lecture 4 - competition & planning2

MAR 3023 – PRINCIPLES OF MARKETING

Dr. Jaishankar Ganesh

BA2 308G

Competition & Strategic Planning

September 08, 2003

Strategic Market Management• External Analysis

– Environmental Analysis

• Economic

• Political/Legal

• Socio/Cultural

• Technological

• Competitive

– Customer/Market Analysis

• Internal Analysis

– Evaluation of assets, skills and resources

– Business/Product portfolio analysis

– Determining strategic alternatives

Competition, Competitive Strategy, and Competitive Advantage

• A firm’s strategy cannot be formulated in vacuum

• Competition is at the core of the success or failure of firms

• Competition determines the appropriateness of a firm’s activities that contributes to its performance

Types of CompetitionTypes of Competition

DirectDirect

• Nike Vs Reebok Vs Adidas

© PhotoDisc

IT HAS ALWAYS BEEN VIRGIN’SPOLICY TO ENCOURAGE YOU TO FLY TO LONDON FOR AS LITTLE AS POSSIBLE.

SO ON JUNE 10WE ENCOURAGE YOU TO FLYBRITISH AIRWAYS

As for the rest of the year, we look forward to seeing you aboard Virgin Atlantic.For the best service possible. For the lowest possible fare.

Legoland California

Legoland Competes with Other Theme Parks in California

Types of Competition

Direct

IndirectIndirectMcDonalds vs. Pizza Hut vs. Arby’s vs. Chinese takeout

© PhotoDisc

Types of Competition

Direct

Indirect

General (Budget)General (Budget)

© PhotoDisc

Competing for the same dollars

Levels of Competition

Share of the Mind

Share of the Wallet

Generic Competition

Product Category

ProductForm

Direct toIndirect

Defining the Competitive Set

• Levels of Marketing Competition

– Product Form based competition – Diet Colas– Product Category based competition – Soft Drinks– Generic or “need-based” perspective - Beverages– Rivalry or “Budget-based” competition – Food,

Entertainment, etc.

Developing a Competitive Strategy


1. Should wecompete?


© PhotoDisc



2. If so, in what marketsshould we compete?



© PhotoDisc




3. How should we compete?

3. How should we compete?


© PhotoDisc

• So, what is strategy? A Creative thought, an idea, a concept, or a plan that uses the

natural laws to its advantage to turn a potential loss into victory. It is a plan or a series of maneuvers for obtaining a specific goal or result.

• Who are strategists? People who understand the natural laws and the outcomes they

govern, and can creatively use the same in their favor.

• Competitive Strategy is the search for a favorable competitive position in an industry

Basic Competitive Strategies

• Cost Leadership

• Differentiation

• Focus (Niche)

Competitive Advantage

The set of unique features of

a company and its products that are

perceived by the target market as

significant and superior to the

competition.

• Competitive Advantage– grows fundamentally out of value a firm is able to create for its

buyers that exceeds the firm’s cost of creating it and is greater than the value created by competitive offerings

– Value is what buyers are willing to pay

– Superior value stems from being able to offer lower prices than competition of equivalent benefits (COST LEADERSHIP) or providing unique benefits that more than offset a higher price (DIFFERENTIATION)

SustainableCompetitive Advantage

An advantage

that cannot be copied

by the competition.

Industry Structure Analysis

• The essence of formulating a CS is relating the firm to its environment

• The key aspect of a firm’s environment is the industry in which it competes

The five competitive forces

Industrycompetitors

Rivalry amongexisting firms

Potentialentrants

Potentialentrants

SubstitutesSubstitutes

SuppliersSuppliers BuyersBuyers

Bargaining powerof suppliers

Bargaining powerof suppliers

Threat ofnew entrants

Threat ofsubstitute productsor services

Forces Driving Industry Competition• Bargaining power of the buyer

• BP of the seller

• Threat of new entrants

• Threat of substitutes

• Rivalry among existing firms

Barriers to Entry• Economies of scale

• Product differentiation

• Capital requirements

• Switching costs

• Access to distribution channels

• Other advantages

– Patents

– Government subsidies

Number of Sellers and Differentiation

Low

High

Low High

Nu

mb

er o

f se

llers

Differentiation

Pure monopoly Oligopoly

Monopolisticcompetition

Purecompetition

Continuum of competition

• Number ofsellers

• Productdifferences

• Importance ofmarket mix

• Large numberof sellers

• Similar products

• Distribution isimportant

• Large numberof sellers

• Unique butsubstitutable

• Pricing isimportant

• A few largecompetitors

• Similarproducts

• Promotion iskey to achieveperceivedproductdifferences

• Singleproducer

• Unique andunsubstitutable

• Unimportant

BASIS OFCOMPARISON

PURECOMPETITION

MONOPOLISTICCOMPETITION OLIGOPOLY MONOPOLY

Number of sellersMany One

Strategic Planning

Definition:

The process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing environment.

Who plans?

• All managers or top managers only?

Top Managers

Middle Level

Bottom Level Bottom Level

PLANNING AT DIFFERENT ORGANIZATIONAL LEVELSPLANNING AT DIFFERENT ORGANIZATIONAL LEVELS

STRATEGIC

TACTICAL

OPERATIONAL

Top down forecasts

Levels of Strategy• Corporate Level• Business Unit Level

– SBU’s - a subgroup of a single business or collection of related businesses

• Functional Level– Marketing

Strategic Business Units (SBUs)

A distinct mission and specific target market

Control over their resources

Their own competitors

Plans independent of other SBUs

CharacteristicsCharacteristics

What is the planning process?I. Define the company’s mission

II. Set organizational objectives

III. Snapshot view - SWOT

IV. Formulate strategy

V. Implement strategy

VI. Monitor and evaluate

Marketing Planning Process

Marketing Strategy

Product

Promotion

Distribution

Price

Marketing Mix

Business Mission Statement

Objectives

Situation or SWOT Analysis

ImplementationEvaluation

Control

Target Market Strategy

Strategic Planning

Where are we now?

Where do we want to go?

How do we get there?

Where Are We Now?

• Organization HistoryAn understanding of the “historical roots” of the

organization

• Organizational CultureThe values and cultural norms of the organization

• Organizational AuditA strategic evaluation of the organization

Where Do We Want To Go?

• Basic Mission A sense of direction for the organization

• Environmental Trends Uncontrollable trends which create opportunities and

threats to the organization

• Organizational Analysis Analysis of controllable factors which show strengths

and weaknesses of the organization

Effective Mission Statement

• Gives a sense of direction for the organization

• Should be limited enough to exclude some ventures and broad enough to allow for creative growth

• Should be stated in terms sufficiently clear to be widely understand by all stakeholders

Mission Statements

• To serve humanity in a profitable way• To minimize long-run profits• To educate young people who are critical thinkers

• BIC Basic Mission To manufacture and sell only products that can

be made cheaply, used relatively briefly, and then be thrown away.

Mission StatementMission Statement

Corporate StrategyCorporate Strategy

Business-Unit StrategyBusiness-Unit Strategy

Marketing StrategyMarketing Strategy

Marketing Mix ElementsMarketing Mix Elements

Flow of Strategy Levels of Strategic Marketing Planning

IdentityIdentity

What business are we in?What business are we in?

Defining Businesses

• Businesses must be viewed as CONSUMER-SATISFYING process and not goods-producing process

• Marketing Myopia

• Remember products are transient and basic NEEDS are not ….so, the key is to have a “market definition” of your business and not a product-based definition

II. Setting objectives

1. Specific – Consistent with Firm’s Priorities2. Measurable3. Realistic4. Time frame

# 1. To obtain a 15% market share by the end of the # 1. To obtain a 15% market share by the end of the fiscal yearfiscal year

# 2. Reduce the level of advertising expenditures by 11% # 2. Reduce the level of advertising expenditures by 11% over the next two quartersover the next two quarters

SWOT Analysis

Identifying

internal strengths (S)

and weaknesses (W)

and also examining

external opportunities (O) and threats

(T)

44

SWOT Analysis

©South-Western College Publishing

SS

WW

OO

TT

Things the company does well.Things the company does well.

Things the company does not do well.Things the company does not do well.

Conditions in the external environment that favor strengths.Conditions in the external environment that favor strengths.

Conditions in the external environment that do not relate to existing strengths or favor areas of current weakness.

Conditions in the external environment that do not relate to existing strengths or favor areas of current weakness.

Internal

External

44

III. Taking a snapshot view - SWOT

weaknesses

opportunities

threats

strengths

How Do We Get There?

• Marketing Growth Strategies Strategic focus on market opportunities

• Financial Growth Strategies Strategic use of financial resources

• Technology Growth Strategies Strategic development of research and development

(R&D)

Core of Strategy

• Strategic Window – limited periods

• Core competency – what does a company do well?

• Competitive Advantage – advantage relative to the competition

• Sustainable competitive advantage

Tools of Marketing Planning – to assess SBUs

• Market share / Market growth matrix aka BCG Matrix

?The Boston Consulting Group Matrix

Relative Competitive Position/Market Share

Bu

sin

ess

Gro

wth

Rat

e

MARKET SHARE DOMINANCE

HIGH LOW

MA

RK

ET

GR

OW

TH

RA

TE

LO

W

H

IGH

High growthMarket leaders Require cash

Large profits

Low growth

High market shareHigh cash flow

Low growthLow market shareMinimal cash flow

High growth

Low market shareNeed cash

Poor profit margins

$$$$

BCG Portfolio Matrix

BCG Portfolio Matrix Example

Sub-Notebooks

and Hand-Held Computer

Integrated phone/Palm

devices

Laptop and Personal

Computers

MainframeComputer

MA

RK

ET

GR

OW

TH

RA

TE

LO

W

H

IGH

MARKET SHARE DOMINANCE

HIGH LOW

STAR PROBLEM

CHILD

CASH COW DOG

Basic Product Portfolio Strategies• Build

Expand marketing effort to increase market share, particularly Stars and potential question marks.

• Hold Preserve existing market share, especially strong cash cows.

• Harvest Increase short-term cash flow, especially weak cash cows and strong dogs.

• Divest Sell or liquidate product, appropriate for dogs.

Marketing Growth Strategies

• Intensive Growth Internal growth with products and markets

• External Growth Growth outside the existing organization

Strategic Growth Matrix

Current Products New Products

New

Mar

ket

s

Cu

rren

t M

ark

ets

Market Penetration

Market Development/Expansion

Product Development/Expansion

Diversification

Strategic Alternatives

MarketPenetration

MarketPenetration

MarketDevelopment

MarketDevelopment

Product Development

Product Development

DiversificationDiversification

Increase market share among existing customers

Attract new customers to existing products

Introduce new products into new markets

Create new products for present markets

Market Penetration

• Increase customer use• Convert non-users• Take competitors business

– Advertising– Personal selling– Distribution

• Arm and Hammer baking soda

Product Development

• Modifying existing product

• Introducing new product

Marketing Development

• Geographical expansion in U.S.

• International expansions

• New product-markets

• Kellogg cereal

External Growth Strategies• Backward Integration

Firm seeking control of supply system

• Forward Integration Firm seeking control of distribution system

• Horizontal Integration Firm seeking control of some competition

• Diversification Firm expands outside present system

Backward Integration

• New York Times buying paper mill

• Holiday Inn owning mattress factory

• Ford owning steel mill

Forward Integration

• Pepsi Cola buying local Pepsi distributors

• Gap

• IBM opening retail outlets

Horizontal Integration

• Earnst and Whinney merging with Authur Young

• Nestle buying Carnation

• Chevron buying Gulf

• Chemical Bank buying Chase

Diversification

• Sony buying CBS records

• Quaker Oats owning Fisher-Price toys

• Borden buying a fertilizer plant

Key terms

• Sales

• Market penetration

• Market share

• Relative market share

• Industry growth

Key terms• Sales = units sold

• Category penetration = % of people that has used the product at least once

• Market share = Sales of brand / Total industry sales

Key terms

• Relative market share = Market share of brand / market share of leader (or second place competitor as the case maybe).

• Industry growth =Increase / decrease in industry sales for the year

Market ShareLet’s say industry Jai has three firms.

• A sells 50 units;• B sells 40 units• C sells 10 units

• Total Industry Sales = 50 + 40 + 10 = 100

Market Share

• Market share for A = Sales of brand / Total industry sales

• Market share for A = 50 / 100 = 50%

• Market share for B = 40 / 100 = 40%

• Market share for C = 10 / 100 = 10%

• Who is the leader?

Relative Market Share

• Relative market share for A = Market share of brand / market share of second place competitor

• RMS for A = 50 / 40 = 1.25

• Relative market share for B = Market share of brand / market share of leader

• RMS for B = 40 / 50 = 0.8

• Relative market share for C = 10 / 50 = 0.2

Market Share Example # 2Let’s say industry Jane has two firms.• A sells 60 units;• B sells 40 units• Market share for A = 60%

• Market share for B = 40%

• Relative Market share for A = 60 / 40 = 1.5• Relative Market share for B = 40 / 60 = 0.67

Last steps of the Planning Process

V. Implementing strategy

VI. Evaluate & Monitor

Market Attractiveness/Business Strength Matrix

Marketing Planning Process

Marketing Strategy

Product

Promotion

Distribution

Price

Marketing Mix

Business Mission Statement

Objectives

Situation or SWOT Analysis

ImplementationEvaluation

Control

Target Market Strategy

The Marketing Plan

• Executive Summary

• Environmental Analysis

• SWOT Analysis

• Marketing Objectives

• Marketing Strategies

• Marketing Implementation

• Evaluation and Control

lecture 4 - competition & planning2

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