Partial Revised Schedule C LASS D AY D ATE C LASS C ONTENT T YPE 1Introduction 2CustomersTheory 3VicksCase 4Class cancelled 5Marketing Strategy ITheory Holiday 6Red HatCase 7Marketing Strategy IITheroy Team Day – no class

Marketing Strategy I

Which Markets are the Most Attractive? Issues: 1. Segments offering a lot of surplus (today) 2. Markets in which you have market power (today) 3. Suppliers and distributors do not have market power (Marketing Strategy 2)

1. Segments Offering A Lot of Surplus How much are customers willing to pay? What does it cost to satisfy customers needs? How big is the segment?

Examples Analgesics market: – low cost of satisfying customer needs – moderately high willingness to pay – very many customers Call waiting market – very low cost of satisfying customer needs – low willingness to pay – moderately large market

2. Markets in Which You Have Market Power Source of market power Few competitors Differentiated from competitors Evidence of market power

Differentiated From Competitors What resources differentiate each competitor? What is a resource? Owned and controlled by the firm Must differentiate from the competition Differentiation must be sustainable Must contribute to satisfying customer needs

Resources: A Matter of Degree Owned and controlled: employee, licensee Differentiates: Sustainable: Satisfies needs: how different cost of mimicking time required to mimic (Totts) how important is the need how much does it satisfy

Resources: Examples A new pricing tactic versus a new distribution system Landing slots at Denver versus Heathrow Skill at playing scrabble versus baseball 20:20 vision for an athlete versus a manager

Resources: More Examples Cost advantages: but loss of other resources Relationships: exclusive distribution agreements Perceptions: particularly if no verifiable info Exclusive Licenses: utility companies Proprietary technology: Polaroid Skilled personnel: Peter Lynch

Number of Competitors Not just current competitors, also potential competitors: – Recall generics in Vicks case – Are there barriers to entry? Relationship between number of competitors and differentiation between competitors.

Evidence of Market Power 1. How large is the market share? 2. How large are the profit margins?

A Comment on Market Share Evidence of a resource, given reasonable margins Not always a resource Does it increase the probability of a future purchase? – switching costs (WordPerfect) – positive network externalities (Word, fax machine) – credibility (Vicks) – awareness – economies of scale (Blockbuster)

Why Are Resources Valuable? Resources enable you to satisfy your customers' needs better than your competitors: – customers are less price sensitive, will pay a premium – less price competition, competitors charge higher prices Absence of resources: at best perfect competition at worst playing field tilted against you

Summary: Markets in Which You Have Market Power Source of market power How many competitors? Is there differentiation? Evidence of market power How large is the market share? How large are the profit margins?