Principles of Marketing - Chapter 18: Creating Competitive Advantage

Creating Competitive Advantage

Chapter 18 Overview

  • Focuses on competitor analysis and developing value-based strategies for profitable customer relationships.
  • Emphasizes understanding competitors and customers.
  • A competitive advantage is achieved by delivering more value and satisfaction to target consumers than competitors.

18.1 Competitor Analysis

Need for Understanding Competitors

  • Understanding competitors is essential for developing effective marketing strategies.

Steps in Analyzing Competitors (Figure 18.1)

  • Identifying competitors: Crucial first step; can be more complex than it appears. Kodak's failure to recognize digital camera makers as primary competitors led to its downfall.
  • Assessing competitors: Objectives (profitability, market share growth, cash flow, technological leadership, service leadership), strategies, strengths and weaknesses, and reaction patterns.
  • Selecting competitors: Deciding whom to attack or avoid.

Identifying Competitors

  • Includes:
    • Firms making the same product.
    • Firms supplying the same service.
    • Firms competing for the same consumer dollars.

Assessing Competitors

  • Competitors’ objectives:
    • Profitability
    • Market share growth
    • Cash flow
    • Technological leadership
    • Service leadership
  • Competitors’ strategies: Strategic groups offer the strongest competition.
  • Competitors’ strengths and weaknesses:
    • What can our competitors do?
    • Benchmarking.
  • Estimating competitors’ reactions: What will our competitors do?

Selecting Competitors to Attack and Avoid

  • Customer value analysis: Determines the benefits that target customers’ value and how customers rate the relative value of various competitors’ offers.
    • Identification of major attributes that customers value can the importance of these values.
    • Assessment of the company’s and competitors’ performance on the valued attributes.
  • Close or distant competitors: Deciding to compete with those closely aligned or those further away.
  • Good or bad competitors: Understanding which competitors benefit the market and which detract from it.
    *Market-based competitive definition: Cinnabon - selling “irresistible indulgence”.
    72% of total consumer sales now come from licensed food service consumer packaged goods.

Finding Uncontested Market Spaces

  • Blue-ocean strategy: Creating new, uncontested market spaces.
    • Direct-to-consumer (DTC) brands like Casper selling/shipping directly to consumers through online/mobile channels.

Designing a Competitive Intelligence System

  • Identifies competitive information and the best sources.
  • Collects information continually.
  • Checks information for validity and reliability.
  • Interprets and organizes information.
  • Sends key information to relevant decision-makers.
  • Responds to inquiries about competitors.

18.2 Competitive Marketing Strategies

Fundamentals of Competitive Marketing Strategies

  • Based on creating value for customers.

Approaches to Marketing Strategy

  • Entrepreneurial marketing: Visualizing an opportunity and implementing flexible strategies.
  • Formulated marketing: Developing formal marketing strategies and following them closely.
  • Intrepreneurial marketing: Reestablishing an internal entrepreneurial spirit and refreshing marketing strategies.

Michael Porter’s Four Basic Competitive Positioning Strategies

  • Overall cost leadership.
  • Differentiation.
  • Focus.
  • Middle of the road (avoid).

Basic Competitive Strategies

  • Overall cost leadership strategy: Achieve the lowest production and distribution costs to lower prices and gain market share.
  • Differentiation strategy: Concentrate on creating a highly differentiated product line and marketing program.
  • Focus strategy: Focus effort on serving a few market segments well.
  • A company that pursues a clear strategy will achieve superior performance.
  • A company without a clear strategy will not succeed.

Value Disciplines (Treacy and Wiersema)

  • Operational excellence: Providing value by leading in price and convenience through cost reduction and efficient value delivery.
  • Customer intimacy: Providing superior value by segmenting markets and tailoring products/services to targeted customers.
  • Product leadership: Providing superior value through a continuous stream of leading-edge products/services. Product leaders are open to new ideas and bring to market quickly.

Competitive Positions

  • Market leader
  • Market challenger
  • Market follower
  • Market nicher

Competitive Market Positions and Roles (Figure 18.2)

  • Each position requires a different competitive strategy.
  • Market leader wants to expand total demand and protect/expand its share.
  • Market nichers seek market segments big enough to be profitable but too small for major competitors.
  • Market leader 40%
  • Market challengers 30%
  • Market followers 20%
  • Market nichers 10%

Strategies for Market Leaders, Challengers, Followers, and Nichers (Table 18.1)

  • Market Leader Strategies
    • Expand total market by developing:
      • New users
      • New uses
      • More usage
    • Protect current market by:
      • Fixing/preventing weaknesses
      • Maintaining consistent prices
      • Keeping strong customer relationships
      • Promoting continuous innovation
    • Expand market share by:
      • Increasing profitability with increasing market share
      • Producing high-quality products
      • Creating good service experiences
      • Building close relationships
  • Market Challenger Strategies
    • Challenge the leader with an aggressive bid for more market share.
    • Second-mover advantage: observe the leader's success and improve on it.
  • Market Follower Strategies
    • Play along with competitors and not rock the boat.
    • Copy or improve on leader’s products/programs with less investment.
    • Bring distinctive advantages.
    • Keep costs/prices low or quality/services high.
  • Market Nicher Strategies
    • Ideal niche: big enough to be profitable, high growth potential, little interest from competitors.
    • Key to niching is specialization:
      • Market
      • Customer
      • Product
      • Marketing mix

18.3 Balancing Customer and Competitor Orientations

Need for Balance

  • Companies must adapt to changes in the competitive environment.
  • Competitor-centered company.
  • Customer-centered company.
  • Market-centered company.

Evolving Company Orientations (Figure 18.3)

*N/A

Company Orientations

  • Competitor-centered company: Spends most of its time tracking competitors’ moves and market shares and trying to counter them.
    • Advantage: Is a fighter.
    • Disadvantage: Is reactive.
  • Customer-centered company: Spends most of its time focusing on customer developments in designing strategies.
    • Provides a better position than competitor-centered company to identify opportunities and build customer relationships.
  • Market-centered company: Spends most of its time focusing on both competitor and customer developments in designing strategies.