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McGraw-Hill/Irwin. © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Three Markets and Competitive Space. McGraw-Hill/Irwin. © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. MARKETS AND COMPETITIVE SPACE. Markets and Strategies

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  1. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

  2. Chapter ThreeMarkets andCompetitiveSpace McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

  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 • Market Size Estimation

  4. MARKETS AND COMPETITIVE SPACE The Challenges ― 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

  5. Markets and Strategies are Interlinked Forming a Shared Vision Value Migration Challenges MARKETS AND STRATEGIES

  6. Markets Impact Strategies • Market changes often require altering strategies • Forces of change create both market opportunities and threats • Inherent danger in faulty market sensing

  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

  8. 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

  9. 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.

  10. INNOVATION FEATURE • 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. Progressive Insurance: Customer Needs at the Center of Strategy Source: Adapted from Mitchell, Adrian (2004)”Heart of the Matter,” The Marketer, June 12, 14.

  11. Product – Market Boundaries and Structure • Determining Product-Market Structure • 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


  13. Forming Product – Markets for Analysis Factors influencing product – market boundaries: • Purpose of analysis • Changing composition of markets • Extent of market complexity

  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)

  15. Extent of Market Complexity • 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

  16. Illustrative Product – Market Structure Food and beverages for breakfast meal • Generic Product Class Cereals • Product Type • Variant A Ready to eat Regular Natural • Variant B Pre-sweetened Nutritional • Brands Life Product 19 Special K

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

  18. Identifying and Describing Buyers DESCRIBING AND ANALYZING END-USERS How Buyers Make Choices Building Customer Profiles Environmental Influences

  19. 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

  20. How Buyers Make Choices • BUYING DECISION PROCESS: • Problem recognition • Information search • Alternative evaluation • Purchase decision • Post-purchase behavior

  21. 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

  22. Building Customer Profiles • Start with generic product – market • Move next to product- type and variant profiles >> increasinglymore specific • Customer profiles guide decision making (e.g. targeting, positioning, market segmentation etc.)

  23. ANALYZING COMPETITION 1.Define Industry Structure and Characteristics 2. Identify and Describe Key Competitors 5. Identify New Competitors PRODUCT- MARKET STRUCTURE AND MARKET SEGMENTS 4. Anticipate Actions by Competitors 3. Evaluate Key Competitors

  24. Examples of Levels of Competition Baseball cards Bottle water Video Games Fast Food Regular colas Diet lemon limes Ice Cream Beer Diet-Rite Cola Fruit flavored colas Diet Coke Diet Pepsi Wine Product from competition: diet colas Lemon limes Juices Product category competition: soft drinks Coffee Generic competition: beverages Budget competition: food & entertainment

  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

  26. Defining Industry Structure & Characteristics SUPPLIERS • Industry Form • Industry Environment • Competitive Forces PRODUCERS WHOLESALERS/ DISTRIBUTORS Value Added Chain RETAILERS/DEALERS CONSUMER/ ORGANIZATIONAL END USERS

  27. Competitive Forces • Rivalry among existing firms. • Threat of new entrants. • Threat of substitute products. • Bargaining power of suppliers. • Bargaining power of buyers. Source: Michael E. Porter, Competitive Advantage, Free Press, 1985, 5.

  28. Key Competitor Analysis • 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)

  29. Extent of Market Coverage Competitor Evaluation Current Capabilities Customer Satisfaction Past Performance

  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.

  31. MARKET SIZE ESTIMATION Product-Market Forecast Relationships(area denotes sales in $’s) Market Potential Estimate Unrealized Potential Company Sales Forecast Industry Sales Forecast

  32. Product-Market Forecast Relationships for Industrial Painting Units Sales (in 1000s of units) 900 800 Market Potential 700 Sales Forecast 600 500 400 300 Company XYZ Sales Forecast 200 100 0 2008 2001 2002 2003 2004 2005 2006 2007

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