

Market Analysis(customers, needs,

market trends)

Competitive Adv Decision

Target Market Decision (C)

Product Decisions(4P’s)

CompetitiveAnalysis

(strengths,weaknesses)

Objectives and Constraints (mkt, finc’l)

““Product decisions” case:Product decisions” case:

Techsonic:Techsonic:

Humminbird and New ProductsHumminbird and New Products

Techsonic: case summaryTechsonic: case summary Private company in 1989Private company in 1989 Market leader in depth sounders/fish Market leader in depth sounders/fish

finders under the Humminbird brandfinders under the Humminbird brand Growing and profitable until…..Growing and profitable until….. Recent industry-wide downturn in new Recent industry-wide downturn in new

boat salesboat sales Three new products at various stages of Three new products at various stages of

development: development:

next-gen depth sounder (901), next-gen depth sounder (901),

VHF marine radio, and VHF marine radio, and

navigation product (“GPS”)navigation product (“GPS”) Which one(s) to pursue…..?Which one(s) to pursue…..?

Homework Questions - 1Homework Questions - 1

Calculate Techsonic’s absolute and relative Calculate Techsonic’s absolute and relative operating income for 1987, 1988, and 1989; are operating income for 1987, 1988, and 1989; are these operating results “good”? Why did these operating results “good”? Why did operating income fall between 1988 and 1989? operating income fall between 1988 and 1989? Identify Identify bothboth financial and market reasons. financial and market reasons.

What are the What are the decision criteria decision criteria Techsonic should Techsonic should use in making decisions at this pointuse in making decisions at this point? ? (I.e., what are (I.e., what are the outcomes a “good” decision would achieve?)the outcomes a “good” decision would achieve?)

Perform a Perform a 5 forces analysis 5 forces analysis of the of the U.S. market for U.S. market for depthsounders/fishfindersdepthsounders/fishfinders

Decision Criteria Decision Criteria are are desired outcomes for……desired outcomes for……

RevenuesRevenues Market shareMarket share Gross margins or cost positionGross margins or cost position Expenses (by category)Expenses (by category) Operating income (or cash)Operating income (or cash) Timeframes for these outcomesTimeframes for these outcomes Level of risk toleranceLevel of risk tolerance

Homework Questions - 2Homework Questions - 2

What are Techsonic’s What are Techsonic’s competitive advantagescompetitive advantages? ? What are the 901’s What are the 901’s differentiatorsdifferentiators? What are the ? What are the potential differentiators of the navigation potential differentiators of the navigation product?product?

Who are Techsonic’s Who are Techsonic’s currentcurrent target customers target customers (provide at least eight descriptors) (provide at least eight descriptors) ??

Separately, identify the Separately, identify the positives-and-negativespositives-and-negatives of focusing primarily on: (1) 901, (2) VHF marine of focusing primarily on: (1) 901, (2) VHF marine radio, (3) GPS-based navigation product.radio, (3) GPS-based navigation product.