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McGraw-Hill/Irwin. © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Three Markets and Competitive Space. McGraw-Hill/Irwin. © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. MARKETS AND COMPETITIVE SPACE. Markets and Strategies

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slide1

McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

chapter three markets and competitive space
Chapter ThreeMarkets andCompetitiveSpace

McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

slide3

MARKETS AND COMPETITIVE SPACE

  • Markets and Strategies
  • Product-Market Scope and Structure
  • Describing and Analyzing End-Users
  • Analyzing Competition
  • Developing a Strategic Vision about the Future
  • Market Size Estimation
markets and competitive space
MARKETS AND COMPETITIVE SPACE

The Challenges ―

Markets are increasingly complex, turbulent, and interrelated.

Importance of a broad view of the market.

Essential to develop a vision about how the market is likely to change in the future.

Continuous Monitoring is Necessary to:

Find promising opportunities

Identify shifts in value requirements

Understand competitors’ positioning

Guide targeting and positioning

decisions

markets and strategies

Markets and Strategies are Interlinked

Forming

a Shared Vision

Value Migration Challenges

MARKETS AND STRATEGIES
markets impact strategies
Markets Impact Strategies
  • Market changes often require altering strategies
  • Forces of change create both market opportunities and threats
  • Inherent danger in faulty market sensing
value migrations
Value Migrations
  • Customers shift purchasing to new business designs with enhanced value offering
  • Beware of disruptive technologies
  • Market sensing and organizational learning are essential
product market scope and structure
PRODUCT-MARKET SCOPE AND STRUCTURE
  • Matching Needs with Product Benefits
  • Product-Market Boundaries and Structure
  • Forming Product-Markets for Analysis
  • The Changing Composition of Markets
matching needs with product benefits
Matching Needs with Product Benefits
  • A product – market matches people with needs to the product benefits that satisfy those needs

“A product – market is the set of products judged to be substitutes within those usage situations in which similar patterns of benefits are sought by groups of customers.”*

*Srivastava, et al. (1984) Journal of Marketing, Spring, 32.

innovation feature
INNOVATION FEATURE
  • In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion to $9.5 billion, and ranks high in the Business Week Top 50 U.S. companies for shareholder value creation.
  • The company invents new ways of providing services to save customers time, money and irritation, while often lowering costs at the same time.
  • Loss adjusters are sent to the road accidents rather than working at head office, and they have the power to write checks on the spot.
  • Progressive reduced the time needed to see a damaged automobile from seven days to nine hours.
  • Policy holders’ cars are repaired quicker, and the focus on this central customer need has won much automobile insurance business for Progressive.
  • These initiatives also enable Progressive to reduce its own costs – the cost of storing a damaged automobile for a day is $28, about the same as the profit from a six-month policy.

Progressive Insurance:

Customer Needs at the Center of Strategy

Source: Adapted from Mitchell, Adrian (2004)”Heart of the Matter,” The Marketer, June 12, 14.

product market boundaries and structure
Product – Market Boundaries and Structure
  • Determining Product-Market Structure
  • Start with the generic need satisfied by the product category of interest to management
  • Identify the product categories (types) that can satisfy the generic need
  • Form the specific product – markets within the generic product – market
slide12

SUPER

MARKETS

MICROWAVE

OVENS

TRADITIONAL

RESTAURANTS

CONVENIENCE

STORES

Illustrative Fast-Food Product-Market Structure

FAST-FOOD MARKET

forming product markets for analysis
Forming Product – Markets for Analysis

Factors influencing product – market boundaries:

  • Purpose of analysis
  • Changing composition of markets
  • Extent of market complexity
the changing composition of markets
The Changing Composition of Markets
  • Change due to new technologies and emerging competition
  • Consider existing and emerging markets
  • Identify alternative ways to meet needs
  • Extend product-market analysis beyond industry boundaries (e.g. Fast-foods)
extent of market complexity
Extent of Market Complexity
  • Three characteristics of markets:
    • 1. Functions or uses of the product
    • 2. The enabling technology of the product
    • 3. Customer segments in the product-market
illustrative product market structure
Illustrative Product – Market Structure

Food and beverages

for breakfast meal

  • Generic Product Class

Cereals

  • Product Type
  • Variant A

Ready to eat

Regular

Natural

  • Variant B

Pre-sweetened

Nutritional

  • Brands

Life

Product 19

Special K

defining and analyzing markets
DEFINING AND ANALYZING MARKETS

Define Product-Market Boundaries and Structures

Identify and Describe End-Users

Analyze Industry and Value Added Chain

Evaluate Key Competitors

Forecast Market Size

and Growth Trends

slide18

Identifying and

Describing Buyers

DESCRIBING

AND

ANALYZING

END-USERS

How

Buyers

Make

Choices

Building

Customer

Profiles

Environmental

Influences

identifying and describing end users
Identifying and Describing End-Users
  • Illustrative buyer characteristics in consumer markets:
    • Family size, age, income, geographical location, sex, and occupation
  • Illustrative factors in organizational markets:
    • Type of industry
    • Company size
    • Location
    • Type of products
how buyers make choices
How Buyers Make Choices
  • BUYING DECISION PROCESS:
    • Problem recognition
    • Information search
    • Alternative evaluation
    • Purchase decision
    • Post-purchase behavior
environmental influences
Environmental Influences
  • External factors influencing buyers’ needs and wants:
    • Government, social change, economic shifts, technology etc.
  • These factors are often non-controllable but can have a major impact on purchasing decisions
building customer profiles
Building Customer Profiles
  • Start with generic product – market
  • Move next to product- type and variant profiles >> increasinglymore specific
  • Customer profiles guide decision making (e.g. targeting, positioning, market segmentation etc.)
slide23

ANALYZING COMPETITION

1.Define Industry Structure and Characteristics

2. Identify and Describe Key Competitors

5. Identify

New

Competitors

PRODUCT-

MARKET

STRUCTURE

AND

MARKET

SEGMENTS

4. Anticipate

Actions by

Competitors

3. Evaluate

Key

Competitors

examples of levels of competition
Examples of Levels of Competition

Baseball

cards

Bottle

water

Video

Games

Fast

Food

Regular

colas

Diet lemon

limes

Ice

Cream

Beer

Diet-Rite

Cola

Fruit

flavored

colas

Diet Coke

Diet Pepsi

Wine

Product from

competition:

diet colas

Lemon

limes

Juices

Product category

competition:

soft drinks

Coffee

Generic competition:

beverages

Budget competition:

food & entertainment

industry analysis
Industry Analysis
  • Industry size, growth, and composition
  • Typical marketing practices
  • Industry changes that are anticipated (e.g. consolidation trends)
  • Industry strengths and weaknesses
  • Strategic alliances among competitors
defining industry structure characteristics
Defining Industry Structure & Characteristics

SUPPLIERS

  • Industry Form
  • Industry

Environment

  • Competitive

Forces

PRODUCERS

WHOLESALERS/ DISTRIBUTORS

Value

Added

Chain

RETAILERS/DEALERS

CONSUMER/ ORGANIZATIONAL END USERS

competitive forces
Competitive Forces
  • Rivalry among existing firms.
  • Threat of new entrants.
  • Threat of substitute products.
  • Bargaining power of suppliers.
  • Bargaining power of buyers.

Source: Michael E. Porter, Competitive Advantage, Free Press, 1985, 5.

key competitor analysis
Key Competitor Analysis
  • Business scope and objectives
  • Management experience, capabilities, and weaknesses
  • Market position and trends
  • Market target(s) and customer base
  • Marketing program positioning strategy
  • Financial, technical, and operating capabilities
  • Key competitive advantages (e.g., access to resources, patents)
slide29

Extent of

Market Coverage

Competitor

Evaluation

Current

Capabilities

Customer

Satisfaction

Past

Performance

developing a strategic vision about the future
DEVELOPING A STRATEGIC VISION ABOUT THE FUTURE
  • Industry Boundaries Blurring and Evolving
  • Competitive Structure and Players Changing
  • Value Migration Paths
  • Product Versus Business Design Competition
  • Firms are Collaborating to Influence Industry Standards

Source: C. K. Prahalad, Journal of Marketing, Aug. 1995, vi.

market size estimation
MARKET SIZE ESTIMATION

Product-Market Forecast Relationships(area denotes sales in $’s)

Market Potential

Estimate

Unrealized

Potential

Company

Sales

Forecast

Industry

Sales

Forecast

slide32

Product-Market Forecast Relationships for Industrial Painting Units

Sales (in 1000s

of units)

900

800

Market

Potential

700

Sales Forecast

600

500

400

300

Company XYZ

Sales Forecast

200

100

0

2008

2001

2002

2003

2004

2005

2006

2007