CRAVENS

PIERCY

8/e
McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc., All

3-2

Chapter Three
Markets and
Competitive
Space

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc., All

3-3

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

MARKETS AND
COMPETITIVE
The Challenges

SPACE

3-4

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

MARKETS AND
STRATEGIES
Markets and
Strategies are
Interlinked
Forming
a Shared
Vision

Value
Migration
Challenges

3-5

Markets Impact
Strategies
Market

changes often
require altering strategies
Forces of change create
both market opportunities
and threats
Inherent danger in faulty
market sensing

3-6

3-7

Value Migrations
Customers

shift
purchasing to new
business designs with
enhanced value offering
Beware of disruptive
technologies
Market sensing and
organizational learning are
essential

PRODUCT-MARKET
SCOPE AND
STRUCTURE
Matching Needs with Product
Benefits
Product-Market Boundaries and
Structure
Forming Product-Markets for
Analysis
The Changing Composition of
Markets

3-8

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.

3-9

INNOVATION
FEATURE

3-10

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 storing a damaged automobile for a day
is $28, about the same as the profit from a six-month
policy.

Source: Adapted from Mitchell, Adrian (2004)Heart of the Matter, The Marketer,
June 12, 14.

3-11

Product Market
Boundaries and
Structure

Determining Product-Market
Structure

1.

Start with the generic need

satisfied by the product
category of interest to
management
Identify the product
categories (types) that can
satisfy the generic need
Form the specific product
markets within the generic
product market

2.

3.

3-12

Illustrative Fast-Food
Product-Market
Structure
SUPER
MARKETS

MICROWAVE
OVENS

FAST-FOOD
MARKET
CONVENIENCE
STORES

TRADITIONAL
RESTAURANTS

Forming Product
Markets for
Analysis
Factors influencing
product market
boundaries:

Purpose of analysis
Changing composition
of markets
Extent of market
complexity

3-13

3-14

The Changing
Composition of
Markets
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. Fast-foods)

Extent of
Market Complexity

3-15

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

Illustrative
Product Market
Structure
Food and beverages
for breakfast meal

3-16

Generic Product
Class

Product Type

Cereals

Variant A

Ready to eat
Regular
Natural
Nutritional

Life

Product 19

Pre-sweetened

Special K

Variant B

Brands

DEFINING AND
ANALYZING
MARKETS
Define
Product-Market
Boundaries and Structures
Identify and Describe EndUsers
Analyze Industry and
Value Added Chain

Evaluate Key Competitors

Forecast Market Size
and Growth Trends

3-17

3-18

Identifying and
Describing Buyers

Building
Customer
Profiles

DESCRIBING
AND
ANALYZING
END-USERS

Environmental
Influences

How
Buyers
Make
Choice
s

Identifying and
Describing EndUsers

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

3-19

How Buyers Make

Choices

BUYING DECISION
PROCESS:
1. Problem recognition
2. Information search
3. Alternative evaluation
4. Purchase decision
5. Post-purchase behavior

3-20

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

3-21

Building Customer
Profiles

Start with generic

product market

Move next to producttype and variant profiles

>> increasingly more
specific

Customer profiles guide

decision making (e.g.
targeting, positioning,
market segmentation
etc.)

3-22

ANALYZING
COMPETITION

3-23

1. Define Industry
Structure and
Characteristics
5. Identify
New
Competitors

4. Anticipate
Actions by
Competitors

PRODUCTMARKET
STRUCTURE
AND
MARKET
SEGMENTS

2. Identify
and
Describe
Key
Competitors

3. Evaluate
Key
Competitors

3-24

Examples of
Levels of
Competition
Baseball
cards
Bottle
water

Fast
Food
Regular
colas

Beer

Video
Games

Diet lemon
limes

Ice
Cream

Diet-Rite
Cola
Fruit
flavored
colas

Juices

Diet
Coke

Diet
Pepsi

Product from
competition:
diet colas

Wine

Lemon
limes

Product category
competition:
soft drinks
Generic competition:
beverages
Budget competition:
food & entertainment

Coffee

3-25

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

Defining Industry
Structure &
Characteristics

3-26

SUPPLIERS
Industry Form
Industry
PRODUCERS
Environment
Competitive
WHOLESALERS/
Forces

DISTRIBUTORS
RETAILERS/
DEALERS

CONSUMER/
ORGANIZATIONAL
END USERS

Value
Added
Chain

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.

3-27

Key Competitor
Analysis

3-28

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)

3-29

Extent of
Market Coverage

Current
Capabilities

Competitor
Evaluation

Past
Performance

Customer
Satisfaction

3-30

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.

MARKET SIZE
ESTIMATION

3-31

Product-Market Forecast
Relationships
(area denotes sales in $s)

Market Potential
Estimate

Unrealized
Potential

Company
Sales
Forecast

Industry
Sales
Forecast

Product-Market
Forecast
Relationships for
Industrial Painting
Units

3-32

Sales (in 1000s

of units)
900
800

Market
Potentia
l

700

Sales
Forecast

600
500
400
300

Company XYZ
Sales Forecast

200
100
0
2001

2002

2003

2004

2005

2006

2007 2008