spectrum of competition and niche markets

Spectrum of Competition and Niche Markets

Shoaib Ul-HaqLUMS

FIGURE 7-1 The Spectrum of Competition

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.

• Reconfiguring the value chain: - Benetton and Zara in clothing - Southwest & Ryanair in

airlines - Dell in PCs

• Redefining markets and products - Swatch in watches - Starbucks

in coffee shops - Barnes & Noble in book

retailing

• Innovative approaches to - Virgin Atlantic in air travel

differentiation - Sephora in cosmetics retailing Who are the strategic innovators?• New entrants - CNN in news broadcasting

- Nucor in the U.S. steel industry• Existing firms on the periphery -Sun Records in rock ‘n roll music • Firms from adjacent industries - Apple in consumer electronics

Why not leading incumbents?• They are constrained by “industry recipes,” relationships with existing customers, investments in resources & capabilities linked to past strategies.

Sources of innovation in mature industries

LEADERSHIP Establish dominant market position-encourage exit of rivals

-buy market share through acquisition

-acquire capacity

-demonstrate commitment

-dispel optimism about the industry’s future

-raise the stakes

NICHE Identify an attractive segment and dominate it.

HARVEST Maximize cash flow from existing sources

DIVEST Get out while there is still a market for industry assets

Strategy options in declining industries

Characteristics of a NICHE

• Low volume of sales• High unit costs• Therefore high prices• (Highly) Differentiated products• Targeted promotion

An ideal niche is…

• Large enough to be profitable• Sufficiently differentiated• Small enough to avoid the attention of the big

boys.• We have the competence to take advantage of

the opportunities offered.• Can build up goodwill, to keep customers

Advantages

• Less direct competition• Clear focus• Builds up specialist skills/knowledge• Cheaper to set up• Able to charge premium prices• Build up strong brand image/loyalty

Disadvantages

• Lack of Economies of Scale• Dependent on a small market• If successful, will attract competition• Small numbers make vulnerable to changes in

consumer spending (as does premium pricing)

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Description of Consumer Preferences

Consumer Preferences tell us how the consumer would rank any two basket of goods, assuming these allotments were available to the consumer at no cost.

baskets or bundles is a collection of goods or services that an individual might consume.

Figure 4.10: Indifference Curves and Consumer Tastes

4-10

FIGURE 7-2 Consumer Preference for Cereal “Crunchiness”

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.

Consumer preferences

FIGURE 7-3 Location of Cereal Brands

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.

Mapping consumer tastes

FIGURE 7-4 Mapping the U.S. Automotive Market

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.

Perceptual map - Auto

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Horizontal and vertical product differentiation

• Horizontal product differentiation: two products are differentiated

horizontally if, when they are offered at the same price consumers

do not agree on which is the preferred product.Example: pine washing-up liquid and lemon-washing up liquidSoft-drinks, shampoos

• Vertical product differentiation: two products are differentiated

vertically if, when they are offered at the same price consumers

agree on which is the preferred product. – Example: washing-up liquid with and without product moisturizing add-

up.

FIGURE 7A-1 Monopoly Firm

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.

FIGURE 7A-2 Competitive Firm

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.

FIGURE 7A-3 The Market for Cheerios When It Faces No Nearby Competitors

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.

FIGURE 7A-4 Effects of Differentiation on Sales

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.

FIGURE 7A-5 Cheerios Monopoly Charging a Price = p

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.

FIGURE 7A-6 Cheerios Charges Price = p When Its Competitors Charge Price = 0

Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.