1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control Strategic Marketing

Chapter 2 Markets and Competitive Space McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2-3 MARKETS AND COMPETITIVE SPACE  Markets and Strategies  Defining and Analyzing Product-Markets  Describing and Analyzing End-Users  Analyzing Competition  Market Size Estimation  Developing a Strategic Vision about the Future

2-4 MARKETS AND STRATEGIES 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 decisions

2-5 OPPORTUNITIES OUTSIDE THE COMPETITIVE BOX The Competitive Box Traditional Competitors New Types of Competition New Business Models New Customers Conventional Value Propositions Existing Customer Base New Customer Base(s)

2-6 AN ARRAY OF CHALLENGES Disruptive Innovation Creating New Market Space Fast Changing Markets Commoditization Threats Drivers of Changes in Markets

2-7 *Market changes often require altering strategies *Forces of change create both market opportunities and threats *Inherent danger in faulty market sensing Markets Impact Strategies

2-8 DEFINING AND ANALYZING PRODUCT-MARKETS Determine the Boundaries and Structure of the Product-Market Form the Product-Market Describe and Analyze End-Users Analyze Competition Forecast Market Size and Rate of Change

2-9 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.

2-10 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.

2-11 Product – Market Boundaries and Structure *Determining Product-Market Structure 1.Start with the generic need satisfied by the product category of interest to management 2.Identify the product categories (types) that can satisfy the generic need 3.Form the specific product – markets within the generic product – market

2-12 SUPER MARKETS MICROWAVE OVENS CONVENIENCE STORES TRADITIONAL RESTAURANTS Illustrative Fast-Food Product-Market Structure FAST-FOOD MARKET

2-13 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

2-14 Illustrative Product – Market Structure Generic Product Class Product Type Variant A Regular Variant B Brands Food and beverages for breakfast meal Cereals Ready to eat Natural Pre-sweetened Life Nutritional Special KProduct 19

2-15 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

2-16 Identifying and Describing Buyers How Buyers Make Choices Building Customer Profiles Environmental Influences DESCRIBING AND ANALYZING END-USERS

2-17 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

2-18 How Buyers Make Choices  BUYING DECISION PROCESS: 1.Problem recognition 2.Information search 3.Alternative evaluation 4.Purchase decision 5.Post-purchase behavior

2-19 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

2-20 Building Customer Profiles *Start with generic product – market *Move next to product- type and variant profiles >> increasingly more specific *Customer profiles guide decision making (e.g. targeting, positioning, market segmentation etc.)

2-21 ANALYZING COMPETITION Define the Competitive Arena for the Generic, Specific, and Variant Product Markets 2. Identify and Describe Key Competitors 4. Identify and Evaluate Potential Competitors 3. Evaluate Key Competitors PRODUCT- MARKET STRUCTURE AND MARKET SEGMENTS

2-22 Examples of Levels of Competition Diet-Rite Cola Diet Pepsi Diet Coke Product from competition: diet colas Regular colas Diet lemon limes Lemon limes Fruit flavored colas Product category competition: soft drinks Bottle water Wine Beer Coffee Juices Generic competition: beverages Baseball cards Fast Food Video Games Ice Cream Budget competition: food & entertainment

2-23 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

2-24 Defining Industry Structure & Characteristics nIndustry Form nIndustry Environment nCompetitive Forces Value Added Chain SUPPLIERS PRODUCERS WHOLESALERS/ DISTRIBUTORS RETAILERS/DEALERS CONSUMER/ ORGANIZATIONAL END USERS

2-25 Competitive Forces 1.Rivalry among existing firms. 2.Threat of new entrants. 3.Threat of substitute products. 4.Bargaining power of suppliers. 5.Bargaining power of buyers. Source: Michael E. Porter, Competitive Advantage, Free Press, 1985, 5.

2-26 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)

2-27 Extent of Market Coverage Customer Satisfaction Current Capabilities Past Performance Competitor Evaluation

2-28 MARKET SIZE ESTIMATION Unrealized Potential Company Sales Forecast Industry Sales Forecast Market Potential Estimate Product-Market Forecast Relationships (area denotes sales in $’s)

Sales (in 1000s of units) Market Potential Sales Forecast Company XYZ Sales Forecast Product-Market Forecast Relationships for Industrial Painting Units

2-30 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.