Kotler 2020, Chapter 14: Creating Competitive Advantage PDF

CHAPTER 14 – Creating competitive advantage Mini contents Company case - Kodak: the competitor it didn't see soon enough Competitor analysis Best practice - Synergies might create competitive advantages Designing a competitive intelligence system Competitive strategies. Balancing customer...

CHAPTER 14 – Creating competitive advantage Mini contents Company case - Kodak: the competitor it didn't see soon enough Competitor analysis Best practice - Synergies might create competitive advantages Designing a competitive intelligence system Competitive strategies. Balancing customer and competitor orientations. Company case -YouTube: Google's quest for video dominance Chapter preview Good marketing companies Win, keep and grow customers by understanding customer needs, designing customer-driven marketing strategies, constructing value-delivering marketing programmes, and building customer and marketing partner relationships. In the final chapter, we'll pull all of the marketing basics together. Understanding customers is an important first step in developing profitable customer relationships, but it's not enough. To gain competitive advantage, companies must use this understanding to design market offers that deliver more value than the offers of competitors seeking to win the same customers. We look first at competitor analysis, the process companies use to identify and analyse competitors. Then, we examine competitive marketing strategies by which companies position themselves against competitors to gain the greatest possible competitive advantage. We'll start with a story of Kodak, the once unbeatable film producer that ended up in bankruptcy. Learning objectives After reading this chapter, you should be able to: 1. Discuss the need to understand competitors as well as customers through competitor analysis. 2. Explain the fundamentals of competitive marketing strategies based on creating value for customers. 3. Ilustrate the need for balancing customer and competitor orientations in becoming a truly market-centred organization Today's companies face their toughest competition ever, and they are thus having to move from a product-and-selling philosophy to a customer-and-marketing philosophy. Under- standing the idea competitive advantage thus becoming increasingly important. Surprisingly, many companies lack knowledge about this - and it is not only companies that should be aware of their competitive advantages, but also schools, primary health care providers NGOs, churches and football clubs. Competition means the customer has a choice so therefore, you must be able to answer the simple question: why should the customer choose you? In other words: what's the competitive advantage? akey concept that we'll dig deeper into in this last chapter. Simply speaking, gaining a competitive advantage is the result of successful marketing. Building profitable customer relationships and gaining competitive advantage require delivering more value and satisfaction to target consumers than competitors do. Customers will see competitive advantages as customer advantages, giving the company an edge over its competitors. Great marketing offers provide benefits for consumers - and this is reflected in the company's competitive advantage. The first step is competitor analysis, the process of identifying, assessing and selecting key competitors. The second step is developing competitive marketing strategies that strongly position the company against competitors and give it the greatest possible competitive advantage. Surprisingly, many companies are not very aware of their competitive advantages. Competi tion means the customer has a choice, and accordingly, the selling company should be able to outline the reasons why a buyer in the market would choose that company above its rivals A company is subject to competition not only in the goods and services markets, but also in recruiting talented employees. Accordingly, human resources (HR) departments should also incorporate competitive marketing strategies into their way of thinking. The same line of reasoning could be expanded into areas such as the recruitment of co-operation partners such as suppliers, competitors and even local media and authorities. Competitive advantage – An advantage over competitors gained by offering greater customer value, either through lower prices or by providing more benefits than justify higher prices. Competitor 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. Competitive marketing strategies – Strategies that strongly position the company against competitors and that give the company the strongest possible strategic advantage. Competitor analysis Creating competitive advantage begins with a thorough understanding of competitors strategies. But before a company can analyse its competitors, it must first identify them a task that 15 not as simple as it seems. It must understand competitors' marketing strategies, products, prices, channels and promotions, but also get the industry definition right. Then the company can select which competitors to attack or avoid (see Figure 14.1). What industry are we operating in? Industry definition was a very easy task until a few decades ago. Markets were stable and product. driven, and there were relatively few products and offers that were difficult to put an industry label on. However this has changed over time, not least through the changes in the marketplace created by marketers Increasingly, lifestyles, image, sustainability concerns, branding and additional services have become more important, which emphasizes the intan- gible content of product offers. This makes them more difficult to conceptualize industry- wise. Consider the case of beer one or two decades ago: when a beer Was a beer, light OI dark, with a particular alcohol percentage, it was easy to identify competitors. But when a beer is a lifestyle product bought for reasons of profiling a person, an event or a social group, competi- tors may be found in many other industries-and among wines and drinks in the beverage industry. Increased competition has increased the number of offers that fall between tradi- tional industry definitions And finally, as lifestyle and emotions drive consumption higher, reflecting an increasingly affluent society, purchase patterns are getting more difficult to understand and forecast. Identifying competitors Normally, identifying competitors would seem a simple task. 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. Thus, Lindex might see Kappahl as a major competitor, but not Filippa K, Acne or Whyred. Elite, Clarion and Scandic hotels are major competitors, but none of them might see Marriott, Four Seasons or Formule 1 as direct competitors. Identifying competitors isn't as easy as it seems. For example, Kodak saw other camera film makers as its major competitors. But its real competitors turned out to be the makers of digital cameras that used no film at all. Kodak fell behind in digital technologies and ended up declaring bankruptcy. A too narrow definition of competition might be dangerous. Formule 1 is a budget hotel; Elite, Clarion and Scandic are volume brands; Four Seasons and Marriott are premium hotels. However, many Elite hotels are nicer than their Clarion and Scandic competi- tors- but they still compete for the same customers. And Radisson Blu does too, although it is slightly more exclusive. Marriott offers two Courtyard hotels (Malmö and Stockholm), which compete with volume brands, and in the case of private individuals, with campsites and bed- and-breakfast facilities though the latter are not as common in Sweden as in many other European countries. Even the possibility of staying with friends or relatives might be considered as competition. If hotel rooms are too expensive, consumers might go somewhere else or stay at home and companies may plan their next conference at another hotel or in another city. Finally, and more broadly still, competitors might include all companies that compete for the same consumer spending Here Scandic, Elite or Choice would see themselves competing with travel and leisure services, from cruises and summer homes to vaca- tions abroad You'll actually find just about any consumer or business traveller in these three major hotel chains. Nurses on a course, lawyers visiting clients, authority offi- cials visiting their colleagues in Oslo, or a three children family visiting grandma and grandpa in Helsinki. Companies must avoid competitor myopia. A company is more likely to be "buried" by its latent competitors than its current ones. For example, it wasn't direct competitors that put an end to the telegram businesses after hundreds of years; it was mobile phones and the Internet. And Kodak's film business didn't suffer at the hands of direct competitor Fujifilm; it lost out to competitors that Kodak didn't see coming - Sony, Canon and other digital camera makers, along with a host of digital image developers and online image-sharing services. And if physical encyclopaedias are bought for a number of reasons - whether it's to obtain knowledge, to project an image of being intelligent or simply to put something on the bookshelf -a company must understand how these potential reasons for buying might change over time. Competitor myopia – A company focusing too much on what it considers to be its direct competition, while losing sight of indirect and new competitors. Industry and market definitions of competition Companies can identify their competitors from the industry point of view. They might see themselves as being in the oil industry, the pharmaceutical industry, or the beverage industry. A company must understand the competitive patterns in its industry if it hopes to be an effective player' in that industry. But, as we will see, industry borders are not always very distinct. 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, Dr Pepper, 7UP and the makers of other soft drink brands. From a market point of view, however, the customer really wants 'thirst quenching' This need can be satisfied by bottled water, energy drinks, fruit juice, iced tea or many other fluids. From an industry point of view, Heineken 3.5% beer is in competition with Mariestads Export, Sofiero and Pripps Blå 3.5% beer. And Audi is in competition with BMw, Lexus, Mercedes and Volvo. But there are Audi customers who buy the cheapest A4 with the smallest engine, thus getting an Audi for little more than the price of a Volkswagen Passat; and then there are Audi customers whose choice is between an Audi Rs6, a Porsche Panamera Sports Tourer Turbo S, a Ferrari GTc4Lusso and a Lamborghini Urus, In general, the market concept of competition opens the company's eyes to a broader set of actual and potential competitors. The changing nature of industry boundaries Market definitions are becoming increasingly important in understanding competition. First, consumers are becoming increasingly emotional and their purchase patterns increasingly difficult to forecast, at least with traditional marketing tools. Secondly, consumers product use is becoming increasingly fragmented orange juice may be consumed at breal kfast, dinner, in the bar or as a soft drink in the afternoon, and a CEO may drive a small, hybrid car while the company's salesmen drive BM w 5 series cars (a practice more likely to be found in Sweden than in Germany, the Uk or us). Companies react to consumer fragmentation by offering a broader range of products, adapted for different uses. Thirdly, the orientation towards consumer offers and solutions means that prices might be set purely according to consumers willingness to pay. This reflects a reorientation towards consumer value, embracing not only calculus and controling but rather all company departments: from a company perspective to a consumer perspective. When consumer preferences are fickle, and many consumers are fairly wealthy, the understanding of competition should include, if feasible and available measures of how consumers would other wise have spent their money. All in all, for most types of products, industry boundaries are not as clear as they used to be, and companies must therefore apply a broad perspective in their environmental scanning, including competitor analysis, to make sure they are not falling behind the competition. Restrictions in business-to-business markets Even though the buyer or in many cases the user may prefer one product, brand OI retailer over competitors, agreements may make it difficult or impossible to make the preferred choice. An employee looking for the perfect company car may find that the employer only has agreements with Volvo and Volkswagen - meaning that a Ford or BMW is out of the question. And the local dealer may not provide a high level of service, but may be the only dealer the company has an agreement with. Alternatively the employee may want an iPhone, but the employer only supplies Samsung or Huawei phones, which are not as compatible with the employee's private MacBook computer as an iPhone would have been. The conflict between what an employer offers and what the employee wants is not new, but it's a tricky balance between the employer's needs and the advantages of standardization on the one hand, and the preferences of the employee, something that could translate into a stronger connection to the employet. But salespeople wanting large and environmentally unfriendly cars, and staying at luxury hotels while spending lots of money on showering potential customers with dinners and gifts, that's getting more uncommon in the aftermath of more market forces and stricter company policies. To establish good agreements, the company may have to restrict the number of choices, and corporate social responsibility may speak for the choice of one particular supplier. Allin all, it is largely a conflict between benefits employees get as part of the remuneration package and tools to facilitate the employees job efforts. Employee benefits may serve both these goals - but it's understandable that employers and employees will not always agree on every detail. Assessing competitors Having identified the main competitors,marketing management now asks: what are competi- tors' objectives what does each seek in the marketplace? What is each competitor's strategy? What are various competitor's strengths and weaknesses, and how will each react to actions the company might take? Determining competitors' 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, technolog ical leadership, ecological leadership, service leadership and other goals. Knowing a competi- tor's mix of objectives reveals whether the competitor is satisfied with its current situation and how it might react to different competitive actions. For example, a company that pursues low-cost leadership will react much more strongly to a competitor's cost-reducing manufac- turing breakthrough than to the same competitor's advertising increase. A company must also monitor its competitors' objectives for various segments. If the company finds that a competitor has discovered a new segment, this might be an opportunity. If it finds that competitors plan new moves into segments now served by their company, it will be fore- warned and, hopefully, forearmed Identifying competitors' strategies The more one firm's strategy resembles another firm's strategy, the more the two firms compete, In most industries, the competitors can be sorted into groups that pursue different strategies. A strategic group is a group of firms in an industry following the same or a similar strategy in a given target market. For example, in the major appliance industry, AEG, Bosch, Electrolux, Whirlpool, Siemens and Samsung belong to the same strateg ic group. Each produces a fulline of medium-price appliances supported by good service. By contrast, Gaggenau belongs to a different strategic group with more exclusive Miele products. They produce a narrower line of higher-quality appliances, offer a higher level of service and charge a premium price. Strategic group – A group of firms in an industry following the same or a similar strategy, Some important insights emerge from identifying strategic groups. For example, ifa company enters one of the groups, the members of that group become its key competitors. Although competition is most intense within a strategic group, there is also rivalry among groups. First, some of the strategic groups may appeal to overlapping customer segments. For example, Bosch, Siemens, Electrolux and Miele will all go after the apartment and house builders' segment. Secondly, the customers may not see much difference i in the offers of different groups. Finally, members of one strategic group might expand into new strategy segments. In fact, the most exclusive product line of Electrolux is more expensive than the cheapest Miele products in a particular product category (refrigerator, built-in microwave oven, etc.). The company needs to look at all of the dimensions that identify strategic groups within the industry. It must understand how each competitor delivers value to its customers. It needs to know each competitor's product quality, features and mix; customer services; pricing policy; marketing channel coverage; sales force strategy; and advertising and sales promo- tion programmes. And it must study the details of each competitor's R&D, manufacturing, purchasing, financial and other strategies. Assessing competitors' strengths and weaknesses Marketers need to assess each competitors strengths and weaknesses carefully in order to answer a critical question: what can our competitors do? As a first step, companies can gather data on each competitor's goals, strategies, and performance over the past feW years. Admittedly, some of this information will be hard to obtain. For example, business- to-business marketers find hard to estimate competitors market shares because they do not have the same syndicated data services that are available to consumer packaged- goods companies. In the business-to-business market, companies are much less willing to share information about their purchase and sales transactions than is the case in consumer markets. Companies normally learn about their competitors strengths and weaknesses through secondary data, personal experience and word of mouth. They can also conduct primary marketing research with ustomers, suppliers and retailers. Even a competitor's job advertising or the emphasis of its student fair expositions may be of interest they say some- thing about what type of people and competencies the competitor is looking for in the long run. To some extent, personal relationships and gossip heard through the grapevine can give some input ⁃ but if information obtained in this way proves to be wrong, it can be hazardous, and a company where employees are too curious to know about what is going on in competi- tors' organizations can get a bad reputation. Companies can also benchmark themselves against other firms, comparing the company's products and processes to those of competitors or leading firms in other industries to iden- _tify 'best practices' and find ways to improve quality and perfotmance. Benchmarking has become a powerful tool for increasing a company's competitiveness. Benchmarking – The process of comparing the company's products and processes to those of competitors or leading firms in otherindustries to identify 'best practices' and find ways to improve quality and performance. Estimating competitors' reactions Next, the company wants to know: what will our competitors do? A competitor's objectives, strategies and strengths and weaknesses gO a long way towards explaining its likely actions. They also suggest its likely reactions to company moves such as price cuts, promotion increases or new-product introductions. 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 given competitor's mentality if they want to anticipate how the competitor will act or react. Each competitor reacts differently. Some do not react quickly or strongly to a competitor's move. They may feel their customers are loyal, they may be slow in noticing the move, or they may lack the funds to react. Some competitors react only to certain types of moves and not to others. Other competitors react swiftly and strongly to any action. In some industries, competitors live in relative harmony; in others, they fight constantly. Knowing how major competitors react gives the company clues on how best to attack competitors or how best to defend the company's current positions. Selecting competitors to attack and avoid A company has already largely selected its major competitors through prior decisions on customer targets, marketing channels and marketing-mix strategy. Management now must decide which competitors to compete against most vigorously. Strong or weak competitors The company can focus on one of several classes of competitors. Most companies prefer to compete against weak competitors. This requires fewer resources and less time. But in the process, the firm may gain little. One could argue that the firm also should compete with strong competitors in order to sharpen its abilities. Moreover, even strong competitors have some weaknesses, and succeeding against them often provides greater returns, in particular when the weaknesses cover areas of great interest go buyers. Customer value analysis – The aim of customer value analysis is to determine the benefits valued by target customers and how customers rate the relative value ofvarious competitors’ offers. A useful tool for assessing competitor strengths and weaknesses is customer value analysis. The aim of customer value analysis is to determine the benefits valued by target customers and how customers rate the relative value of various competitors' offers. In conducting a customer value analysis the company first identifies the major attributes that customers value and the importance customers place on these attributes. Next, it assesses the company's and competitors' performance on the valued attributes. The key to gaining competitive advantage is to take each customer segment and examine how the company's offer compares to that of its major competitors. As shown in Figure 14.2, the company wants to find the strategic sweet spot - the place where it meets customers' needs in a way that rivals can't. If the company's offer delivers greater value by exceeding the competitor's offer on important attributes, the company can charge a higher price and earn higher profits, or it can charge the same price and gain more market share. But if the company is seen as performing at a lower level than its major competitor on some important attributes, it must invest in strengthening those attributes or finding other important attributes where it can build a lead on the competitor. ‘Good' or 'bad' competitors A company really needs and benefits from competitors. The existence of competitors results in several strategic benefits. Competitors may share the costs of market and product development and help to legitimize new technologies. They may serve less attractive segments or lead to more product differentiation. Finally, competitors may help increase total demand. However, a company may not view all of its competitors as benefi- cial. An industry often contains good" competitors and bad competitors.? Good competi- tors play by the rules of the industry. Bad competitors, in contrast, break the rules. They try to buy market share rather than earn it, take large risks and play by their own rules. And they may destroy the image of an industry – the reason some industries have a poor reputation can be traced back to the fact that bad competitors had a strong impact on the industry's reputation. Have you ever heard somebody say things like that 's typical of brokers/investment bankers/politicians..? They're professions with a consistent low rank in Gallup's annual survey on honesty and ethical standards in various professions. The more competitors do bad things, the worse for the industry's reputation - consumers in general don't blame, or even have the engagement to distinguish between individual firms. Consequently, 'good' companies would like to shape an industry that consists of only well-behaved competitors. A smart company will support good competitors, while aiming its attacks at bad competitors. Designing a competitive intelligence system We have described the main types of information that companies need about their competi- tors. This information must be collected, interpreted, distributed, and used. Gathering competitive intelligence can cost much money and time, so the company must design a cost- effective competitive intelligence system. The competitive intelligence system first identifies the vital types of competitive information needed and the best sources of this information. Then the system continuously collects information from the field (sales force, marketing chan- nels, suppliers, market research firms, internet and social media sites, online monitoring, and trade associations) and published data (government publications, speeches, consultancy firm reports, and online databases). Next, the system checks the information for validity and reli- ability, interprets it, and organizes it in an appropriate way. Finally, it sends relevant informa- tion to decision makers and responds to inquiries from managers about competitors. With this system, company managers receive timely intelligence about competitors in the form of reports and assessments, posted bulletins, newsletters, and email and mobile alerts. Managers can also connect when they need to interpret a competitor's sudden move, know a competitor's weaknesses and strengths, or assess how a competitor will espond to a planned company move. Competitive strategies Now that we've identified competitors and know all- or at least a lot - about them, it's time to design broad competitive marketing strategies by which the company can gain competitive advantage through superior customer value. But which broad marketing strategies might the company use? Which ones are best for a particular company, or for the company's different divisions and products? Approaches to marketing strategy No one strategy is best for all companies. Each company must determine what makes the most sense given its position in the industry and its objectives, opportunities and resources. Even within a company, different strategies maybe required for different businesses or products. Companies also differ in how they approach the strategy-planning process. Many large firms develop formal competitive marketing strategies and implement them religiously. Other companies develop strategy in a less formal and orderly fashion. Some companies, such as Harley- Davidson and Red Bull, succeed by breaking many of the rules of marketing strategy. Such companies don't operate large marketing departments, conduct expensive marketing research, spell out elaborate competitive strategies, and spend huge sums on advertising. Instead, they sketch out strategies on the fly, stretch their limited resources, live close to their customers, and create more satisfying solutions to customer needs. They form buyers' clubs, use buzz marketing, engage customers up close, and focus on winning customer loyalty. It seems that not all marketing must follow in the footsteps of marketing giants such as P&G, McDonald's, and Microsoft. In fact, approaches to marketing strategy and practice often pass through three stages entre- preneurial marketing, formulated marketing, and intrapreneurial marketing: Entrepreneurial marketing. Most companies are started by individuals who live by their wits. They visualize an opportunity, construct flexible strategies on the backs of envelopes, and knock on every door to gain attention. Jim Koch, founder of Boston Beer Company, whose Samuel Adams Boston Lager beer has become the top-selling craft beer in America, started out in 1984 brewing a cherished family beer recipe in his kitchen. For marketing, Koch carried bottles of Samuel Adams in a suitcase from bar to bar, telling his story, educating consumers about brewing quality and ingredients, getting people to taste the beer, and persuading bartenders to carry it. For 10 years, he couldn't afford advertising; he sold his beer through direct selling and grassroots public relations. 'It was all guerrilla marketing,' says Koch. The big guys were so big, we had to do innovative things like that.' Today, however, his business pulls in more than $1 billion a year, making it the leader over more than 1,000 competitors in the craft brewery market. Formulated marketing. As small companies achieve success, they inevitably move toward more formulated marketing. They develop formal marketing strategies and adhere to them closely. Boston Beer now employs a large sales force and has a marketing department that carries out market research and plans strategy. Although Boston Beer is far less formal and sophisticated in its strategy than $43-billion mega-competitor Anheuser Busch InBev, it has adopted some of the tools used in professionally run marketing companies.  Intrapreneurial marketing. Many large and mature companies get stuck in formulated marketing. They pore over the latest Nielsen numbers, scan market research reports, and try to fine- tune their competitive strategies and programs. These companies sometimes lose the marketing creativity and passion they had at the start. They now need to build more marketing initiative and * intrapreneurship encouraging employees to be more entrepreneurial within the larger corporation - recapturing some of the spirit and action that made them successful in the first place. Some companies build intrapreneurship into their core marketing operations. For example, IBM encourages employees at all levels to interact on their own with customers through blogs, social media, and other platforms. Google's Innovation Time-Off programme encour- ages all of its engineers and developers to spend 20 per cent of their time developing *cool and wacky' new product ideas- blockbusters such as Google News, Gmail, Google Maps, and AdSense are just a few of the resulting products. And Facebook sponsors regular ' hack- athons', during which it encourages internal teams to come up with and present intrapre- neurial ideas One of the most important innovations in the company's history - the 'Like button' -resulted from such a hackathon. The bottom line is that there are many approaches to developing effective competitive marketing strategies. There will be a constant tension between the formulated side of marketing and the creative side. It is easier to learn the formulated side of marketing, which has occupied most of our attention in this book. But we have also seen how marketing creativity and passion in the strategies of many of the companies studied - whether small or large, new or mature -have helped to build and maintain success in the marketplace. With this in mind, We nOW look at the broad competitive marketing strategies companies can use. Basic competitive strategies Four decades ago, Michael Porter suggested four basic competitive positioning strategies that companies can follow - three winning strategies and one losing one. s The three winning strategies include: Overall cost leadership: here the company works hard to achieve the lowest production and distribution costs. Low costs let it price lower than its competitors and win a large market share. Ryanair, Dacia and Walmart are leading practitioners of this strategy. 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. Numerous customers would prefer to own this brand if its price is not too high. Miele, Caterpillar and Range Rover follow this strategy. Focus: here the company focuses its efforf on serving a few market segments well rather than going after the whole market. For example, the Ritz-Carlton hotel chain focuses on the top 5 per cent of corporate and leisure travellers. Tetra supplies 8o per cent of pet tropical fish food. Stmilarly, Hohner owns 85 per cent of the harmonica market. Companies that pursue a clear strategy - one of the above - will probably perform well. The firm that carries out that strategy best will make the most profits. But firms that do not pursue a clear strategy -middle-of-the-roaders - do the worst. Retailer Sears and the Holiday Inn hotel chain encountered difficult times because they did not stand out as the lowest in cost, highest in perceived value, or best in serving some market segment. Middle of-the-roaders try to be good on all strategic counts but end up being not very good at anything. Two marketing consultants, Michael Treacy and Fred Wiersema,offer a more customer- centred classification of competitive marketing strategies. They suggest that companies gain leadership positions by delivering superior value to their customers. Companies can pursue any of three strategies - called value disciplines- for delivering superior customer value. These are as follows: Operational excellence: the company provides superior value by leading its industry in price and convenience. It works to reduce costs and to create a lean and efficient value delivery system. It serves customers who want reliable, good-quality products or services, but who want them cheaply and easily. Examples include Ryanair and Škoda. Customer intimacy: the company provides superior value by precisely segmenting its markets and tailoring its products or services to match exactly the needs of targeted customers. It specializes in satisfying unique customer needs through a close relation- ship with and intimate knowledge of the customer. It builds detailed customer databases for segmenting and targeting, and empowers its marketing people to respond quickly to customer I needs. Customer-intimate companies serve customers who are willing to pay a premium to get precisely what they want. They will do almost anything to build long- term customer loyalty and to capture customer lifetime value. Examples include Lexus, American Express and Ritz-Carlton hotels. 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. Product leaders are open to new ideas, relentlessly pursue new solutions, and work to get new products to market quickly. They serve customers who want state-of-the-art products and services, regardless of the costs in terms of price or inconvenience. Examples include Apple, Audi and Tesla. Some companies successfully pursue more than one value discipline at the same time, but that's rare and difficult to maintain in the long run. Most excellent companies focus on and excel at a single value discipline while meeting industry standards on the other two. Such companies design their entire value delivery network to single-mindedly support the chosen discipline. Competitive positions Firms competing in a given target market, at any point in time, differ in their objectives and resources. Some firms are large, others small, Some have many resources, others are strapped for funds. Some are mature and established, others new and fresh. Some strive for rapid market share growth, others for long-term profits. And the firms occupy different competitive positions in the target market. Market leader – The firm in an industry with the largest market share. We now examine competitive strategies based on the roles firms play in the target market leader, challenger, follower, or nicher. Suppose that an industry contains the firms shown in Figure 143. Forty percent of the market is typically in the hands of the market leader, the firm with the largest market share. Another 30 per cent is in the hands of market challengers runner-up firms that are fighting hard to increase their market share. Another 20 per cent is in the hands of market followers, other runner-up firms that want to hold their share without rocking the boat. The remaining 10 per cent is in the hands of market nichers, firms that serve small segments not being pursued by other firms. Market challenger – A runner-up firm that is fighting hard to increase its market share in an industry. Market follower – A runner-up firm that wants to hold its share in an industry without rocking the boat. Market niche r– A firm that serves small segments that the other firms in an industry overlook or ignore. Table 14.1 shows specific marketing strategies that are available to market leaders, chal- lengers, followers and nichers. Remember, however, that these classifications often do not apply to a whole company, but only to its position in a specific industry. Large companies such as Microsoft, Siemens or Electrolux might be leaders in some markets and nichers in others. Market leader strategies To remain number one, leading firms can take any of three actions. First, they can find ways to expand total demand. For instance, in the case of fast food, Mc Donald's stands to gain the most because it holds more than three times the fast-food market share of nearest competitor Burger King. Secondly, companies can protect their current market share through good defen- sive and offensive actions. Thirdly, companies can try to expand their market share further, even if market size remains constant. Market challenger strategies Firms that are second, third or lower in an industry are sometimes quite large, such as Avis, Hyundai or Body Shop. These runner-up firms can adopt one of two competitive strategies: they can challenge the leader and other competitors in an aggressive bid for 1 more market share (market challengers); or they can play along with competitors and not try to outdo them (market followers). Challengers often have what some strategists call a second mover advan- tage'. The challenger observes what has made the leader successful and improves upon it. A market challenger must first define which competitors to challenge and its strategic objec- tive. The challenger can attack the market leader, a high- risk but potentially high- gain strategy. Its goal might be to take over market leadership. Alternatively, the challenger can avoid the leader and instead challenge firms of i its own size, or smaller local and regional firms. These smaller firms may be under- financed and not serving their customers well. Several of the major beer companies grew to their present size not by challenging large competitors, but by gobbling up small local or regional competitors. If t the company goes after smal] local company, its objective may be to put that company out of business. The impor- tant 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? It may launch full frontal attack, matching the competitor's product, price, marketing channel and communication efforts. It attacks the competitor's strengths rather than its weaknesses. The outcome depends on who has the greater strength and endurance. If the market challenger has fewer resources than the competitor, a frontal attack makes little sense. Market follower strategies Not all runner-up companies want to challenge the market leader, Challenges are never taken lightly by the leader. If the challenger's lure is lower prices, improved service or additional product features, the leader can quickly match these to defuse the attack. The leader probably has more staying power in an all-out battle for customers. 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 leader's experience, It can copy or improve on the leader's products and programmes, usually with much less investment. Although the follower will probably not overtake the leader, it often can be as profitable. Following is not the same as being passive or a carbon copy of the leader. A market follower must know how to hold current customers and win a fair share of new ones. It must find the right balance between following closely enough to win customers from the market leader but following at enough of a distance to avoid retaliation. Each follower tries to bring distinc- tive advantages to its target market - location, services, financing or any other advantage consumers will like. Market nicher strategies Almost every industry includes firms that specialize in serving market niches. Instead of pursuing the whole market, or even large segments, these firms target sub-segments. Nichers are often smaller firms with limited resources. But smaller divisions of larger firms may also pursue niching strategies. Firms with low share of the total market can be highly successful and profitable through clever niching. Niching can be profitable because the market nicher typically ends up knowing the target customer group so well that it meets their needs better than other firms that casually sell to that niche. As a result, the nicher can charge a substantial mark-up over costs because of the added value. Whereas the mass-marketer achieves high volume, the nicher achieves high margins. The key idea in niching is specialization. A market nicher can specialize along any of several market, customer, product or marketing mix lines. For example, it can specialize in serving one type of end user, such as when a law firm specializes in the criminal, civil or business law markets. The nicher can specialize in serving a given customer-size group. Many nichers specialize in serving small and mid-size customers who are neglected by the majors. Thus, nichers try to find one or more market niches that are safe and profitable. An ideal market niche is big enough to be profitable and has growth potential. It is one that the firm can serve effectively. Perhaps most importantly, the niche is of little interest to major competitors. And the firm can build the skills and customer goodwill to defend itself against a major competitor as the niche grows and becomes more attractive. Some nichers focus on one or a few specific customers, selling their entire output to a single company, such as ICA or Toyota however, this is a dangerous strategy if the buyer for one eason or another finds a more competitive offer somewhere else. Still other nichers specialize by geographic market, seling only in a certain locality, region or area of the world. Quality price nichers operate at the low or high end of the market. For example, HP specializes in the high-quality, high-price end of the hand-calculator market. Finally, service nichers offer services not available from other firms. A smart nice strategy is run by på Swedish Agria, a subsidiary of Länsförsäkringar, an insurance company completely focused on animals. That translates into strong advantages in the marketplace: co-workers have great knowledge about ,and interest in, animals and are likely to find an employer specialized in animals more attrac- tive. With the greater knowledge, it's easier to ma. ke smart decisions on in settling claims. 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 Whether a company is a market leader, challenger, follower or nicher, it must watch its competitors closely and find the competitive marketing strategy that positions it most effec- tively. And it must continually adapt its strategies to the fast-changing competitive environ- ment. This question now arises: can the company spend too much time and energy tracking competitors, damaging its customer orientation? The answer is yes! A company can become SƠ competitor- centred that it loses its even more important focus on maintaining profitable customer relationships. Competitor-centred company – A company whose moves are mainly based on competitors actions and reactions. Customer-centred company – A company that focuses on customer developments in designing its marketing strategies and on 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. A competitor-centred company is one that spends most of its time tracking competitors' moves and market shares and trying to find strategies to counter them. This approach has some pluses and minuses. On the positive side, he company develops a fighter orientation, watches for weaknesses in its own position, and searches out competitors' weaknesses. On the negative side, the company becomes too reactive. Rather than carrying out its own customer relationship strategy, it bases its OWn moves On competitors moves. As a result, it may end up simply matching or extending industry practices rather than seeking innovative new ways to create more value for customers. A customer-centred company, by contrast, focuses more on customer developments in designing its strategies. Clearly, the customer-centred company is in a better position to iden- tify new opportunities and set long-term strategies that make sense. By watching customer needs evolve, it can decide what customer groups and what emerging needs are the most important to serve. Then it can concentrate its resources on delivering superior value to target customers. In practice, today's companies must be market-centred companies, watching both their customers and their competitors. But they must not let competitor watching blind them to customer focusing, which would translate into myopic behaviour. Market-cantered companies understand both customers and competitors. They build profitable customer relationships by delivering more customer value than competitors do. Figure 14.4 shows that companies might have any of four orientations. First, they might be product oriented, paying little attention to either customers or competitors. Next, they might be customer oriented, paying attention to customers. In the third orientation, when a company starts to pay attention to competitors, it becomes competitor oriented, Today, however, companies need to be market oriented, paying balanced attention to both customers and competitors. Rather than simply watching competitors and trying to beat them on current ways of doing business, they need to watch customers and find innovative ways to build prof- itable customer relationships by delivering more customer value than competitors do. External and internal sources of competitive advantage The balance between competitor and customer focus and the fallacy of focusing too much on one competitor are reminders of another tricky issue that the company must get right. In principle, a company may focus on its own situation and resources as the basis of competi- tive advantage, which is emphasized by the core competence view of the organization.s Or it may focus on what customers want and apply a purely market-driven approach to competitive advantages. In reality, most companies try to do both, and even though the latter - the market- driven approach applied by, e.g., Michael E. Porter's classical books Competitive Strategy (1980) and Competitive Advantage (1985)9 - may be more appealing, there is obviously a danger of listening too much to consumers if it means other important feedback sources are not being considered. Real innovations may not be suggested by the company's customers, and sufficient resources must be at hand for the new suggested product.1o In reality, competitive advantages are best exploited when based on a real understanding of customers - one that goes even beyond what customers do and say - competitors, and crucial elements in the macroenvironment, including technological, cultural and demographic changes. SUMMARY Today's companies face their toughest competition ever. Understanding customers is an important first step in developing strong customer relationships, but it's not enough. To gain competitive advantage, companies must use this understanding to design market offers that deliver more value than the offers of competitors seeking to win over the same customers. This chapter examines how firms analyse their competitors and design effective competitive marketing strategies In order to prepare an effective marketing Strategy, a company must consider its competitors as well as its customers. Building profitable customer relationships requires satisfying target consumer needs better than competitors do. A company must continuously analyse competitors and develop competitive marketing strate- gies that position it effectively against competitors and give it the strongest possible competitive advantage. Competitor analysis first involves identifying the company's major competitors, using both an industry- based and a market-based analysis. The company then gathers information on competitors' objectives, strate- gies, strengths and weaknesses, and reaction patterns. With this information in hand, it can select competitors to attack or avoid. Competitive intelligence must be collected, interpreted and distributed continuously. Company marketing managers should be able to obtain full and reliable information about any competitor affecting their decisions Which competitive marketing strategy makes the most sense depends on the company's industry, and on whether it is a market leader, challenger, follower or nicher. A market leader has to mount strategies to expand the total market, protect market share, and expand market share. A market challenger is a firm that tries aggressively to expand its market share by attacking the leader, other runner-up companies or smaller firms in the industry. The challenger can select from a variety of direct or indirect attack strategies. A market follower is a runner-up firm that chooses not to rock the boat, usually from fear that it stands to lose more than it might gain. But the follower is not without a strategy and seeks to use its particular skills to gain market growth, Some followers enjoy a higher rate of return than the leaders in their industry. A market nicher is a smaller firm that is unlikely to attract the attention of larger firms. Market nichers often become special- ists in some end use, customer size, specific customer, geographic area or service. A competitive orientation is important in today's markets, but companies should not overdo their focus on competitors. Companies are more likely to be hurt by emerging consumer needs and new competitors than by existing competitors. Market-centred companies that balance consumer and competitor considerations are practising a true market orientation, Key terms Benchmarking Competitor myopia Competitive advantage Competitive marketing strategies Competitor analysis Competitor-centred company Customer value analysis Customer-centred company Market challenger Market follower Market leader Market nicher Market-centred company Strategic group