CHAPTER 3 MARKETS AND COMPETITIVE SPACE. The Challenges Markets are increasingly complex, turbulent, and interrelated.

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1 CHAPTER MARKETS AND COMPETITIVE SPACE Markets and Strategies Product-Market Scope and Structure Describing and Analyzing End-Users Analyzing Competition Developing a Strategic Vision about the Future Market Size Estimation 1 MARKETS AND COMPETITIVE SPACE The Challenges Markets are increasingly complex, turbulent, and interrelated. 3-2 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 2 1

2 MARKETS AND STRATEGIES 3-3 Markets and Strategies are Interlinked Forming a Shared Vision Value Migration Challenges 3 Markets Impact Strategies 3-4 Market changes often require altering strategies Forces of change create both market opportunities and threats Inherent ee danger in faulty market sensing 4 2

3 Value Migrations 3-5 Customers shift purchasing to new business designs with enhanced value offering Beware of disruptive technologies Market sensing and organizational learning are essential 5 PRODUCT-MARKET SCOPE AND STRUCTURE 3-6 A. Matching Needs with Product Benefits B. Product-Market Boundaries and Structure C. Forming Product-Markets for Analysis D. The Changing Composition of Markets 6 3

4 A. Matching Needs with Product Benefits 3-7 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, INNOVATION FEATURE 3-8 Progressive Insurance: Customer Needs at the Center of Strategy 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 storingadamagedautomobileforadayis$28,aboutthesameastheprofit from a six-month policy. Source: Adapted from Mitchell, Adrian (2004) Heart of the Matter, The Marketer, June 12,

5 DEFINING AND ANALYZING MARKETS Define Product-Market Boundaries and Structures Identify and Describe End-Users Analyze Industry and Value Added Chain Evaluate Key Competitors 3-9 Forecast Market Size and Growth Trends B. 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 10 5

6 Illustrative Fast-Food Product-Market Structure 3-11 SUPER MARKETS FAST-FOOD MARKET MICROWAVE OVENS CONVENIENCE STORES TRADITIONAL RESTAURANTS 11 C. Forming Product Markets for Analysis 3-12 Factors influencing product market boundaries: Purpose of analysis Changing composition of markets Extent of market complexity 12 6

7 D. The Changing Composition of Markets 3-13 Change due to new technologies and emerging competition Consider existing and emerging markets Identify alternative ways to meet needs Extend product-market analysis beyond industry boundaries (e.g. Fastfoods) 13 Extent of Market Complexity 3-14 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 14 7

8 Illustrative Product Market Structure 3-15 Food and beverages for breakfast meal Generic Product Class Cereals Product Type Natural Ready to eat Nutritional Regular Pre-sweetened Variant A Variant B Life Product 19 Special K Brands Identifying and Describing Buyers Building Customer Profiles DESCRIBING AND ANALYZING END-USERS How Buyers Make Choices Environmental Influences 16 8

9 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 How Buyers Make Choices 3-18 BUYING DECISION PROCESS: 1. Problem recognition 2. Information search 3. Alternative evaluation 4. Purchase decision 5. Post-purchase behavior 18 9

10 Environmental Influences 3-19 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 19 Building Customer Profiles 3-20 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.) 20 10

11 ANALYZING COMPETITION Identify New Competitors 4. Anticipate Actions by Competitors 1. Define Industry Structure and Characteristics PRODUCT- MARKET STRUCTURE AND MARKET SEGMENTS 2. Identify and Describe Key Competitors 3. Evaluate Key Competitors Examples of Levels of Competition Baseball cards Fast Food Beer Juices Fruit flavored colas Regular colas Diet Coke Bottle water Diet-Rite Cola Diet lemon limes Diet Pepsi Product from competition: diet colas Lemon limes Video Games Product category competition: soft drinks Wine Ice Cream Generic competition: beverages Coffee Budget competition: food & entertainment 22 11

12 1. Industry Analysis 3-23 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 23 Defining Industry Structure & Characteristics 3-24 Industry Form Industry Environment Competitive Forces SUPPLIERS PRODUCERS WHOLESALERS/ DISTRIBUTORS RETAILERS/DEAL ERS CONSUMER/ ORGANIZATIONAL END USERS 24 Value Added Chain 12

13 3-25 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, Key Competitor Analysis 3-26 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) 26 13

14 3. Evaluate key competitors 3-27 Extent of Market Coverage Current Capabilities Competitor Evaluation Customer Satisfaction Past Performance 27 MARKET SIZE ESTIMATION 3-28 Product-Market Forecast Relationships (area denotes sales in $ s) Market Potential Estimate t Unrealized Potential Company Sales Forecast Industry Sales Forecast 28 14

15 3-29 Product-Market Forecast Relationships for Industrial Painting Units Sales (in 1000s of units) Market Potential Sales Forecast Company XYZ Sales Forecast DEVELOPING A STRATEGIC VISION ABOUT THE FUTURE Industry Boundaries Blurring and Evolving Competitive Structure and Players Changing g Value Migration Paths Product Versus Business Design Competition Firms are Collaborating to Influence Industry Standards Review Question Discuss the product-market scope and structure