MAR 3023 – PRINCIPLES OF MARKETING

Dr. Jaishankar Ganesh

BA2 308G

Competition & Strategic Planning

September 08, 2003
 Strategic Market Management
• External Analysis

– Environmental Analysis

• Economic

• Political/Legal

• Socio/Cultural

• Technological

• Competitive

– Customer/Market Analysis
• Internal Analysis

– Evaluation of assets, skills and resources

– Business/Product portfolio analysis

– Determining strategic alternatives

 Competition, Competitive Strategy,
and Competitive Advantage
• A firm’s strategy cannot be formulated in vacuum

• Competition is at the core of the success or failure

of firms

• Competition determines the appropriateness of a

firm’s activities that contributes to its performance
 Types of Competition

Direct

• Nike Vs Reebok Vs Adidas

© PhotoDisc
IT HAS ALWAYS BEEN VIRGIN’S
POLICY TO ENCOURAGE YOU
TO FLY TO LONDON FOR
AS LITTLE AS POSSIBLE.

SO ON JUNE 10
WE ENCOURAGE YOU TO FLY
BRITISH AIRWAYS
As for the rest of the year, we look forward to seeing you aboard Virgin Atlantic.
For the best service possible. For the lowest possible fare.
 Legoland California

Legoland Competes with Other

Theme Parks in California
 Types of Competition

Direct

McDonalds vs. Pizza Hut

Indirect
vs. Arby’s vs. Chinese takeout

© PhotoDisc
 Types of Competition

Direct

Indirect Competing for the same

dollars

General (Budget)

© PhotoDisc
Levels of Competition
Share of the Mind

Share of the Wallet

Generic Competition

Product Category

Product Di
r
Form Ind ect t
ire o
ct
 Defining the Competitive Set

• Levels of Marketing Competition

– Product Form based competition – Diet Colas

– Product Category based competition – Soft Drinks
– Generic or “need-based” perspective - Beverages
– Rivalry or “Budget-based” competition – Food,
Entertainment, etc.
 Developing a Competitive
Strategy

1. Should we
compete?
© PhotoDisc
 Developing a Competitive
Strategy

2. If so, in what markets

should we compete?

1. Should we
compete?
© PhotoDisc
 Developing a Competitive
Strategy
3. How should
we compete?

2. If so, in what markets

should we compete?

1. Should we
compete?
© PhotoDisc
• So, what is strategy?
A Creative thought, an idea, a concept, or a plan that
uses the natural laws to its advantage to turn a
potential loss into victory. It is a plan or a series of
maneuvers for obtaining a specific goal or result.

• Who are strategists?

People who understand the natural laws and the
outcomes they govern, and can creatively use the same
in their favor.

• Competitive Strategy is the search for a favorable

competitive position in an industry
 Basic Competitive Strategies
• Cost Leadership
• Differentiation
• Focus (Niche)
Competitive Advantage

The set of unique features of

a company and its products that are
perceived by the target market as
significant and superior to the
competition.
• Competitive Advantage
– grows fundamentally out of value a firm is able to
create for its buyers that exceeds the firm’s cost of
creating it and is greater than the value created by
competitive offerings

– Value is what buyers are willing to pay

– Superior value stems from being able to offer

lower prices than competition of equivalent
benefits (COST LEADERSHIP) or providing
unique benefits that more than offset a higher
price (DIFFERENTIATION)
 Sustainable
Competitive Advantage

An advantage
that cannot be copied
by the competition.
 Industry Structure Analysis

• The essence of formulating a CS is relating

the firm to its environment

• The key aspect of a firm’s environment is

the industry in which it competes
 The five competitive forces
Potential
entrants
Threat of
new entrants
Industry
Bargaining power competitors
of suppliers

Suppliers Buyers

Rivalry among Bargaining power

existing firms of suppliers
Threat of
substitute products
or services
Substitutes
Forces Driving Industry Competition
• Bargaining power of the buyer

• BP of the seller

• Threat of new entrants

• Threat of substitutes

• Rivalry among existing firms

 Barriers to Entry
• Economies of scale

• Product differentiation

• Capital requirements

• Switching costs

• Access to distribution channels

• Other advantages
– Patents

– Government subsidies
 Number of Sellers and Differentiation
Differentiation
Low High
Number of sellers

Pure monopoly Oligopoly

Low

Monopolistic Pure
competition competition
High
 Continuum of competition
Many Number of sellers One

BASIS OF PURE MONOPOLISTIC

COMPARISON COMPETITION COMPETITION OLIGOPOLY MONOPOLY

• Number of • Large number • Large number • A few large • Single

sellers of sellers of sellers competitors producer
• Product • Similar • Unique but • Similar • Unique and
differences products substitutable products unsubstitutable
• Importance of • Distribution is • Pricing is • Promotion is • Unimportant
market mix important important key to achieve
perceived
product
differences
 Strategic Planning

Definition:

The process of developing and maintaining

a strategic fit between the organization’s
goals and capabilities and its changing
marketing environment.
 Who plans?

• All managers or top managers only?

 PLANNING AT DIFFERENT
ORGANIZATIONAL LEVELS

Top Managers STRATEGIC

Middle Level TACTICAL

Bottom Level OPERATIONAL

Top down forecasts

 Levels of Strategy
•
Corporate Level
•
Business Unit Level
–
SBU’s - a subgroup of a single business or
collection of related businesses
•
Functional Level
– Marketing
Strategic Business Units (SBUs)
Characteristics

 A distinct mission and specific target market

 Control over their resources
 Their own competitors
 Plans independent of other SBUs
 What is the planning process?
I. Define the company’s mission
II. Set organizational objectives
III. Snapshot view - SWOT
IV. Formulate strategy
V. Implement strategy
VI. Monitor and evaluate
Marketing Planning Process
Business Mission
Statement

Objectives

Situation or SWOT
Analysis

Marketing Strategy

Target Market
Strategy

Marketing Mix
Product Distribution

Promotion Price

Implementation
Evaluation
Control
 Strategic Planning

Where are we now?

Where do we want to go?

How do we get there?

 Where Are We Now?

• Organization History
An understanding of the “historical roots” of the
organization

• Organizational Culture
The values and cultural norms of the organization

• Organizational Audit
A strategic evaluation of the organization
 Where Do We Want To Go?
• Basic Mission
A sense of direction for the organization

• Environmental Trends
Uncontrollable trends which create opportunities and
threats to the organization

• Organizational Analysis
Analysis of controllable factors which show strengths
and weaknesses of the organization
 Effective Mission Statement

• Gives a sense of direction for the organization

• Should be limited enough to exclude some

ventures and broad enough to allow for creative
growth

• Should be stated in terms sufficiently clear to be

widely understand by all stakeholders
 Mission Statements
• To serve humanity in a profitable way
• To minimize long-run profits
• To educate young people who are critical thinkers

• BIC Basic Mission

To manufacture and sell only products that can
be made cheaply, used relatively briefly, and
then be thrown away.
 Flow of Strategy
Levels of Strategic Marketing Planning

Identity
Mission Statement
What business are we in?

Corporate Strategy

Business-Unit Strategy

Marketing Strategy

Marketing Mix Elements

 Defining Businesses
• Businesses must be viewed as CONSUMER-
SATISFYING process and not goods-producing
process

• Marketing Myopia

• Remember products are transient and basic

NEEDS are not ….so, the key is to have a “market
definition” of your business and not a product-
based definition
 II. Setting objectives
1. Specific – Consistent with Firm’s Priorities
2. Measurable
3. Realistic
4. Time frame
# 1. To obtain a 15% market share by the end of the
fiscal year

# 2. Reduce the level of advertising expenditures by 11%

over the next two quarters
4
SWOT Analysis

Identifying
internal strengths (S)
and weaknesses (W)
and also examining
external opportunities (O) and
threats (T)
4
SWOT Analysis
S Things the company does well.

Internal

W Things the company does not do well.

O Conditions in the external environment

that favor strengths.
External
Conditions in the external environment
T that do not relate to existing strengths
or favor areasCollege
©South-Western of current
Publishing weakness.
 III. Taking a snapshot view - SWOT

opportunities
strengths

weaknesses

threats
 How Do We Get There?
• Marketing Growth Strategies
Strategic focus on market opportunities

• Financial Growth Strategies

Strategic use of financial resources

• Technology Growth Strategies

Strategic development of research and development
(R&D)
 Core of Strategy

• Strategic Window – limited periods

• Core competency – what does a company
do well?
• Competitive Advantage – advantage
relative to the competition
• Sustainable competitive advantage
Tools of Marketing Planning – to
assess SBUs

• Market share / Market growth matrix aka

BCG Matrix
 The Boston Consulting Group Matrix

?
Business Growth Rate

Relative Competitive Position/Market Share

 BCG Portfolio Matrix
MARKET SHARE DOMINANCE
HIGH LOW
MARKET GROWTH RATE

High growth High growth

HIGH

Market leaders Low market share

Require cash Need cash
Large profits Poor profit margins

$
LOW

Low growth Low growth

High market share Low market share
High cash flow Minimal cash flow
 BCG Portfolio Matrix Example
MARKET SHARE DOMINANCE
HIGH LOW
MARKET GROWTH RATE

Sub- Integrated
HIGH

Notebooks phone/Palm
and Hand-Held devices
Computer PROBLEM
STAR CHILD
Laptop and Mainframe
Personal Computer
LOW

Computers
CASH
COW DOG
 Basic Product Portfolio Strategies
• Build
Expand marketing effort to increase market share,
particularly Stars and potential question marks.

• Hold
Preserve existing market share, especially strong cash cows.

• Harvest
Increase short-term cash flow, especially weak cash cows
and strong dogs.

• Divest
Sell or liquidate product, appropriate for dogs.
 Marketing Growth Strategies

• Intensive Growth
Internal growth with products and markets

• External Growth
Growth outside the existing organization
 Current Markets Strategic Growth Matrix

Product
Market Penetration Development/Expansion
New Markets

Market
Development/Expansion
Diversification

Current Products New Products

 Strategic Alternatives
Market Increase market share among
Penetration existing customers

Market Attract new customers to

Development existing products

Product Create new products for

Development present markets

Diversification Introduce new products

into new markets
 Market Penetration
• Increase customer use
• Convert non-users
• Take competitors business
– Advertising
– Personal selling
– Distribution

• Arm and Hammer baking soda

 Product Development

• Modifying existing product

• Introducing new product

 Marketing Development

• Geographical expansion in U.S.

• International expansions

• New product-markets

• Kellogg cereal
 External Growth Strategies
• Backward Integration
Firm seeking control of supply system

• Forward Integration
Firm seeking control of distribution system

• Horizontal Integration
Firm seeking control of some competition

• Diversification
Firm expands outside present system
 Backward Integration

• New York Times buying paper mill

• Holiday Inn owning mattress factory

• Ford owning steel mill

 Forward Integration

• Pepsi Cola buying local Pepsi distributors

• Gap

• IBM opening retail outlets

 Horizontal Integration

• Earnst and Whinney merging with Authur Young

• Nestle buying Carnation

• Chevron buying Gulf

• Chemical Bank buying Chase

 Diversification

• Sony buying CBS records

• Quaker Oats owning Fisher-Price toys

• Borden buying a fertilizer plant

 Key terms

• Sales
• Market penetration
• Market share
• Relative market share
• Industry growth
 Key terms
• Sales = units sold

• Category penetration = % of people that

has used the product at least once

• Market share = Sales of brand / Total

industry sales
 Key terms
• Relative market share = Market share of brand /
market share of leader (or second place
competitor as the case maybe).

• Industry growth =Increase / decrease in

industry sales for the year
 Market Share
Let’s say industry Jai has three firms.

• A sells 50 units;
• B sells 40 units
• C sells 10 units

• Total Industry Sales = 50 + 40 + 10 = 100

 Market Share
• Market share for A = Sales of brand / Total industry
sales

• Market share for A = 50 / 100 = 50%

• Market share for B = 40 / 100 = 40%

• Market share for C = 10 / 100 = 10%

• Who is the leader?

 Relative Market Share
• Relative market share for A = Market share of brand /
market share of second place competitor
• RMS for A = 50 / 40 = 1.25

• Relative market share for B = Market share of brand /

market share of leader
• RMS for B = 40 / 50 = 0.8

• Relative market share for C = 10 / 50 = 0.2

 Market Share Example # 2
Let’s say industry Jane has two firms.
• A sells 60 units;
• B sells 40 units
• Market share for A = 60%

• Market share for B = 40%

• Relative Market share for A = 60 / 40 = 1.5

• Relative Market share for B = 40 / 60 = 0.67
Last steps of the Planning Process

I. Implementing
strategy

VI. Evaluate & Monitor

 Market Attractiveness/
Business Strength Matrix
Marketing Planning Process
Business Mission
Statement

Objectives

Situation or SWOT
Analysis

Marketing Strategy

Target Market
Strategy

Marketing Mix
Product Distribution

Promotion Price

Implementation
Evaluation
Control
 The Marketing Plan
• Executive Summary
• Environmental Analysis
• SWOT Analysis
• Marketing Objectives
• Marketing Strategies
• Marketing Implementation
• Evaluation and Control