Dealing with Competition Chapter 11 Market Concept of Competition: companies, products, and/or services that satisfy the same customer need Word processing software provides “writing ability” – a need that can be satisfied by pencils, pens, or typewriters

Competition Analyzing competition (p. 348) 1. Share of market – competitor’s share of total market 2. Share of mind – “name the first company that comes to mind in this industry” 3. Share of heart – “name the company from which you would prefer to buy the product” Companies that make steady gains in mind share and heart share will inevitable make gains ____________________ ________________________

Competition Value Benchmarking Mission Competition Customer Company

Hypothetical Market Structure & Strategies (p. 349) Market Leader (40%) Market Challenger (30%) Market Follower (20%) Market Nicher (10%) Market Share: % of total industry sales accounted for by one firm Market Leader: largest share of the product market

Market Leader Strategies 1. Expand total market Market leader has most to gain from expanded market: Increase usage of product (regardless of whose brand is chosen), find new customers, more usage

Market Leader Strategies Expand total market New Customers: Starbucks – company-oriented retail stores; supermarkets; Frappuccino and ice cream / joint ventures More Usage: larger package size; new uses and application – ____________________________

Market Leader Strategies 2. Defending Market Share Continuous innovation – new product and customer service, distribution effectiveness, cost cutting Defense strategies (p. 353 – 354) Mobile defense – market diversification: expand into unrelated industries; _________________ __________________________

Market Leader Strategies 3. Expand Market Share Increase promotions; offer superior value – price, quality, options, features, etc.

Market Challenger Strategies Market Challenger: firm that occupies second, third, and lower ranks in an industry (runner-up): Burger King, Pepsi Cola Attack Market Leader and Other Competitors Increase (take away) market share Better products/service Comparative advertising Average or low quality at much lower price

Market Challenger Strategies Attack Strategies (p. 356-359) Bypass Attack – diversify into unrelated markets; new geographical markets; leapfrogging into new technologies: Pepsi bypassed Coke by (1) purchasing Tropicana vs. Coke’s Minute Maid and (2) Quaker Oats which owns Gatorade vs. Coke’s Powerade) ____________________________________ _______________________

Market Follower Strategies Imitate - Avoid risk/cost of introducing new product - Adapt or improve leader’s products _________________________________

Market-Nicher Strategies Specialize Leader of a small market or niche Nicher most knowledgeable about their customers; can best meet their needs Virgin Mobile targets young phone users – no contracts, no hidden fees

Application Understand your company: mission, objectives, resources Understand your competitors: who are they? what value do they offer? Understand your customer: what do they value?

Setting Product Strategy (Chapter 12) Procter & Gamble's Product Mix Detergents Toothpaste Bar Soap Disposable Paper Products Diapers Width – number of product lines (5 lines) Length – total number of items the company carries product lines

Product Management Challenge Should product line be extended, maintained, or reduced? Why? Should new product lines be added to the mix? Should existing lines be deleted? Company Objectives: __________________________ Projections/trends: __________________________________ Satisfy customers

Product line length issues Lengthening product lines could mean higher market share and market growth (customer satisfaction) But, longer lines result in : design, engineering, inventory carrying, new promotion, etc.

Product line length issues Growth strategies: line stretching (_____________) downmarket stretch: enter low end of the market (Sony Value Line) upmarket stretch: enter high-end (Toyota-Lexus; Honda-Acura) two-way stretch: both directions (Marriott: Renaissance, Courtyard, Fairfield Inns)

Product line length issues Line modernization: improvements to encourage customer _______ to higher valued, higher priced items __________________________ Pruning: product from the line Product is not selling Limited production capacity