A GENERAL THEORY OF COMPETITIVERATIONALITY

1. DIVERSITY AMONG BUYERS ANDSELLERS:Different types of buyers and sellers; somebuyers and sellers are innovators, most arefollowers, other laggards.

2. VARIATION IN RESPONSE RATES:Variations in the response rate of buyers andsellers to changes in supply and demandcreate opportunities that can be exploited bythe motivated, alert, and hustling decisionmaker.

DYNAMIC PROCESS

Proposition One:

The nature and quantity of a seller's offeringsare always changing. Often faster than theircompetitors'.Mature markets: slow rate of change amongsuppliersHigh-growth markets: a great deal oftechnological innovation; rate of changeamong suppliers is very high

Proposition Two:

Free markets are constantly evolving throughan innovation-imitation process thataccelerates, slows down to a trickle, andsurges again assumes that product-marketsgo through many cycles, rather than asingle cycle.

Marketers studied product-life cycle - intro.growth, maturity, and decline stages of aphysical product form.

Competitive rationality is a theory ofendless innovation-imitation life cycles.Sellers are constantly impacting theirmarketplace environment as well as beingimpacted.

CREATING UNCERTAINTY AND CHANGE

1. A firm faces change

2. A firm creates change for itself andcompetitors by its marketing actions. Aninnovation in production, product ormarketing will create uncertainty andconfusion. Whether responding to orcreating change, a firm must fully anticipatethe short and long-term effects of itsmarketing strategies.

3. Successfully managing change in themarketplace is a competitive advantage.

Why U.S. cartels in the late 19th C failed:

They first become very successful and as aresult spent their more time in shaping theirmarkets than adapting to them. Result: theyfail to recognize1) the extent to which they had alienated

the distribution channels, producers andconsumers they serve;

2) the accommodations they should havemade with the political process;

3) the power they had given the SupremeCourt to break them up via the ShermanAct.

How Supply Changes Demand:

1. Sellers' market offerings changes demand.Eg. Sony's transistor radio and Walkmandramatically changed lifestyles and demandfor entertainment appliances.

2. Different rates of response to innovation andadoption and to a change in supply createsdifferent submarkets - market segments.

3. Market disequilibrium caused by shifts ofsellers' resources to more attractive andprofitable market segments. Pioneeringadvantage due to early recognition ofsegment and strategic fit results in highprofits. Late comers imitate and createincrease in supply and excess supplydisequilibrium. Price and non-pricecompetition follows.

MICRO THEORY OF COMPETITIVE RATIONALITY

The intensification of rivalry increases thefollowing three drives:

1. To better serve the customers.The ultimate goal is customer satisfaction.Competitive pressure leads to meeting higherlevels of satisfaction by designing,manufacturing, and delivering qualityperformance required by target market.Constant improvement in quality of productsand service a never ending cycle.

2. Cost reduction.Cost-cutting innovations - new ways toreduce costs without affecting the potency ofthe output. Continuous effort to loweraverage and marginal costs results inreduced price charged or increased profits atcurrent price level. Costs are morecontrollable than other marketing mixvariables. Also less likely to be detected andcopied by competitors.

3. Improve decision making process andimplementation.Creation of cross-functional teams helps toimprove its implementation and decision-making routines. Effective implementationgains speed for firm, a potent advantageespecially in new product introduction.

MACRO THEORY OF COMPETITIVERATIONALITY

1. Conditions of a free market:a. Freedom of buyer and seller choice

b. Variability in the rate of change of supplyamong suppliersVariability in the rate of change ofdemand among buyers

c. The desire for more profits

Under such conditions, a market will continue toincrease customer satisfaction and the efficientuse of resources. Constant flux of disequilibriummoving towards equilibrium, which is upset byinnovations in cost-reduction, production,product, or other marketing mix variables.Perpetual cycle.

2. Oligopoly rivalry: the most commonsituation in marketplace.Therefore, competition derives the process ofimprovement in product, service, newproduct development, and other marketingmix variables.

Theory of competitive rationality links themarketing concept (sales and profits byfocusing on, serving, and satisfying thecustomer) with the Adam Smith's view ofthe "invisible hand".

The TCR view is that product and customerservice improvements are deliberate,relentless processes to gain competitiveadvantage in the marketplace. They arenot coincidental, or unintended.

3. Competitive focus vs customer focus:FALSE DICHOTOMY

Rather, they are twin and parallel fociCompetition focus - self interest - customerfocus

MARKETING DECISION MAKING

1. Smaller organizations: Often lack clear,written, standard operating procedures fordecision making or planning.

2. TCR: it is a clear competitive advantage tomake informed decisions quickly. SPEED.

How do firms update their planned strategiesand tactics?

Study: Half of major firms review and updateplans.Best scenario: reflects stable environment,with little innovation-imitation; firms need notfrequently adapt their planned marketbehaviorWorst scenario: firms at a mental stand-still.Refusal to keep up with changes. Lack driveto improve.

3. Q: How to effectively implement strategy andyet remain responsive to new marketrealities?A: Involve key executives; Continual updatingdecisions, plans, and programs.

CROSS FUNCTIONAL DECISION MAKINGTEAMS

1. Executive committee made up of heads ofall functional areas:Job to prepare, approve, and oversee theimplementation of all function plans, includingthe marketing plan. All functional plans areintegrated into the overall business plan/divisional plan. For example, marketing plansare implicit in all major plant expansiondecisions.

Long-range marketing decisions constrainshort-range marketing strategies.

2. Removal of Layers of Gate-KeepingMiddle Management:Increases the informal contact betweensenior executives and front-line managers.Helps to better integrate marketing strategywith company production and financialstrategies.

3. Marketing philosophy more fullyinternalized by managers across allfunctional areas. Because of competition.Also because they are more affiliated withmarketing strategies, plans, and activities.

4. Benefits of active senior managersinvolvement in marketing:They see the total picture better becauseof their position.Also because of their ability toa) scan the total business environmentb) identify significant changes in the

marketplacec) draw higher-order strategic implications

from such informationd) interpret info from many different

perspectives and are therefore lesssubject to framing biases

e) better recognize opportunities as theyare more alert and more skilled problemsolvers

They are not perfect problem solvers, but justbetter that the competition.

NEW PRODUCT DEVELOPMENT DECISIONMAKING

1. New product development decision makingrequires a greater amount of engineering anddesign expertise. Therefore, a cross-functional team approach is imperative.Draws from talented younger marketers,designers, engineers, operations experts,and logistics executives

Concurrent engineering - informal groupmeets frequently (on a as needed basis) toreport on progress and new decisions thathave to be made. Ultimately, seniormanagement will have to make the "go"decision.

2. Cross-functional teams necessary for ALLproducts whether new or used.Innovations from teams which make an evenestablished product "new".

60% of marketing plans ofindustrial/consumer goods firms contain newproduct action programs.80% of service firm marketing plans containnew service development action programs.

CONTINUOUS DECISION MAKING ANDIMPROVEMENT

Continuous decision making does not occurspontaneously. Driven by a company culturewhich in turn is driven by competitive drives.

1. Environment: Competitive pressures creates a need

2. Management orientation: for continuous decision making

3. Process: requires frequent informal and/or formalplanning meetings which

4. Outcome: results in better plans, betterresults, better attitudes

Informal Processes:

1. Nature of informal processes: unstructured,spontaneous, and incremental

Constantly alert to changes in the product-marketAdjusts action plans to the newcompetitive, consumer, channelcircumstances

2. No longer sequential or serial ----> morespontaneous, concurrent andmultifunctional input and decision making

3. Needs a champion to advocate the cause

4. Caution: can be too responsive to theenvironment ---> can be too far ahead of themarketplace. Eg: Edsel (Ford), videodiscplayer (RCA), DAT (Phillips)?

ANNUAL MARKETING PLANNING

1. Coordinates activities

2. Updates knowledge

3. Integrates plans

4. Sets and reminds executives of priorities

Process of the Annual Planning Exercise:

1. Understand what the firm's current strategyand tactical programs are

2. Determines whether or not the firm is stuckwith its plans and why it deviated from theplan

Benefits:

1. Briefs the team about the firm's currentstrategy which must now be adapted to thenew environmental realities; All decisionmakers brought up-to-date

2. Deviations from what was planned identifya) the planned programs that were based

on incorrect assumptions about theenvironment

b) changes that have occured in theenvironment during the last planningperiod that necessitated changes instrategy, or

c) the implementation of unauthorizedstrategy and programs.