Chapter 18 Creating Competitive Advantage PDF

Chapter 18 Creating competitive advantage Competitive advantage  An advantage over competitors gained by offering consumers greater value. Competitor analysis Competitor analysis  Identifying key competitors; assessing their objectives,...

Chapter 18 Creating competitive advantage Competitive advantage  An advantage over competitors gained by offering consumers greater value. Competitor analysis Competitor analysis  Identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid. Identifying competitors At the narrowest level, a company can define its competitors as other companies offering similar products and services to the same customers at similar prices. However, companies actually face a much wider range of competitors. The company might define its competitors as all firms with the same product or class of products. Companies must avoid ‘competitor myopiaʼ. A company is more likely to be ‘buriedʼ by its latent competitors than its current ones. For example, Kodak didnʼt lose out to competing film makers such as Fuji; it fell tot he makers of digital cameras that use no film at all. Figure. Steps in analysing competitors. Chapter 18 Creating competitive advantage 1  Companies can identify their competitors from an industry point of view. They might see themselves as being in the oil industry. A company must understand the competitive patterns in its industry if it hopes to be an effective player in that industry. Companies can also identify competitors from a market point of view. Here they define competitors as companies that are trying to satisfy the same customer need or build relationships with the same customer group. From an industry point of view, Pepsi might see its competition as Coca-Cola, Orangina, Fanta, 7 Up and the makers of other soft drink brands. From a market point of view, however, the cus- tomer really wants ‘thirst quenchingʼ – a need that can be satisfied by bottled water, energy drinks, fruit juice, iced tea and many other fluids. Assessing competitors What are the competitorsʼ objectives? What does each seek in the marketplace? What is each competitorʼs strategy? What are various competitorsʼ strengths and weaknesses, and how will each react to actions the company might take? Determining competitorsʼ objectives Each competitor has a mix of objectives. The company wants to know the relative importance that a competitor places on current profitability, market share growth, cash flow, technological leadership, service leadership and other goals. For example, a company that pursues low-cost leadership will react much more strongly to a competitorʼs cost-reducing manufacturing breakthrough than to the same competitorʼs increase in advertising. Identifying competitorsʼ strategies Strategic group  A group of firms in an industry following the same or a similar strategy. For example, in the major appliance industry, Bosch and Zanussi belong to the same strategic group. Identifying strategic groups. For example, if a company enters a strategic group, the members of that group become its key competitors. Chapter 18 Creating competitive advantage 2  It needs to know each competitorʼs product quality, features and mix; customer services; pricing policy; distribution coverage; sales force strategy; and advertising, sales promotion, and online and social media programmes. And it must study the details of each competitorʼs research and development R&D, manufacturing, purchasing, financial and other strategies. Assessing competitorsʼ strengths and weaknesses What can our competitors do? As a first step, companies can gather data on each competitorʼs goals, strategies and performance over the past few years. Companies normally learn about their competitorsʼ strengths and weaknesses through secondary data, personal experience and word of mouth. Benchmarking  Comparing the companyʼs products and processes to those of competitors or leading firms in other industries to identify best practices and find ways to improve quality and performance. Itʼs a powerful tool for increasing a companyʼs competitiveness. Estimating competitorsʼ reactions What will our competitors do? In addition, each competitor has a certain philosophy of doing business, a certain internal culture and guiding beliefs. Marketing managers need a deep understanding of a competitorʼs mentality if they want to anticipate how that competitor will act or react. In some cases, such competitive exchanges can provide useful information to consumers and advantages for brands. In other cases, they can reflect unfavourably on the entire industry. Selecting competitors to attack and avoid Management now must decide which competitors to compete against most vigorously. Strong or weak competitors Customer value analysis  An analysis conducted to determine what benefits target customers value and how they rate the relative value of various Chapter 18 Creating competitive advantage 3  competitorsʼ offers. But if the company is seen as performing at a lower level than its major competitors on some important attributes, it must invest in strengthening those attributes or finding other important attributes where it can build a lead. Good or bad competitors Competitors may share the costs of market and product development and help legitimise new technologies. However, a company may not view all its competitors as beneficial. An industry often contains good competitors and bad competitors. Good competitors play by the rules of the industry. Bad competitors, in contrast, break the rules. They try to buy share rather than earn it, take large risks and play by their own rules. Finding uncontested market They try to create products and services for which there are no direct competitors. Called a ‘blue-ocean strategyʼ, the goal is to make competition irrelevant. Yet in todayʼs overcrowded industries, competing head-on results in nothing but a bloody ‘red oceanʼ of rivals fighting over a shrinking profit pool. Tomorrowʼs leading companies will succeed not by battling competitors but by creating ‘blue oceansʼ of uncontested market space. Such strategic moves – termed value innovation – create powerful leaps in value for both the firm and its buyers, creating all-new demand and rendering rivals obsolete. By creating and capturing blue oceans, companies can largely take rivals out of the picture. Competitive strategies But what broad competitive marketing strategies might the company use? Which ones are best for a particular company or for the companyʼs different divisions and products? Approaches to marketing strategy  Entrepreneurial Marketing: Chapter 18 Creating competitive advantage 4  Used by start-ups and small businesses. Focuses on creativity, flexible strategies, and bold actions to stand out. Example: Glasses Directʼs disruptive “Specspensiveˮ campaign to challenge Specsavers.  Formulated Marketing: Adopted by growing companies as they become more structured. Relies on formal strategies, branding, and professional marketing tools (e.g., PR, social media). Example: Glasses Direct evolving with branding improvements and sales promotions.  Intrapreneurial Marketing: Used by large, mature companies to regain creativity and innovation. Encourages employees to act entrepreneurially within the company to spark fresh ideas. Goal: Recapture the passion and energy that led to the companyʼs initial success. Basic competitive strategies Clear strategies: Overall cost leadership. Here the company works hard to achieve the lowest production and distribution costs. Low costs let the company price lower than its competitors and win a large market share  Carrefour, Aldi and Ryanair. Differentiation. Here the company concentrates on creating a highly differentiated product line and marketing programme so that it comes across as the class leader in the industry. Most customers would prefer to own this brand if its price is not too high  Mercedes. Focus. Here the company focuses its effort on serving a few market segments well rather than going after the whole market  Bose concentrates on very Chapter 18 Creating competitive advantage 5  high-quality electronics products that produce better sound. But firms that do not pursue a clear strategy –middle-of-the-roaders– do the worst  Tesco. They try to be good on all strategic counts but end up being not very good at anything. Value disciplines – for delivering superior customer value: Operational excellence. The company provides superior value by leading its industry in price and convenience. It works to reduce costs and create a lean and efficient value delivery system. It serves customers who want reliable, good-quality products or services but want them cheaply and easily  Ikea, Zara. Customer intimacy. The company provides superior value by precisely segmenting its markets and tailoring its products or services to exactly match the needs of targeted customers. It empowers its people to respond quickly to customer needs. Customer-intimate companies serve customers who are willing to pay a premium to get precisely what they want  British Airways, Visa. Product leadership. The company provides superior value by offering a continuous stream of leading-edge products or services. It aims to make its own and competing products obsolete  Apple, Rolls Royce. Some companies successfully pursue more than one value discipline at the same time. For example, FedEx excels at both operational excellence and customer intimacy. However, such companies are rare; few firms can be the best at more than one of these disciplines. By trying to be good at all value disciplines, a company usually ends up being best at none. Competitive positions Remember, however, that these classifications often do not apply to a whole company but only to its position in a specific industry Figure. Competitive market positions and roles Chapter 18 Creating competitive advantage 6  Table. Strategies for market leaders, challengers, followers and nichers Market leader strategies The firm in an industry with the largest market share. LʼOréal (cosmetics), McDonaldʼs (fast food), Amazon (online retailing), Coca-Cola (beverages). Expanding total demand The leading firm normally gains the most when the total market expands. If Europeans eat more fast food, McDonald's stands to gain the most because it holds a much larger fast-food market share than competitors such as Subway or Burger King. Market leaders can expand the market by developing new users, new uses and more usage of their products. They usually can find new users or untapped market segments in many places. For example, traditionally boy-focused LEGO  the world's biggest toymaker – now successfully targets girls. Finally, market leaders can encourage more usage by convincing people to use the product more often or use more per occasion. For example, Nestlé urges people to eat Carnation-branded desserts and milk products more often by running ads containing new recipes. Chapter 18 Creating competitive advantage 7  Protecting market share What can the market leader do to protect its position? First, it must prevent or fix weaknesses that provide opportunities for competitors. Its prices must remain consistent with the value that customers see in the brand. The leader should ‘plug holesʼ so that competitors do not jump in. But the best defence is a good offence, and the best response is continuous innovation. Expanding market share Market leaders also can grow by increasing their market shares further. Companies must not think, however, that gaining increased market share will automatically improve profitability. Much depends on their strategy for gaining increased share. Market challenger strategies A runner-up firm that is fighting hard to increase its market share in an industry. They can challenge the market leader and other competitors in an aggressive bid for more market share (market challengers), or they can play along with competitors and not rock the boat (market followers). A market challenger must first define which competitors to challenge and its strategic objective. The challenger can attack the market leader—a high-risk but potentially high-gain strategy. Its goal might be to take over market leadership. Or the challenger's objective may simply be to wrest more market share. Although it might seem that the market leader has the most going for it, challengers often have what some strategists call a "second-mover advantage." The challenger observes what has made the market leader successful and improves on it. Alternatively, the challenger can avoid the leader and instead challenge firms its own size, or smaller local and regional firms. These smaller firms may be underfinanced and not serving their customers well The important point remains: the challenger must choose its opponents carefully and have a clearly defined and attainable objective. How can the market challenger best attack the chosen competitor and achieve its strategic objectives? Chapter 18 Creating competitive advantage 8  It may launch a full-frontal attack, matching the competitor's product, advertising, price, and distribution efforts. It attacks the competitor's strengths rather than its weaknesses. The outcome depends on who has the greater strength and endurance. Thus, many new market entrants avoid frontal attacks, knowing that market leaders can head them off with ad blitzes, price wars and other retaliations. Rather than challenging head-on, the challenger can make an indirect attack on the competitorʼs weaknesses or on gaps in the competitorʼs market coverage. Market follower strategies A runner-up firm that wants to hold its share in an industry without rocking the boat. A follower can gain many advantages. The market leader often bears the huge expenses of developing new products and markets, expanding distribution and educating the market. By contrast, as with challengers, the market follower can learn from the market leaderʼs experience. Although the follower will probably not overtake the leader, it often can be as profitable. Market nicher strategies A firm that serves small segments that the other firms in an industry overlook or ignore. These firms target sub-segments. Nichers are often smaller firms with limited resources Firms with low shares of the total market can be highly successful and profitable through smart niching. Why is niching profitable? The main reason is that the market nicher ends up knowing the target customer group so well that it meets their needs better than other firms that casually sell to that niche. The key idea in niching is specialisation. Nichers thrive by meeting in depth the special needs of well-targeted customer groups. Chapter 18 Creating competitive advantage 9  A market nicher can specialise along any of several market, customer, product or marketing mix lines. For example, it can specialise in serving one type of end user, as when a law firm specialises in the criminal, civil or business law markets. The nicher can specialise in serving a given customer-size group. Many nichers specialise in serving small and mid size customers who are neglected by the majors. Specific customers, selling their entire output to a single company  Unilever. Geographic market, selling only in a certain locality  Vegemite. Quality-price nichers operate at the low or high end of the market. Service nichers offer services not available from other firms. Niching carries some major risks. For example, the market niche may dry up, or it might grow to the point that it attracts larger competitors. That is why many companies practise multiple niching. By developing two or more niches, a company increases its chances for survival. Balancing customer and competitor orientations Competitor-centred company  A company whose moves are mainly based on competitorsʼ actions and reactions. On the positive side, the company develops a fighter orientation, watches for weaknesses in its own position and searches out competitorsʼ weaknesses. On the negative side, the company becomes too reactive. Figure. Evolving company orientations Chapter 18 Creating competitive advantage 10  Customer-centred company  A company that focuses on customer developments in designing its marketing strategies and delivering superior value to its target customers. Market-centred company  A company that pays balanced attention to both customers and competitors in designing its marketing strategies. Today, however, companies need to be market oriented, paying balanced attention to both customers and competitors. https://www.youtube.com/watch?v=8ExRnpy4rPE https://www.youtube.com/watch?v=CcF3ZMgXQrA&embeds_referring_euri =https%3A%2F%2Fbrightspace.saxion.nl%2F&source_ve_path=MjM4NTE Chapter 18 Creating competitive advantage 11