Creating Competitive Advantage Andrew Triganza Scott MBA (Maas), M.Ed (Melit), BPsy (Hons), PGCE

Objectives Learn how to understand competitors as well as customers via competitor analysis. Learn the fundamentals of competitive marketing strategies based on creating value for customers. Realize the need for balancing customer and competitor organizations in order to become a truly market-centered organization.

Intel Has dominated the chip industry Success is directly related to Intel’s competitive strategy Strategy focuses on superior value and product leadership Heavy focus on product and advertising innovation and R&D investments Changing market needs have challenged Intel to adapt Intel is capitalizing on the Internet now

Definition Competitive Advantage An advantage over competitors gained by offering consumers greater value than competitors offer.

Definition Competitive Analysis The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.

Steps in Analyzing Competitors

Competitor Analysis Steps in the Process: Firms face a wide range of competition Be careful to avoid “competitor myopia” Methods of identifying competitors: Industry point-of-view Market point-of-view Competitor maps can help Steps in the Process: Identifying Competitors Assessing Competitors Selecting Competitors to Attack or Avoid

230-year-old Encyclopedia Britannica viewed itself as competing with your publishers of printed encyclopedias. Big mistake! Its real competitors were software encyclopedias and the Internet.

Competitor Map

Discussion Question Create a competitor map for one of the following: Nike Domino Pizza Google

Competitor Analysis Steps in the Process: Identifying Competitors Determining competitors’ objectives Identifying competitors’ strategies Strategic groups Assessing competitors’ strengths and weaknesses Benchmarking Estimating competitors’ reactions Steps in the Process: Identifying Competitors Assessing Competitors Selecting Competitors to Attack or Avoid

Competitor Analysis Steps in the Process: Identifying Competitors Strong or weak competitors Customer value analysis Close or distant competitors Most companies compete against close competitors “Good” or “Bad” competitors The existence of competitors offers several strategic benefits Steps in the Process: Identifying Competitors Assessing Competitors Selecting Competitors to Attack or Avoid

Competitive Strategies Basic Winning Competitive Strategies: Porter Overall cost leadership Lowest production and distribution costs Differentiation Creating a highly differentiated product line and marketing program Focus Effort is focused on serving a few market segments

Hohner has successfully implemented a focus strategy to capture an 85% share of the harmonica market.

Competitive Strategies Basic Competitive Strategies: Value Disciplines Operational excellence Superior value via price and convenience Customer Intimacy Superior value by means of building strong relationships with buyers and satisfying needs Product Leadership Superior value via product innovation

Hypothetical Market Structure

Competitive Positions Competitive Strategy Expanding the total demand Finding new users Discovering and promoting new product uses Encouraging greater product usage Protecting market share Many considerations Continuous innovation Expanding market share Profitability rises with market share Competitive Positions Market Leader Market Challenger Market Follower Market Nicher

Competitive Strategy WD-40 has a knack for developing new uses for its product. What other brands have adopted a similar strategy? Clicking the WWW icon will open your web browser and link to the web site pictured in the screen shot. WD40

Competitive Positions Competitive Strategy Option 1: challenge the market leader High-risk but high-gain Sustainable competitive advantage over the leader is key to success Option 2: challenge firms of the same size, smaller size or challenge regional or local firms Full frontal vs. indirect attacks Competitive Positions Market Leader Market Challenger Market Follower Market Nicher

Pepsi is an example of market challenger that has chosen to use a full frontal attack

Competitive Positions Competitive Strategy Follow the market leader Focus is on improving profit instead of market share Many advantages: Learn from the market leader’s experience Copy or improve on the leader’s offerings Strong profitability Competitive Positions Market Leader Market Challenger Market Follower Market Nicher

Dial Corporation successfully uses a market follower strategy

Competitive Positions Competitive Strategy Serving market niches means targeting sub-segments Good strategy for small firms with limited resources Offers high margins Specialization is key By market, customer, product, or marketing mix lines Competitive Positions Market Leader Market Challenger Market Follower Market Nicher

Balancing Customer and Competitor Orientations Companies can become so competitor centered that they lose their customer focus. Types of companies: Competitor-centered companies Customer-centered companies Market-centered companies

Game playing industry Nintendo Microsoft Sony Wii Xbox 360 Play Station

Threat of New Entry the existence of barriers to entry economies of product differences brand equity switching costs capital requirements access to distribution absolute cost advantages learning curve advantages expected retaliation government policies

Competitive Rivalry number of competitors rate of industry growth intermittent industry overcapacity exit barriers diversity of competitors informational complexity and asymmetry brand equity fixed cost allocation per value added level of advertising expense

Supplier Power supplier switching costs relative to firm switching costs degree of differentiation of inputs presence of substitute inputs supplier concentration to firm concentration ratio threat of forward integration by suppliers relative to the threat of backward integration by firms cost of inputs relative to selling price of the product

Buyer Power buyer concentration to firm concentration ratio bargaining leverage buyer volume buyer switching costs relative to firm switching costs buyer information availability ability to backward integrate availability of existing substitute products buyer price sensitivity price of total purchase

Threat of Substitution buyer propensity to substitute relative price performance of substitutes buyer switching costs perceived level of product differentiation