Strategic Marketing

STRATEGIC MARKETING

Objectives

• The basic objective of this course is to develop skills for analyzing market competition and design appropriate competitive marketing strategies for higher market share

What’s expected during this course ?

What we plan to do this term

• Understand some of the Key Concepts of Strategic Marketing through examples

• Inputs in the form of Theory and Case Studies• One Project that we will complete during the

term that will help in comprehending what we have learnt

• Read references from what is taught in class with selected reading list

Course Content1. Market Situation Analysis2. Analysis of Competitor’s Strategies and Estimating

their Reaction Pattern and Competitive Position3. Market Leader Strategies – Expanding the Total

Market, Protecting Market Share, Expanding Market Share

4. Market Challenger Strategies – Choosing and Attack Strategy for Emerging Industries, Declining Industries and Fragmented Industries

5. Balancing Customer and Competitor Orientation6. Industry Segmentation and Competitive Advantage7. Product Differentiation and Brand Positioning8. Competitive Pricing9. Competitive Advertising10.Role of Sales Promotion in Competitive Marketing

Selected Reading Material

1. Strategic Marketing – D W Cravens & Nigel F Piercy

2. Comparative Marketing Systems – Kaynak E and Savitt R

3. Marketing Management – Analysis, Planning, Implementation and Control – Philip Kotler

4. Competitive Strategy : Techniques for Analyzing Industries, Competitors– Michael Porter

5. Competitive Advantage : Creating and Sustaining Superior Performance– Michael Porter

Any Questions ?Please make suggestions at this stage before

we proceed furtherRequest : No mobile phones to be kept on

during class hoursAttendance is important if you want to learn

this subjectWill treat you as Managers in a Corporate

Firm

Expectations from you…Read

ObserveExperience

ApplyAsk Questions

Let’s discuss

More examples

Industry vs Corporation

Consumer vs Lifestyle Environment

Consumer vs Industry vs Mobility Environment

Another real life example…

Background

Competition – Film Industry/Entertainment/Leisure

Consumer – Indian and NRIAudiences

Consumer

Competition

Brand – Aamir KhanCategory – Film Ghajini

Corporation

Environment

• Industry : Big opening weekends have become essential for the films' financial success, one needs to create an urgency in people to see the film in the first couple of weeks.

• Social : Style, Trends, Fashion, Lifestyle, Health Fitness 8 packs

• Youth : Style Icons and technologically savvy• Brand Experience : At the site and thereafter : post

sales of music CD’s, VCD’s DVD’s and merchandise• Cross Promotion : Telecom Service, Retail Outlets,

Malls,

What was Ghajini’s Marketing Strategy?

– Ghajini producers conceptualized the film's marketing strategy in a way that it targets maximum number of people to spread awareness about the movie in an engaging manner, where each touch-point with the film is designed to occupy the mind-space of the audience.

– Flaunting his pumped up body, clothes and hairstyle that he sports in the movie, Khan has been out there to woo audience well in advance before the movie hits theatres.

– Speaking to Businessofcinema.com about the hype around Ghajini, producer Madhu Mantena said, "I think at a time Our marketing strategies are focused on creating this urgency."

What was Ghajini’s Marketing Strategy?

• Assuming that the product and brand are good– Media spend : 14 crores to promote the film– Brand Experience : Life-size statues at

multiplexes, ushers at multiplexes sporting Ghajini hairstyles, a special 3-D PC game, amongst others.

– Brand Tie-Ups : Tata Indicom voicemail using Aamir’s voice, Samsung Handsets L700 & M200 models preloaded with Ghajini songs, pictures and ringtones, Van Heusen formal wear based on Aamir’s costumes in the film, Indiagames : Ghajini games

– Merchandise : Produced and imported from China

• Sold for Rs.90 crores, Returns in the first week : Rs.100 crores, till date Rs.200 crores !

Is Ghajini a success ??

Sold for Rs.80 crores– Domestic : Rs.40 crores to Studio 18, – Overseas : Rs. 10 crores to Big Pictures, – Satellite Rights : Rs. 10 crores to Studio 18– Audio Rights : Rs.20 crores to T-Series– Home Video Rights – Not sold as yet

Returns in the first week : Rs.100 crores– Rs.30-32 crores alone on Christmas Day

2008

What is Strategic Marketing ?

What is Strategic Marketing ?

• Strategy : Is the science and art of assessing your organization's situation, setting goals and using available resources to accomplish those goals

• Marketing : Is the aggregate of functions involved in differentiating (branding), selling and moving the goods from producer to consumer

• Strategic Marketing : Is using your strategy to make your marketing totally effective

Strategic Marketing Helps

• Realize Market Opportunities• Leverage the Organizations Strengths• Stay on Target• Stay on Budget

• Finally : Achieve the organizations goals

Keep in mind that Strategy does not have to be complicated as long as it is effective.

Building A StrategyWhat to address in your planning ?• Your Organization (Corporation): Strengths,

Weaknesses, Opportunities and Threats• Your Products/Services (Corporation) :

Benefits, Features, Strengths and Weaknesses• Your Markets : (Consumer) Size, Attitude,

Consumers, Trends, Wants, Needs, Specifics• Your Competition : Current, Possible, Future,

SWOT, Probable Responses• In Your Environment : Government, Economy,

Technology, Others

Learning Objectives

• Recognize the three strategic “C’s”.• Understand the importance of Strategic

Marketing• Determine the characteristics of Strategic

Marketing• Visualize the future of Strategic Marketing• Comprehend the process of Strategic

Marketing

Concept of Strategic Marketing

• Within a given environment, marketing strategy deals essentially with the interplay of three forces known as the strategic three Cs: the consumer, the competition, and the corporation.

• Marketing strategies focus on ways in which the corporation can differentiate itself effectively from its competitors, capitalizing on its distinctive strengths to deliver better value to its consumers.

Characteristics of Marketing Strategy

Having

• A clear market definition;

• A good match between corporate strengths and the needs of the market;

• And superior performance, relative to the competition.

Importance of Strategic Marketing

• Marketing plays a vital role in the strategic management process of the firm.

• The experience of companies well versed in strategic planning indicates that failure in marketing can block the way to goals established by strategic planning.

Characteristics of Strategic Marketing

• Emphasis on Long-Term Implications.

– Strategic marketing is a commitment, not an act.

• Varying Roles for Different Products /Markets.

– Strategic marketing starts from the premise that different products have varying roles in the company.

• Organizational Level.

– Strategic marketing is conducted primarily at the business unit level in the organization.


• Corporate Inputs:

– Corporate Culture ~ refers to the style, whims, traits, taboos, customs, and rituals of top management.

– Corporate Publics ~ are the various stakeholders with governments and society constitute and organization’s stakeholders.

– Corporate Resources ~ include the human, financial, physical, and technological assets/experience of the company.


• Relationship to Finance.– Strategic marketing decision making is

closely related to the finance function.– Its very important of maintaining a close

relationship between marketing and finance, and, with other functional areas of a business.

– In recent years, frameworks have been developed that make it convenient to simultaneously relate marketing to finance in making strategic decisions.

Future of Strategic Marketing

• The battle for marketing share is intensifying in many industries as a result of declining growth rates.

• Deregulation in many industries is mandating a move to strategic marketing.

• Many companies in hitherto non-marketing-oriented industries are attempting to gain market share through strategic marketing.


• Shifts in the channel structure of many industries have posed new problems.

• More and more countries around the world are developing the capacity to compete aggressively in world markets.

• The fragmentation of markets - the result of higher per capita incomes and more sophisticated consumers.


• In planning an early entry in the marketplace, strategic marketing achieves significance.

• To successfully develop corporate imagination, companies need strategic marketing.

The Process of Strategic Marketing

Market Situation Analysis

Market Vision, Structure and Analysis

• Markets are becoming increasingly complex and interrelated, creating challenges for managers in regard to understanding market structure and identifying opportunities for growth.– Consider the impact of digital technology on

• Computers• Telecommunications• Photography• Office Equipment• Entertainment : Film making

Market Vision

• The importance of forming a vision about the future can be understood with the help of the following example– Eastman Kodak : Conventional Film

material manufacturer• Electronic imaging vs conventional film• Compete aggressively in the

conventional film market Fuji• New arena positions Kodak against Sony,

HP, Sanyo, Olympus – electronic imaging

Markets and Strategies

• Market knowledge is essential in guiding businesses and market strategies.

• How do markets impact strategy ? • What is the concept of value migration and

how does it effect market opportunities ?• What is a shared vision about how the market

is expected to change in the future?

Strategies and Markets are Interlinked

• Market changes often require altering business and marketing strategies

• Managers who do not understand their markets and how they will change in the future may find the strategies they are using for competing inadequate as buyers needs and wants change and alternative products are available in the market place.

• Forces that precipitate change– Deregulation – MNC’s, imports etc.,– Excess Global capacity – Polymer products from China– Global competition - Nike– M&A’s – Steel Industry– Changing customer expectations – Convergence of

technology– Technological discontinuities - Photography– Disintermediation – Organised Retail– Demographic and Changing Life styles – Indian Middle class

Examples• EBI : Encyclopedia Britannia – 200 old publishing

company• In 1990 the CD ROM technology impacted the

traditional encyclopedia market and EBI did not respond to this challenge

• By 1994 - 16 million households had CD drives in US homes : Encarta, Wikipedia

• EBI’s sales dropped and slaes force declined from 2300 to 1100

• CD ROMS priced at $100-400 while EBI at $ 1500• In 1996 it eliminated its sales force and EBI was

sold by Scottish publishing house to Swiss billionaire Jacqui Safra

• Where do you see the future of the print business going 20 years from now ?

Value Migration

• Value Migration is the process of customers shifting their purchases away from products generated by outmoded business designs to new ones that offer superior value.– Examples : Migration from Typewrites to

Word processing to computers– Official memos and mail from conventional

print to electronic mailing via internet and email

• What will be the impact of environment & infrastructure on the auto industry ?

Shared Vision about the Market

• Organizations ability to develop a vision about the future markets that they wish to be in and directions of change.

• Team work rather than an individual : Arcelor Mittal• To develop a future vision one must

– Identify and analyse the forces of change that are expected to transform industry boundaries and create new competitive space eg : Nokia Health

– Form a vision about the future eg : Stress and Mortality and Health consciousness

Mapping Product Markets

Mapping the Product Market

Market Structure Analysis

Market Forecasts

Future Vision About the Market

Question 1

• Who sells the largest number of cameras in India today ?

• Sony, Canon or Nikon ?

• The correct answer is Nokia whose main line of business in India is not cameras but cell phones.

• Reason being cameras bundled with cell phones are outselling stand alone cameras. Now, what prevents the cell phone from replacing the camera outright? Nothing at all. One can only hope the Nikon’s and Canon’s are taking note.

Question 2

• Who is the biggest in the Music business in India today ?

• HMV, SaReGaMa or Sony ?

• The answer is Airtel. By selling caller tunes (that play for 30 seconds) Airtel makes more than what music companies make by selling music albums (that run for hours).

• Incidentally Airtel is not in music business. It is the mobile service provider with the largest subscriber base in India . That sort of competitor is difficult to detect, even more difficult to beat (by the time you have identified him he has already gone past you).

Question 3

• What Apple did to Sony, Sony did to Kodak. Explain.

• Sony earlier defined its market as ‘audio’ (music from the walkman). They never expected an IT company like Apple to encroach into their audio domain. Come to think of it, is it really surprising? Apple as a computer maker has both audio and video capabilities. So what made Sony think he won't compete on pure audio?

• So also Kodak defined its business as film cameras, Sony defines its businesses as ‘digital’

Question 4

• In 2008 who was the toughest competitor for British Airways in India?

• Singapore Airlines, Emirates or Air India ?

• The answer is videoconferencing and tele-presence services of HP and Cisco. Travel dropped due to recession. Senior IT executives in India and abroad were compelled by their head quarters to use videoconferencing to shrink travel budget. So much so, that the mad scramble for American visas from Indian techies was nowhere in sight in 2008.

• Note : Prices of PC’s/Mobile Communication/Digital Cameras etc., dropped….If tele-presence prices crash. Imagine the fate of airlines then.

Point to Note - 1• India has two passions. Films and cricket. The two

markets were distinctly different. So were the icons. • That was, when cricket was fundamentally test

cricket or at best 50 over cricket. Then came IPL and the two markets collapsed into one. IPL brought cricket down to 20 overs. Suddenly an IPL match was reduced to the length of a 3 hour movie. Cricket became film's competitor. On the eve of IPL matches movie halls ran empty. Desperate multiplex owners requisitioned the rights for screening IPL matches at movie halls to hang on to the audience. If IPL were to become the mainstay of cricket, as it is likely to be, films have to sequence their releases so as not clash with IPL matches.

• As far as the audience is concerned both are what in India are called 3 hour "tamasha" (entertainment) . Cricket season might push films out of the market.

Point to Note - 2

• One last illustration. 20 years back what were Indians using to wake them up in the morning?

• The answer is "alarm clock." The alarm clock was a monster made of mechanical springs. It had to be physically keyed every day to keep it running. It made so much noise by way of alarm, that it woke you up and the rest of the colony.

• Then came quartz clocks which were sleeker. They were much more gentle though still quaintly called "alarms."

• What do we use today for waking up in the morning? Cellphone! An entire industry of clocks disappeared without warning thanks to cell phones. Big watch companies like Ajanta were the losers.

• You never know in which bush your competitor is hiding!

Case StudyVivometrics California – Life

Shirt• Wants to manufacture shirts• Not an ordinary shirt but embedded are 4

balck bands equipped with electrodes to monitor more than 40 vital signs in your body, fluid in the heart, oxygen consumption etc.,

• Blazing R&D on e-health• Bathroom scales, blood sugar of diabetics,

portable BP machines, EKG’s• Future : Electronic Care will will save lives –

future of medicine and technology

Case StudyVivometrics California – Life

Shirt• Wants to manufacture shirts• Not an ordinary shirt but embedded are 4

balck bands equipped with electrodes to monitor more than 40 vital signs in your body, fluid in the heart, oxygen consumption etc.,

• Blazing R&D on e-health• Bathroom scales, blood sugar of diabetics,

portable BP machines, EKG’s• Future : Electronic Care will will save lives –

future of medicine and technology

Matching Needs with Product Benefits

• Product Market – markets exist only when there are buyuers with needs who have the ability to purchase products and those that satisfy their needs.

• Have the ability and willingness to buy as they have a need

• Needs that satisfies a benefit– Benefit must satisfy otherwise only people with

needs• Alternatively they express a demand for that product

and can be substituted by other competitive brands• Positioning strategy, substitutability, • Eg : Campbell Soup : Discuss : Share of Throat in

Summer in India

Mapping Product Market Boundaries and StructuresStart with the Generic Need satisfied by the product

category of interest to managementPerform various kitchen functions - appliances

Identify the product categories (types) that canSatisfy the generic need

Heating, cooling, washing, drying, cooking

Form the specific product-markets withinthe generic product market

Cooling : refrigerators

AFrost free

BDouble Door

APUF, Freshness

Guidelines for Definition

• In mapping product markets it is helpful to determine– The basis for identifying buyers in the

product market (geographical area, buyer characteristics such as age etc.,)

– The market size and characteristics– The brands/product categories that are

competing for needs and wants of the buyer

Forming Product Markets

• The factors that influence product market boundaries must be determined in addition to the rate of change in market composition over time and the extent of market complexity

Example : If a company is deciding to exit from a business it will look at financial performance and competitive position

If the company wants to enter a new product segment a much more detailed analysis is required

Changing Composition of Markets

• Product market composition may change as new technologies become available, new competition emerges, new customer needs become evident due to change in lifestyle etc.,

• For example : Single unit families, they may meet their needs for food from products from different industries and not just from brands of the same product category

• DISCUSS

Mapping Product Market Boundaries and Structures

Fast Food

SupermarketSpencer Delis

ConvenienceFood Stores

prepared food

Micro waveOvens

TraditionalRestaurantsTakeaways

KFC vs Mc Donalds

Extent of Market Complexity

• Three characteristics of markets capture a large proportion of the variation of a market’s complexity– Customer function considers what the product or

service does : Example : Desktop Computer at home DISCUSS

– Different technologies may satisfy the use situation of the customer : Example : Sending a letter DISCUSS

– Customer segment recognizes the diversity of the needs of customers for a particular product Example : Automobiles DISCUSS

Illustrative Product Market Structure

Personal CareProducts Generic Product Class

ShampoosSoaps

Lotions

Powder

Creams

Product Type

Bar Soaps Liquid SoapsPaper Soaps Variant A

Hygiene Freshness Beauty Variant B

LuxNirmaVivel Brands

Identifying and Describing Buyers

DemographicsFamily Size, Age, Income, LocationSex, Occupation

PsychographicsAttitude, Beliefs, Values,

LifestylesHow they holiday, where they eat, what types of clothes they buy, what cars they possess

Needs and Want AnalysisConvergence of technology, Experimental, Traditional, Conservative

How Buyers Make Choices

• Problem recognition : Doesn’t like the sound of this conventional magnetic tape music system and desires a CD player

• Information Search : Uses past experience of friends, ads, to seek information and discover alternatives

• Alternative Evaluation : Alternative players are then decided based on attributes, price, availability

• Purchase Decision : Selected, bought and installed in his room

• Post Purchase Behaviour : May be satisfied and advocates or returns the same

Environmental Influences

• Analysis of the identify the external factors that influence the buyers choice– Government : Fuel prices – Social Change : Big Bazaar– Economic Shifts : PPP– Technology : Convergence

Analyzing Competition

Define the competitive arena for generic, specific and variant product markets

Identify and describe key competitors

Evaluate Key Competitors

Anticipate Action by Competitors

Identify Potential Competitors

Example : Competition for Diet Colas

Diet Coke

Diet Rite

Diet Pepsi

CompetitionDiet Cola

FruitFlavoured

Cola

LemonLimes

Reg.Colas

Diet Lemon Limes

CompetitionSoft Drinks

CompetitionBeverages

CompetitionFood & Ent

Wine

BottledWater

CoffeeJuices Tea

Product Form

Product Category Generic

Product BudgetCompetition

IceCream

FastFood

Video

FilmPopcorn

Candy

Industry Analysis

• Competitor analysis is conducted from the point of view of the firm. However, with the example shown earlier, it is necessary to now look at competition from the point of view of competing industries and thus a need for an industry analysis– Profile of the industry– Analysis of the value chain

• Horizontal analysis – similar types of firms• Vertical Analysis - Different industries

reaching the same end user

Industry Analysis

• The industry analysis includes – Industry characteristics and trends such as

sales, number of firms, growth rates– Operating practices of firms in the industry,

including product mix, services provided, barriers to entry and geographical scope

– Industry Size and Growth– Marketing Practies– Industry changes that are anitipated– Strengths and Weaknesses– Strategic Alliances amongst competitors

Industry Analysis

• Analysis of the Value Added Chain : Supplier and Distribution channels is important to understanding and servicing product markets. Example : ITC vs Coca Cola

• Competitive Forces : Need to recognize the five competitive forces that affect industry performance– Rivalry among existing firms Eg. Coke vs Pepsi– Threat of New Entrants Eg. Kodak vs HP/Sony– Threat of Substitute Products Eg. Ency. Brit vs CD

Rom– Bargaining Power of Suppliers Eg. Commercial

Airlines– Bargaining Power of Buyers Eg. Walmart with

suppliers

Key Competitor Analysis

• Competitor analysis is conducted for firms that compete directly with each other. Eg. Nike vs Reebok, Unilever vs P&G

• The aspects of competitor analysis that is important are – Preparation of descriptive profile for each

competitor– Evaluating the competitors strengths and

weaknesses

Describing the Competitor

• A key competitor is any organization going after the same target market as the firm conducting the analysis. Jet, Kingfisher and Air India are key competitors on many Indian routes and certain international routes.

• Key competitors are often brands that compete in the same product market or in segments within the market. Surf Excel and Ariel

• Different product types that satisfy the same need or want may also actively compete with each other. Sony Walkman and Apple i-pod

Information needed to Describe Key Competitors

• Business Scope and objectives• Management experience, capabilities and

weaknesses• Market position and trends• Market target and customer base• Marketing programme and positioning strategy• Financial, technical and operating capabilities• Key competitive advantage

– Sources : Annual Reports, Industry reports, Articles, Interviews, etc.,

Evaluating the CompetitorEvaluation considers the strengths and weaknesses of each competitorin the areas shown below :

Scope of Market

CoverageMarket Share

CustomersValue

Proposition

DistinctiveCapabilities

PastPerformance

Perceptual MapsPerceptual Maps are useful in analyzing the competitive positioningof competing brands. Analgesics brand in the US

Tylenol o

Aspirin Free Excedrin o

Bufferin o

Anacin oBayer o

Ecotrin o

o Extra Strength Tylenol

o Extra Strength Bayer

o Extra Strength Anacin

Gentleness

Efficacy

Advil o

Nuprin o

Area of Vulnerability

Anticipating Competitors Actions

• Estimating Competitors’ Future Strategies– May be in the same direction. Assuming

this may not be wise as their current action may signal probable future threats. Eg. Swatch introduced the plastic lifestyle brands. Timex licensed Nautica, Timeberland, offered $40 Expedition range. Customers moved to metal watches.

– Surf vs Nirma, Maruti vs Tata Motors

Anticipating Competitors’ Actions

• Identifying Potential Customers : May come from four major sources a) companies competing in a related market b) companies with related technologies c) companies targeting similar customer groups with other products d) companies competing in similar geographical regions with similar products

• Market entry by new players is under the following conditions a) High profit margins b) Future growth opportunities c) No high market entry barriers d) Few Players

Strategic Vision about the Future

• Are industry boundaries clear and static ? Are customers and competitors identifiable? Or are industry boundaries blurring and evolving?

• Do firms compete as distinct entities or as families of suppliers and end product firms ?

• Is there competition for managing migration paths ?• Is competition taking place at product line, business

and corporate levels ? Do these levels influence each other?

• Can there be competition to influence industry standards and evolutions?

Phases of Competition

• Phase 1 : Initial Stages : companies compete in identifying product concepts, making technology choices and building competencies. This phase involves experimentation with ideas and the path to market leadership is not clearly defined

• Phase 2 : Involves Partnering of companies to controlling industry standards

• Phase 3 : As markets become clearly defined the competitive process concentrates on market share for end products and profits

Anticipating the Future

• Hamel and Prahalad Model– What are the influences (discontinuities)

present in the product market that have the potential to profoundly transform market/competitor structure ?

– Investigate each discontinuity in substantial depth• Affect on customers• Economic impact• How fast, who is exploiting this trend• Who gains, who loses• New opportunities ??

Market Size Estimation

• Market Potential : is the maximum amount of product sale that can be obtained from a defined product market during a specific time period.

• Sales Forecast : expected sales for a defined product market during a specified time period

• Market Share : Company sales divided by the total sales of all firms for a specified time period.

• Forecasting

Summary

• See Handout

Internal Assignment • Read the Hindustan Motors Case Study• List the reasons and explanations of what you thought

the company did right and what they did wrong to end up in the situation as they did by the early 2000’s

• In the current context of the Automobile Industry in India what would be your advice to them for a revival and why?

• To be submitted before class on 23rd March 2010• Marks – 30• No copying from each other. Your own analysis. Please

refer books/internet for any help that you require.• Handwritten/typed assignments on A4 sheets with

name and roll/registration number mentioned on top RHC

Assignment – Any 1

• Select an industry in India (Paint, Cement, Steel, Detergents Aerated Drinks, etc. )and describe its characteristics, participants and structure.

OR• Using the approach to product market definition

and analysis, select a brand and describe the generic, product type and brand product markets of which the brand is a part.

• Search the net, read but do not COPY directly !!! Submission by 23rd March 2010

Analysis of Competitor’s Strategies & Estimating

their Reaction Pattern and Competitive Position

Identifying the Company’s Competitors

In the words of Albert W. Emery

‘Marketing is merely a civilized form of warfare in which most battles are won with words, ideas and disciplined thinking’

What do organizations need to know ?

• Who are our competitors ?• What are their strategies ?• What are their objectives ?• What are their strengths and weaknesses ?• What are their reaction patterns ?

We will now examine how this information helps shape the organizations’ marketing strategy.

Competitor Myopia• Four levels of competitors based on the concept of

‘product substitution’ : Broader levels as we move down the list– Companies offering a similar product and service

to the same customer at similar prices. Eg : Maruti Alto with Tata Indica and not Tata Indigo

– Companies making the same product or a class of products Eg : Maruti vs Tata Motors

– Companies manufacturing products that supply the same service. Eg : Maruti vs 2 wheelers/3 wheelers/cycles/trains/airlines etc.,

– Companies that compete for the same consumer rupee. Eg : Maruti vs Consumer Durable, foreign vacations, new homes, home repairs and uplift etc.,

Industry Concept of Competition

• An industry is defined as a group of firms that offer a product or class of products that are close substitutes of each other.

• Auto industry, Steel Industry, Pharmaceutical Industry etc.

• Economists define ‘close substitutes’ as products with ‘high cross elasticity of demand’

• Coffee vs tea• A company must strive to undertsand the

competitive pattern of its industry if it hopes to be an effective player.

Model of Industrial Organizational Analysis

SupplyRaw Materials, Technology,

Unionizations, Product Durability, Public Policy,

Business Attitudes,

DemandPrice Elasticity, Substitutes,

Rate of Growth, Cyclical and Seasonality, Purchase

Method, Marketing Type

Basic Conditions

Industry StructureNumber of Sellers, Product

Differentiation, Entry and mobility barriers, Exit and shrinkage barriers,

Cost Str, Global reach, Vertical Integration

ConductPricing Behaviour, Product Strategy and

Advertising, Research and Innovation, Plant Investment, Legal

Tactics

PerformanceProduction and efficiency, Progress, Full Employment,

Equity

Number of Sellers and Degree of Product Differentiation : 5 Industry

Structure TypesOne Seller Few Sellers Many Sellers

Undifferentiated Product

Differentiated Product

Pure Monopoly

Pure Oligopoly

Pure Competitive

DifferentiatedOligopoly

MonopolisticCompetitive

• Pure Monopoly : When only one firm provides a certain product or service in a certain country or area Eg : Indian Post, CESC in WB etc.,

• Pure Oligopoly : Few companies producing the same commodity Eg : Steel, Coal, Oil : lower costs high volume

• Differentiated Oligopoly : Few companies producing products that are partially differentiated Eg : Automobile companies, Camera

• Monopolistic Competition : Many competitors able to differentiate their offers in whole or part Eg : Restaurants, Beauty Salons,

• Pure Competition : Many competitors offering the same product & service. No basis for differentiation. Eg : Telecom,

Number of Sellers and Degree of Product Differentiation

Example : Dynamism

One Seller Few Sellers Many Sellers

Undifferentiated Product

Differentiated Product

Pure MonopolySony Walkman

Pure Oligopoly

Pure Competitive

DifferentiatedOligopoly

MonopolisticCompetitive

Others enter

Shakeout happens

Other Industry Structure Parameters

• Entry & Mobility Barriers : Ease of entry into industries prevents current firms from extracting excess profits in the long run – however it is easier to open a restaurant than to set up an automobile plant. The reasons are as follows :– High capital requirements– Economies of scale– Patents and licensing requirements– Scarcity of locations, raw materials, – Distribution network


• Exit & Shrinkage Barriers : Ease of exit from industries that provide low and unattractive profits. Exit barriers could be due to the following reasons :– Legal and moral obligations to customers,

creditors and employees– Government restrictions– Low salvage value of assets due to over

specialization or obsolescence– Lack of alternative opportunitiesThey may ‘shrink’ in size if they cannot exit.


• Cost Structures : Each industry will have a certain cost mix that will drive much of its strategic conduct. For example : making steel involves heavy manufacturing and raw material costs whereas an FMCG company will have high distribution and marketing costs.

• Firms in an industry will pay great attention to the high cost areas

• Thus a steel company with a most modern plant and machinery and ownership of raw material will be more competitive than others.


• Vertical Integration : In some industries such as the Oil Industry, companies will find it advantageous to integrate backward and/or forward. Major oil producers carry oil exploration, oil drilling, oil refining, and chemical manufacture. Eg : Reliance Industries.

• Vertical Integration often effects lower costs and also more control over the value added stream. In addition, these firms can manipulate their prices and costs in different segments of their business to earn profits where taxes are the lowest.


• Global Reach : Some industries are highly local : Biscuits and Packaged Snacks and others are highly global Automotive.

• Companies in the global market must compete globally if they are to enjoy economies of scale and keep up with the latest advances in technology.

Market Concept of Competition

• Instead of looking at companies making the same product we can look at companies that are trying to satisfy the same customer need or serve the same customer group.

• In general, the market concept of competition opens the company’s eyes to a broader set of actual and potential competitors and stimulates more long-run strategic market planning.

• The key is to link industry and market analysis through mapping the ‘product/market battlefield’

Product Market Battlefield for Toothpaste

Pro

du

ct

Seg

men

tati

on

Children/Teens

Age 19 to 35 Age 35 plus

Customer Segmentation

Plain Toothpaste

Toothpaste with Flouride

Gel Toothpaste

Striped Toothpaste

Smoker’s Toothpaste

Colgate-PalmoliveP&G

Beecham Beecham

Topol Topol


Colgate-PalmoliveP&GUnilever







Identifying the Competitors’ Strategy

Identification

• There is a close relationship between who the company’s competitors are and the strategies that other firms are pursuing.

• The more that one firm’s strategy resembles another firm’s strategy, the more they compete.

• In most industries, competitors can be sorted into groups that pursue different strategies.

• A strategic group is a group of firms in an industry following the same or a similar strategy along key dimensions

Strategic Groups in an Appliance Industry

Quality

Vertical Integration

High

Low

High Low (Assembler)

Group ANarrow lineLower manufacturing costVery High ServiceHigh Price

Group CModerate lineMed manufacturing costMedium ServiceMedium Price

Group BFull lineLow manufacturing costGood ServiceMedium Price

Group DBroad lineMed manufacturing costLow ServiceLow Price

Determining the Competitors’ Objectives

Objectives

• What is each competitor seeking in the marketplace?

• What drives each competitor’s behaviour?A useful initial assumption is that competitors strive

to maximize their profits and choose their actions accordingly.

• Long term vs short term• Weights on current profitability, market share,

technology, cash flow etc.,• Must monitor its competitors objectives with

respect to attacking new product/market segments.

Assessing the Competitors’ Strengths & Weaknesses

Competitors S&W

• Must gather data on– Sales– Market Share– Profit Margin– ROI– Cash Flow– New Investments– Capacity Utilization

• Often through secondary data, experience, hearsay, Institutional bodies etc.,

Competitors S&W

• Market Share, Mind Share and Heart Share (Brands)– A measure of the sales share– A measure of the TOP awareness– A measure of whom would you buy the product

from• Financial Parameters

– Liquidity Ratio : Short Term– Leverage Capital Structure Ratio : Long Term– Profitability Ratio : ROE, ROI– Turnover Ratio : Assets being utilized well

Estimating the Competitors’ Reaction Pattern

Common Reaction Profiles

• The Laid Back Competitor : Do not react quickly or strongly to a given competitor move. Loyal Customers, Lack of Funds

• The Selective Competitor : Reacts only to certain types of assaults and not others. Respond to price cuts but not advtg expense increase.

• The Tiger Competitor : The competitor reacts swiftly and strongly to any assault on its terrain.

• The Stochastic Competitor : Some competitors do not exhibit a predictable reaction pattern. May or may not react

Competitive Equilibrium

• Bruce Henderson one of the founding members of the Boston Consulting Group thinks that much of competitive spirit among organizations depends of the industry’s ‘competitive equilibrium’ – If competitors are nearly identical and make their living in the

same way, then their competitive equilibrium is unstable– If a single major factor is the critical factor, then competitive

equilibrium is unstable– If multiple factors may be critical factors, then it is possible for

each competitor to have some advantage and be differentially attractive to some customers. Relatively stable

– The fewer the number of competitive variables that are critical they fewer the number of competitors

– A ratio of 2:1 of market share between any two competitors seems to be the equilibrium point

Designing the Competitive Intelligence System

Intelligence System

• Setting up the System : Calls for identifying vital types of competitive information and assigning a person who will manage the same

• Collecting the Data : Various Sources both Primary, Secondary and Hearsay. Has to develop ways of documenting the information

• Evaluating and Analyzing : Checked for validity and reliability

• Disseminating and Responding : Sent to key decision makers at appropriate intervals

Selecting Competitors to Attack and Avoid

Customer Value Analysis

• Identify the major attributes that the customer values

• Assess the customers ratings of the importance of different attributes

• Assess the company’s and competitors performances of different attributes against each rated importance

• Examine how customers in a specific segment rate the company’s performance against a specific major competitor on an attribute by attribute basis

• Monitor changing customer attributes and importance ratings over time

Classes of Competitors

• Strong vs Weak : Surf vs Ghari Detergent i/o Ariel

• Close vs Distant : Coke vs Mineral Water, Museums vs Malls, Tata Steel vs Hindalco/Reliance Petro

• Good vs Bad : Good ones play by same rules where as Bad ones take short cuts etc. Q. Infosys vs TCS or Satyam ???

Balancing Customer & Competitor Orientations

Competitor Centred Company

• A competitor centred company is one whose moves are basically dictated by competitors actions and reactions. For example

Situation• Competitor W is going all out to crush us in Mumbai• Competitor X is improving distribution coverage in Nagpur and

hurting our sales• Competitor Y is has cut its price in Pune and we lost share• Competitor Z has introduced a new product feature in AhmedabadSolution• We will withdraw from Mumbai as we cannot afford to fight them• We will increase our advertising expenses in Nagpur• We will match the price cut in Pune• We will increase our sales promo budget in Ahmedabad

Customer Centred Company

• A company who would focus more on customer developments to formulate its strategy

Situation• The total market is growing at 4 % annually• The fastest growing segment is the quality sensitive segment, growing 8%

annually• The deal prone customer segment also growing but do no loyalty• A number of customers have expressed a 24 hr helpline no one has it as

yetSolution• Focus more on quality, improve QC, buy better, advertise on the quality

aspects• Avoid cutting prices and making deals as we do not want such customers• We will work on a Cost Benefit analysis before introducing the 24 hr

helpline

Evolution of OrientationsC

om

peti

tor

Cen

tred

Customer Centred

No

No

Yes

Yes

ProductOrientation

CustomerOrientation

CompetitorOrientation

MarketOrientation

Designing Competitive Strategies

Part 2

Classification of Roles in Target Markets

40%

30%

20%

10%

Market Leader

Market Challenger

Market Follower

Market Nichers

Classification of Strategies

40%

30%

20%

10%

Market Leader

Market Challenger

Market Follower

Market Nichers

Expand the Market

Defend & Protect Share

Increase Market Share

New Users, More Usage, New Uses

Position, Flank, Preemptive, Counteroffensive, Mobile & Contraction

Attack to gain share

Not attack

Frontal, Flank, Encirclement,

Bypass, Guerrilla

Imitation vs InnovationCounterfeiter, Cloner,

Imitator,Adapter

Specialization

Market Leader Strategies

Who is a Market Leader • Many industries contain one company that is the acknowledged

market leader• This company has the largest market share in the relevant product

market and usually leads the other firms in prices changes, new product introductions, distribution coverage and promotional intensity

• Example : Photography Material : Kodak– Computer Software : Microsoft– Microprocessor : INTEL– FMCG : P&G– Soft Drinks : Coca Cola– Earth Moving Equipment : Caterpillar– Fast Food : Mc Donalds’s

• Unless the dominant firm is vigilant it can be hurt due to the following reasons– Product Innovation : Motorola (Analog Phones) to Nokia (Digital)– Challenger Spends : Pepsi to Coca Cola (India only)– Changing Customer Styles : Levis to Tommy Hilfiger/Calvin

Klein/GAP• To remain number one calls for action on three fronts

– Expand Market Demand– Defend/Protect Current Share : Defensive and Offensive

Actions– Increase Market Share

Expanding the Total Market• Dominant firm gains the most when the total

market expands Eg : Surf vs Nirma in the 80’s• Market Leader needs to look for New Users,

New Uses and More Usage of its products

Expanding the Market through New Users

• Markets can be expanded through discovering and promoting new uses for the current products

• Eg : Cereals into Energy Bars and Snacks, Vaseline from lubricant in machine shops to personal moisturizer

• Any other examples ??

Expanding the Market through More Usage

• Convince people to use more product per use of the occasion.

• Eg : Shampoo : Typically in their communication ‘Lather, Rinse and Repeat’ – are we sure of the benefits of shampooing our hair twice??

• Eg : Michelin Tyres : French Tyre Company : Michelin Guide

• Eg : Gillete Mach 3 Blades : Blue Strip fades after 12 shaves ‘alerts consumers that they are getting the most optimal Mach 3 shaving experience’…they more they change the more we sell

Expanding through New Uses

• New Users : Market Penetration Strategy: those who may use it but do not

• New Market Segment Strategy : those who have never used it

• Geographical Expansion Strategy : those who live elsewhere

• Eg : Colgate Toothpaste• Eg : Khadim’s Footwear

Defending Market Share

• While trying to expand the total market size, the dominant market leader must also protect its own turf and current share.

• Coca Cola vs Pepsi, Gillete vs Bic, Hertz vs Avis, Mc Donalds vs Burger King, GM vs Ford/Toyota, Kodak vs Fuji

• Sometimes the competitor is domestic and sometimes foreign

• ‘The best defense of good offense’ – Art of War by Sun Tsu Chinese Military Strategist

• Eg : Johnson and Johnson – cardiac stent from 90% share dropped to 8% - why ?

The 6 Defense (Leader) Strategies

ATTACKER

DEFENDER

(1)Position

(2)Flank

(5)Mobile

(6)Contraction

(3) Preemptive

(4) Counteroffensiv

e

The 6 Defense Strategies (Position & Flank)

• Position Defense : Building superior brand power, making the brand almost impregnable : Eg :Heinz (50%) vs Hunt (17%) Ketchup market in the US

• Flank Defense : Instead of building fortifications around its product, it should erect outposts to protect a weak front.: Eg. Smirnoff Vodka (23%) vs Wolfschmidt who lowered $1 per bottle, What was Smirnoff’s strategy ? Goodyear vs Michelin/Bridgestone – product innovation Extended Mobility tyre, Aquatred Tyre and Dunlop Acquisition

The 6 Defense Strategies (Pre emptive)

• Pre emptive Defense : A more aggressive maneuver is to attack before the enemy starts its offensive. Can be done in the following way – Guerrilla Attack : attacking different

competitors in different markets and keep everyone off balance.

– Grand Market Envelopment : Seiko has done with 2300 watch models available worldwide

– Sustained Price Attacks– Sending out Market Signals : Eg : Chrysler

Minivan price vs lower price minivan

The 6 Defense Strategies (Counter Offensive)

• Counter Offensive Defense : When attacked, most market leaders will respond with a counter attack. It can be frontally (head on), hit competitors flanks or launch a pincer movement.

• Eg : Northwest Airline Minneapolis – Atlanta : most profitable, smaller airline cut fares, NW cut fares on Minneapolis-Chicago route hurting the smaller airline so that they cam back to normal pricing

The 6 Defense Strategies (Mobile Defense)

• Mobile Defense : The leader stretches its domain over new territories that can serve as future centres for defense and offense. It spreads through market broadening and market diversification.– Market Broadening : Focus on R&D and

product based on the technology that addresses the need : Refrigerators not just cooling but bio fresh, etc.

– Market Diversification : Into unrelated industries is another alternative : Eg : ITC Limited

The 6 Defense Strategies (Contraction)

• Contraction Defense : Large companies sometime recognize that they can no longer defend all of their territory. The best course of action then appears to be planned contraction (also known as strategic withdrawal). Planned contraction means giving up weaker territories and reassigning resources to stronger territories.

• Eg : HUL moved out of Dalda, Hindustan Motors exited Contessa etc.,

Increasing Market Share

• Market leaders can improve their profitability by increasing their market share.

• A study by Strategic Planning Institute USA called PIMS (Profit Impact of Market Strategy) found that a company’s profitability, measured by pre tax return on investment rises with its relative market share of the markets served. It showed that companies with a 40% market share earned an average 30% ROI.

• Eg : GE strategy to exit out of businesses if they were not No1 in market share. Divested it’s A/C and computer businesses

• Profitability depends on the strategy to gain Market Share and not an Increase in Market Share alone

Market Challenger Strategies

Who is a Market Challenger ?

• Companies that occupy second, third and lower ranks in an industry are often called runner up or trailing companies.

• 2nd run companies/brands such as Pepsi, Ford, Avis etc., are quite large in themselves. They can either attack the leader aggressively to garner higher market share or they can sit back and not ‘rock the boat’ (market followers)

• Many challengers have overtaken the leaders – Eg : Toyota over General Motors– British Airways (then BOAC) over Pan Am (no

longer exists)

Market Challengers• Competitive Rivalry and price cutting are

most intense in industries with high fixed costs, high inventory costs and stagnant primary demand. Eg : Steel, Auto, Paper, Chemicals etc.,

• The Challenger must decided its strategic objective and whom does it wish to attack– It can attack the market leader : High risk

but high potential payoff : Eg : Photocopying Industry Xerox from 3M and then Canon from Xerox

– It can attack firms of its own size and are underfinanced :

– It can attack small local/regional firms

The 5 Attack (Challenger) Strategies

Attacker(Challenger) Defend

er(Leader

)

1)Frontal Attack

4) Bypass Attack

2) Flank Attack

3) Encirclement Attack

5) Guerrilla Attack

The 5 Attack Strategies (Frontal)

• Frontal Attack : In pure frontal attack, the attacker matches its opponent's product, advertising, price and distribution. The principle of force says that the side with the greater manpower (resources) will win.

• A modified frontal attack can work by cutting prices, only if the leader does not counter the move. Helene Curtis does it successfully for lower priced products.

The 5 Attack Strategies (Flank)

• Flank Attack : The major principle of warfare is concentration of strength against weakness. Find a chink in the armour. The leader’s weak spots are the challenger’s opportunity. This can be along two strategic dimensions– Geographical : Areas where leader is

underperforming. Eg : Honeywell focussed on smaller markets where IBM was weak

– Segmental : Newer customer segments : Toyota entered with more fuel efficient cars to counter GM in US

The 5 Attack Strategies (Encirclement)

• Encirclement Attack : Is an attempt to capture a wide slice of the enemy’s territory through a ‘blitz’. Grand offensive on several fronts.

• Makes sense when the challenger commands superior resources.– Eg : Nestle vs Cadbury in India for the

chocolate market

The 5 Attack Strategies (Bypass)• BypassAttack : The most indirect assault is the

bypass strategy. It is to bypass the leader and attack easier markets to broaden one’s resource base. This strategy offers three lines of approach :– Diversifying into unrelated products. Eg : Pepsi

bought Tropicana in 1998 (42% market share) over Minute Maid from Coca Cola (24%)

– Diversifying into new geographical markets : Eg : Pepsi entering India before Coke

– Leapfrogging into new technologies to supplant exisiting products : Eg. SCA in Sweden over P&G for their Diaper market through innovative interactive Web Site Strategy

The 5 Attack Strategies (Guerrilla)

• Guerrilla Attack : Consists of waging small, intermittent attacks to harass and demoralize the leader and eventually secure permanent footholds. Eg : Kaplan Educational Centre (Stanley Kaplan) vs Princeton Review. Ad which said ‘Friens don’t let friends take Kaplan’

More Specific Challenger Strategies

• The challenger must go beyond the 5 broad strategies and develop more specific strategies such as :– Price Discount– Lower priced goods– Prestige Goods : Mercedes vs Cadillac GM– Product Proliferation : Baskin Robbins 31 flavours– Product Innovation : 3M– Improved Services : Avis vs Hertz ‘We are No.2.

We try harder’– Distribution Channel : Avon’s door to door selling

over conventional stores– Manufacturing Cost Reduction : Tata Steel– Intensive advertising : Miller Lite over Budweizer

Who is a Market Follower ?

• Theodore Levitt has coined the word ‘Innovative Imitation’ where he argued that a strategy of product imitation might be as profitable as product innovation.

• Quite prevalent in capital intensive, homogenous-product industries such as steel, fertilizer, cement, chemicals etc.,

• Product differentiation low, service comparable, price sensitivity runs high– Eg : Tata Steel innovated and launched TISON –

TMT bars, SRMB, TIMCON, Rathi TOR, Elegant• 4 strategies : Counterfeiter, Cloner, Imitator, Adapter

4 Follower Strategies

• Counterfeiter : Duplicates the leader’s product and package and sells it through disreputable dealers : Rolex Watches, CD’s etc.,

• Cloner : Emulates the leaders products, name and packaging with slight variations.

• Imitator : Copies from the leader but maintains a differentiation in terms of packaging, price etc.,

• Adapter : Takes the leader’s products and adapts or improves them significantly to offer a new product. Eg : What Japanese Electronics Industry did to Germany/England

Who is a Niche Player ?

• An alternative to being a follower in a large market, is to be a leader in a small market – that is the concept of a niche player.

• Eg : Logitech International : Specialist in manufacture and variations of a ‘computer mouse’ and then onto all computer peripherals such as keyboards, speakers, joystick, webcams, etc., - has become a US$ 750 billion company

• The key strategy for a niche player is ‘specialization’

Niche Player Strategies

• End User Specialist : Logitech International• Vertical Level Specialist : Making Copper Wires• Customer Size Specialist : Minority Group Hotels• Specific Customer Specialist : Sona Steering for

Maruti• Geographic Specialist : Sreeleathers• Product or Product Line Specialist : Carl Zeiss

Lenses• Quality Price Specialist : Mont Blanc Pens

Product Life Cycle

Product Life Cycle

• Product Life Cycle – shows the stages that products go through from development to withdrawal from the market

• Product Portfolio – the range of products a company has in development or available for consumers at any one time. Managing product portfolio is important for cash flow

Product Life Cycle (PLC)– Each product may have a different life cycle– PLC determines revenue earned– Contributes to strategic marketing planning– May help the firm to identify when a product

needs support, redesign, reinvigorating, withdrawal, etc.

– May help in new product development planning– May help in forecasting and managing cash flow

Product Life Cycle Fundamentals

The Stages of the Product Life Cycle– Development– Introduction/Launch– Growth– Maturity– Saturation– Decline– Withdrawal


The Development Stage• Initial Ideas – possibly large number• May come from any of the following –

– Market research – identifies gaps in the market

– Monitoring competitors– Planned research and development

(R&D)– Luck or intuition – stumble across ideas?– Creative thinking – inventions, hunches?– Futures thinking – what will people be

using/wanting/needing 5,10,20 years?


Product Development: Stages– New ideas/possible inventions– Market analysis – is it wanted? Can it be

produced at a profit? Who is it likely to be aimed at?

– Product Development and refinement– Test Marketing – possibly local/regional– Analysis of test marketing results and

amendment of product/production process– Preparations for launch – publicity, marketing

campaign


Introduction/Launch:– Advertising and promotion campaigns– Target campaign at specific audience? – Monitor initial sales– Maximise publicity– High cost/low sales– Length of time – type of product


Growth:– Increased consumer awareness– Sales rise– Revenues increase– Costs - fixed costs/variable costs, profits

may be made– Monitor market – competitors reaction?


Maturity– Sales reach peak– Cost of supporting the product declines– Ratio of revenue to cost high– Sales growth likely to be low– Market share may be high– Competition likely to be greater– Price elasticity of demand?– Monitor market –

changes/amendments/new strategies?


Saturation• New entrants likely to mean market is ‘flooded’• Necessity to develop new strategies becomes

more pressing:– Searching out new markets:

• Linking to changing fashions• Seeking new or exploiting market

segments• Linking to joint ventures – media/music,

etc.– Developing new uses– Focus on adapting the product– Re-packaging or format– Improving the standard or quality– Developing the product range


Decline and Withdrawal:– Product outlives/outgrows its

usefulness/value– Fashions change– Technology changes– Sales decline– Cost of supporting starts to rise too far– Decision to withdraw may be dependent

on availability of new products and whether fashions/trends will come around again?


Sales

Time

Development Introduction Growth Maturity Saturation Decline


Sales

Time

Effects of ExtensionStrategies


Generic Industry Environments

Types of Industry Environment

• Fragmented• Emerging• Declining• Mature• Global

Challenges for Fragmented Industries

What is a Fragmented Industry?

• Is an industry where no particular firm or organization has any significant market share and therefore cannot strongly influence the industry outcome.

• No single precise quantitative definition of a fragmented industry – but an industry that does not have any significant leader– Canned fruits– Toilet and Tissue paper– Machine Tools– Costume Jewellery

What makes an Industry Fragmented

• Low Overall Entry Barriers (not the most important one)

• Absence of Economies of Scale or Experience Curve• High Transportation Costs• Erratic Sales Fluctuations • No Advantage of Size in Dealing with Buyers/Suppliers• Diverse Market Needs (Uniforms for Local State/City

Police)• No Exit Barriers • Local Regulation (Liquor Retailing : Goan Wine in

Kolkata)• Newness (Solar cookers)

How to overcome Fragmentation?

• Create economies of Scale : eg : Kid’s Apparel Market

• Standardize diverse Market Needs : eg : Modular Kitchens

• Make Acquisitions for critical Mass : Steel• Recognize Industry Trends early if newness

was the cause : Dot Coms Amazon.com

How do your cope with Fragmentation?

• Tightly Managed Decentralisation• Formula Facilities (Common Warehousing)• Increased Value Added• Specialization by Product Type or Product

Segment (Furniture)• Specialization by Customer Type• Specialization by Type of Order (Small

Order/Custom Order)• Focussed Geographic Area• Bare Bones/No Frills (Low Overhead Costs –

Travel Trade)

Potential Strategic Traps

• Seeking Dominance• Lack of Strategic Discipline• Overcentralization• Assumption that Competitors have the Same

Overhead and Objectives• Overreactions to New Products

Formulating Strategy for Fragmented Industries

• Step One : What is the structure of the industry and the positions of competitors?

• Step Two : Why is the industry fragmented?• Step Three : Can fragmentation be overcome?

How?• Step Four : Is overcoming fragmentation

profitable? Where should the firm be positioned to do so?

• Step Five : If fragmentation is inevitable, what is the best alternative for coping with it?

Challenges for Emerging Industries

What is an Emerging Industry?

• Emerging industries are newly formed or re-formed industries that have been created by technological innovations, shifts in relative cost relationships, emergence of new consumer needs or other economic or sociological changes that elevate a product or service to the level of a potentially viable business opportunity.

• Solar Heating• Alternative Fuels• Internet based services• Fibre Optics• Packaged Drinking Water

Common Structural Characteristics

• Technological Uncertainty• Strategic Uncertainty• High Initial Costs Embryonic Companies

(Infosys at the time of launch)• First Time Buyers• Short Term Horizon• Subsidy

Problems Constraining Emerging Industries

• Inability to obtain Raw Material• Absence of Infrastructure• Absence of Product Standardization’• Perceived likelihood of Obsolescence• Customers Confusion• Erratic Product Quality• High costs• Image and Credibility with Financial

Community

Strategic Choices

• Shaping Industry Structure• Changing Role of Suppliers and Channels• Shifting Mobility barriers

• Timing Entry• Coping with Competitors• Forecasting• Which emerging Industry to enter??

Challenges for Declining Industries

What is a Declining Industry?

• Declining Industries can be described as those which have experienced an absolute decline in unit sales over a sustained period. Here the end game strategies must be developed.– Postal Services in Developed Nations– Hand Driven Ploughs in India– Magnetic Cassette Tapes in Developed

Nations– Glass containers for Milk and Packaged Water– Propeller Engines to Jet Engines

Causes of Decline

• Technological Advancement and Substitution• Demographics• Shift in needs

Strategic Choices

Favourable IndustryStructure for

Decline

Unfavourable IndustryStructure for

Decline

Has Strength RelativeTo Competitors for Remaining Pockets

Lacks Strength RelativeTo Competitors for Remaining Pockets

LeadershipOr

Niche

NicheOr

Harvest

HarvestOr

Divest Quickly

Divest Quickly

Strategy Analysis and Choice


Strategic management is not a box of tricks or a bundle of techniques. It is analytical thinking and commitment of resources to action. But quantification alone is not planning. Some of the most important issues in strategic management cannot be quantified at all.Peter Drucker


The Nature of Strategy Analysis and Choice Strategy analysis and choice seeks to

determine alternative courses of action that could best enable the firm to achieve its mission and objectives.

During this process the idea is to establish long-term objectives generate alternative strategies select appropriate strategies to

pursue.


Alternative strategies are derived from the firm’s vision the firm’s mission the firm’s objectives the external audit the internal audit past strategies that have worked well.

The Strategy-Formulation Analytical Framework

Stage 1:The Input Stage

Stage 2:The Matching Stage

Stage 3:The Decision Stage

Stage 1: The Input Stage

Stage 1:The Input Stage

Internal Factor EvaluationCorporation VMV, Objectives

And Resources (IFE)

External Factor Evaluation(EFE), Industry Structure, PLC, Environment, Market Mapping

Competitive Profile (CPE), Key Competitor Analysis,

Competitive Strategy Anlysis

Stage 2: The Matching Stage

Stage 2:The Matching Stage

Porter’s Generic Strategy Matrix (SBU’s)

SWOT Matrix (Corporation)

Ansoff’s Matrix (Market/Product)

BCG Matrix (Product/Brand Portfolio)

Porter’s 5 Forces Matrix (Industry)

Porter’s 5 Forces Model

Five Forces Determining Segment Structural

AttractivenessPotential Entrants

(Threat ofNew Entrants)

Buyers(Bargaining power

Of Buyers)

Substitutes(Threat of SubstituteProducts/Services)

Suppliers(Bargaining Power

Of Suppliers)

IndustryCompetitors

(Rivalry amongExisting firms)

Threat of Entry

• Barriers to Entry– Economies of Scale– Product Differentiation (Strong Brands)– Switching Costs (Buyers to buy the new

product)– Access to Distribution Channels– Cost Disadvantage (Depreciated Assets)– Government Policy (Airline to non metro

routes)

Rivalry Among Existing Firms

• Numerous or equally balanced competitors• Slow Industry Growth (Fight for market

share)• High Fixed Costs• Lack of Differentiation (Coke vs Pepsi)• Diverse Competitors• High Exit Barriers

Others

• Threat from Substitute Products (Sugar and Sugar Free)

• Bargaining power of Buyers (Organized Retail)

• Bargaining Power of Suppliers (Steel pre liberalization)

SWOT Analysis

The SWOT Matrix

In this Matrix we seek to match the organization’s internal resources and skills and the opportunities and risks created by the industry’s external environment.

S = Strengths W = Weaknesses O = Opportunities T = Threats

The SWOT Matrix A SWOT Matrix produces four types of

strategies SO Strategy use a firm’s internal strengths to

take advantage of external opportunities. WO Strategy aim at improving internal

weaknesses by taking advantage of external opportunities.

ST strategy use a firm’s strengths to avoid or reduce the impact of external threats.

WT strategy are defensive strategies directed at reducing internal weaknesses and avoiding external threats.

Developing the SWOT Matrix List the firm’s key external opportunities. List the firm’s key external threats. List the firm’s key internal strengths. List the firm’s key internal weaknesses. Match internal strengths with external

opportunities, and record the resultant SO strategy in the appropriate cell.

Match internal weaknesses with external opportunities, and record the resultant WO strategy.

Match internal strengths with external threats, and record the resultant ST strategy.

Match internal weaknesses with external threats, and record the resultant WT strategy.

SWOT Matrix

Leave Blank Strengths – S

List strengths

Weaknesses – W

List weaknesses

Opportunities – O

List opportunities

Threats – T

List threats

SO Strategy

Use strengths to takeadvantage of opportunities

WO StrategyOvercoming weaknesses by taking advantage of opportunities

ST Strategy

Use strengths to avoid threats

WT Strategy

Minimize weaknesses and avoid threats

SWOT Matrix

The purpose of each stage is to generate feasible alternative strategies, not to select or determine which strategies are best.

Not all of the strategies developed in the SWOT Matrix, therefore, will be selected for implementation.

Porter’s Generic Strategy


Cost LeadershipStrategy

Cost Focus Strategy

DifferentiationStrategy

Focussed Differentiation

Strategy


• Cost Leadership : is a low cost competitive start that aims at the broad mass market and requires aggressive construction of efficient scale facilities, cost reduction, and cost minimization in areas like R&D, Sales force and Advertising

• Because of its lower cost, the cost leader is able to charge a lower price for its products than its competitors and still make a satisfactory profit. Gives it a good defense against rivals.

• Eg : Dell Computers, Tata Steel


• Differentiation : is a a generic strategy that involves the creation of a slightly or significantly differentiated offering for which the company may charge a premium.

• This specialty can be associated with design, brand image, technology feature, dealer network or customer service.

• Differentiation is a viable strategy for earning above average returns in a specific business because the resulting brand loyalty lowers the customers sensitivity to price

• Eg : Rolex Watches


• Cost Focus : is a low cost strategy that focuses on a particular buyer group or geographic market and attempts to service only this niche to the exclusion of others.

• Eg : Nokia – lower end handsets for India


• Focussed Differentiation : like cost focus, concentrates on a particular buyer group, product line segment or geographic market. Segment targets buyers with unusual needs which are different from others in the industry. Not necessarily on price.

• Eg : Beauty products that have collagen or aloe vera…L’Occitane, Professional Cameras from Nikon, Pentax

Ansoff’s Matrix

Ansoff’s Concepts

• Market Penetration : selling more of the companies products in the existing market which means increasing the level of penetration in these segments. Eg : P&G and HUL

• Product Development : developing additional or new products to serve existing market segments. Eg : Coke into Minute Maid

• Market Development : concentrates on the present product range by searches for new segments. Eg Telecom Sector

• Diversification : marketing of new products into new markets. Eg : ITC : Apparel, Personal care from Cigarettes

Ansoff’s Matrix

Old New

Old

New

MarketPenetration

MarketDevelopment

ProductDevelopment

Diversification

PRODUCT

MA

RK

ET

BCG Matrix

The Boston Consulting GroupGrowth/Share Matrix

The Boston Consulting Group Matrix: A means of analyzing the product portfolio

and informing decision making about possible marketing strategies

Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968

Links growth rate, market share and cash flow

BCG Matrix

When a firm’s divisions compete in different industries, a separate strategy often must be developed for each business.

The BCG Matrix is designed to enhance a multidivisional firm’s efforts to formulate strategies.

Allows a multidivisional organization to manage its portfolio of businesses

Focuses on relative market share position and the industry growth rate.

BCG Matrix

High Low

Hig

hL

ow

Stars

Problem Child/Question Marks

Cash Cows

Dogs

MARKET GROWTH

MA

RK

ET

SH

AR

E

Classifies Products into four simple categories: Stars – products in markets experiencing high

growth rates with a high or increasing share of the market- Potential for high revenue growth

BCG Matrix

Cash Cows– High market share– Low growth markets – maturity stage of PLC– Low cost support– High cash revenue – positive cash flows

BCG Matrix

Dogs– Products in a low growth market – Have low or declining market share (decline

stage of PLC)– Associated with negative cash flow– May require large sums of money to support

BCG Matrix

Problem Child- Products having a low market share in a high

growth market- Need money spent to develop them- May produce negative cash flow- Potential for the future?

BCG Matrix

Implications Dogs

– Are they worth persevering with?– How much are they costing?– Could they be revived in some way?– How much would it cost to continue to

support such products?– How much would it cost to remove from the

market?

BCG Matrix

Implications Problem Children:

What are the chances of these products securing a hold in the market?

How much will it cost to promote them to a stronger position?

Is it worth it?

BCG Matrix

Implications Stars

– Huge potential– May have been expensive to develop– Worth spending money to promote– Consider the extent of their product life

cycle in decision making

BCG Matrix

Implications Cash Cows

– Cheap to promote– Generate large amounts of cash – use for further

R&D?– Costs of developing and promoting have largely

gone– Need to monitor their performance – the long term?– At the maturity stage of the PLC?

BCG Matrix

Sales

Time

AB

C

D

The product portfolio – four products in the portfolio

(1)

(1) ‘A’ is at maturity stage – cash cow. Generates funds for the development of ‘D’

(2)

(2) Cash from ‘B’ used to support ‘C’ through growth stage and to launch ‘D’. ‘A’ now possibly a dog?

(3)

(3) Cash from ‘C’ used to support growth of ‘D’ and possibly to finance extension strategy for ‘B’?

Importance of maintaining a balance of products in the portfolio at different stages of the PLC – Boston Matrix helps with the analysis

BCG Matrix

BCG Matrix

The major benefit of the BCG matrix is that it draws attention to the cash flow, investment characteristics, and needs of an organization’s various divisions.

Over time, organizations should strive to achieve a portfolio of divisions that are Stars.

BCG Matrix Limitations

Viewing every business as a star, cash cow, dog, or question mark is overly simplistic.

Many businesses fall right in the middle of the BCG matrix and thus are not easily classified.

The BCG matrix does not reflect whether or not various divisions or their industries are growing over time.

Other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions.

Let’s discuss the Retail Industry

Strategic Brand Positioning

Questions ?

• How can a firm choose and communicate an effective positioning in the market?

• How are brands differentiated?• What marketing strategies are

appropriate at each stage of the product life cycle?

• What are the implications of market evolution for marketing strategies?

Introduction• If your product is the same as your

competitors then you cannot win.• Your product must be different. There must

be a remarkable difference otherwise you will just compete on price with your competitors.

• Once you know that you are different then you can advertise it.

• All marketing strategy is built on Segmentation, Targeting and positioning (STP) of ones product/service.

• If a company does a poor job on positioning its product/service – the market will be confused.

What is Positioning?

• Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the mind of the target market.

Value Propositions

• Perdue Chicken– More tender golden chicken at a

moderate premium price• Domino’s

– A good hot pizza, delivered to your door within 30 minutes of ordering, at a moderate price

Defining Associations

Points-of-difference (PODs)

• Attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe they could not find to the same extent with a competitive brand

Points-of-parity (POPs)

• Associations that are not necessarily unique to the brand but may be shared with other brands

Conveying Category Membership

• Announcing category benefits• Comparing to exemplars• Relying on the product descriptor

Consumer Desirability Criteria for PODs

• Relevance• Distinctiveness• Believability

Deliverability Criteria for PODs

• Feasibility• Communicability• Sustainability

Examples of Negatively Correlated Attributes and Benefits

• Low-price vs. High quality

• Taste vs. Low calories

• Nutritious vs. Good tasting

• Efficacious vs. Mild

• Powerful vs. Safe• Strong vs. Refined• Ubiquitous vs.

Exclusive• Varied vs. Simple

Addressing negatively correlated PODs and POPs

• Present separately• Leverage equity of another entity• Redefine the relationship

Differentiation Strategies

• Product• Channel• Personnel• Image

Product Differentiation

• Product form• Features• Performance• Conformance• Durability• Reliability• Reparability

• Style• Design• Ordering ease• Delivery• Installation• Customer training• Customer consulting• Maintenance

Claims of Product Life Cycles

• Products have a limited life• Product sales pass through distinct stages

each with different challenges and opportunities

• Profits rise and fall at different stages • Products require different strategies in each

life cycle stage

Strategies for Sustaining Rapid Market Growth

• Improve product quality, add new features, and improve styling

• Add new models and flanker products• Enter new market segments• Increase distribution coverage• Shift from product-awareness advertising to

product-preference advertising• Lower prices to attract the next layer of price-

sensitive buyers

Stages in the Maturity Stage

• Growth• Stable• Decaying maturity

Marketing Product Modifications

• Quality improvements• Feature improvements• Style improvements

Marketing Program Modifications

• Prices• Distribution• Advertising• Sales promotion• Services

Ways to Increase Sales Volume

• Convert nonusers• Enter new market segments• Attract competitors’ customers• Have consumers use the product on more

occasions• Have consumers use more of the product on

each occasion• Have consumers use the product in new ways

Market Evolution Stages

• Emergence• Growth• Maturity• Decline

Emerging Markets

• Latent• Single-niche• Multiple-niche• Mass-market

Maturity Strategies

• Market fragmentation stage• Market consolidation stage

Competitive Pricing

Pricing Situations

• Deciding on how to price a new product or line of products

• Evaluating the need to adjust price as the product moves through the product life cycle

• Changing the positioning strategy that requires modifying the current price strategy

• Deciding on how to respond to the pressures of competitiveness

Examples

• Gillette : Sensor Excel, Mach 3 (35% higher) Mach 3 Turbo

• Nokia Handsets• FMCG products • Airline Fare• Hotel Tariffs• Steel• Consumer Durables

Pricing Objectives

• Gain Market Position : Big Bazaar – low prices• Achieve Financial Performance : Increasing

Margins• Product Positioning :

Premium/Leisure/Designer Products• Stimulate Demand : Discounts/Offers• Influence Competition : Cartels

Factors Affecting Pricing Situation

PricingSituation

CustomerPrice Sensivity

Legal &Ethical

Constraints

Competitor’sLikely

Response

Product Cost

Pricing Strategy

Passive Strategy

Active StrategyL

ow

Rela

tive

Pri

ceH

igh

Rela

tive P

rice

High ActiveStrategy

LowActiveStrategy

High PassiveStrategy

LowPassiveStrategy

Pricing Strategy

• High Active Strategy : Emphasizing High Price Product Positioning/High Margin Low Volume, Less subject to retaliation : High End Alcohol/Perfume/Apparel

• High Passive Strategy : Positioning focussing on non-price factors such as esteem, prestige. BMW, Mercedes, Watches

• Low Active Strategy : Discount Stores, where price is an important factor. Big Bazaar

• Low Passive Strategy : Products which have lower cost features. Do not emphasize the low price as it may give a wrong indication to quality.

• Neutral Pricing : Or at near the prices of the key competitor

All the best !!

Documents

Strategic Marketing