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Test 2 Study Guide

by: Callisa Ruschmeyer

Test 2 Study Guide MKTG 3310-001

Callisa Ruschmeyer
GPA 4.0

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About this Document

All of Chapter 3 -Blue vs. Red Oceans -Competitive Advantage -Competitor Analysis -Competitor Strategies -Competitor Orientations
Study Guide
kincaid, principles of marketing, Study Guide, Chapter3, blue ocean
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This 9 page Study Guide was uploaded by Callisa Ruschmeyer on Thursday September 15, 2016. The Study Guide belongs to MKTG 3310-001 at Auburn University taught by MICHAEL KINCAID in Fall 2016. Since its upload, it has received 131 views. For similar materials see PRINCIPLES OF MARKETING in Marketing at Auburn University.

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Date Created: 09/15/16
Test 2 Study Guide  The Wii occupied the Blue Ocean, which means it was uncontested o Added females and elders o Targeted families o Differed the way of playing = motion o Not about controllers but about the magic wand o Interaction became key  Southwest gave us transportation in the air at the price of the bus; eliminated the unnecessary perks and gave you more value instead, and for cheaper  Innovation is always followed by imitation  Strategy- avoid competition if you can o Skimming- you created the demand that didn’t exist, so you can charge whatever you want and 'skim' all the benefits off the top Blue Ocean vs. Red Ocean Strategy  Uncontested market space- look at all markets and see if there is some utility you can add to your target market  Red Ocean Blue Ocean  Basis of competition is trying to  All the industries not in existence today get a bigger share in the same  You create the demand rather than fight defined market over it (capture new demand instead of  Boundaries are defined and exploiting existing demand) accepted  You define the rules for competition  Competitive rules of the game  You are the ONLY player/occupant in such are well-known and predefined a market space  Not worthless  Eventually they turn into red oceans  Try and beat the competition vs.  Try and make competition irrelevant eliminating it Strategic Sequence of Blue Ocean Strategy 1. Buyer utility- is there exceptional buyer utility in your business idea? 2. Price- is your price easily accessible to the mass of buyers? 3. Cost- can you attain your cost target to profit at your strategic price? 4. Adoption- what are the adoption hurdles in actualizing your business idea?  All for = a commercially viable blue ocean idea Four Action Framework  Eliminate what the industry takes for granted; reduce cost  Or reduce those elements; reduce cost below the industry's standard  Raise the level of factors that you value above what the market thinks is important; add value  Create new factors that the industry doesn’t find important, but you do; add value that the industry has never offered  Elements that strategically reduce cost: reduce and eliminate  Elements that strategically provide investment: raise and create Test 2 Study Guide Value Innovation  Value innovation places equal emphasis on value and innovation  Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean  The creation of blue oceans is about driving costs down while simultaneously driving value up for buyers  Example that added form and promotion utility o Yellow Tail wine o Nintendo Wii o Cirque du Soleil Strategic Canvas  Looking for where the curves diverge  Diverge is how your product differs  Diverging factors occur because of the four action framework  Divergence in either direction is good- but you want high divergence in what matters to the consumer and may have to sacrifice divergence in other areas o What I mean by that: Wii had high divergence in family oriented but also had high divergence in cost because the new system was more expensive- the benefits of family oriented outweighed the negatives of the higher cost Possession Utility 1. Identify the price corridor of the mass o Look at three alternative product/service types  Same form  Different form but same function  Different form and function but same objective 2. Specify a price level within the price corridor o Upper-level pricing: high degree of legal and resource protection; difficult to imitate o Mid-level pricing: some degree of legal and resource protection o Lower-level pricing: low degree of legal and resource protect; easy to imitate Buyer Utility Map  Compares the six stages of the buyer experience cycle to the utility levers  Buyers' Experience o Purchase --> delivery --> use --> supplements --> maintenance --> disposal  Utility Levers o Customer productivity- the innovation helps customers do things faster, better, or in different ways  Sales people and smart phones = huge productivity o Simplicity- the innovation offers enhanced ease-of-use o Convenience- the innovation makes a desired activity easier to perform  The internet makes buying goods easy  Amazon, Zappos, etc. Test 2 Study Guide o Risks- the innovation minimizes customers' financial or physical risks (& social and time off risks)  Example: PayPal o Fun and image- the innovation delights customers o Environment friendliness- the innovation facilitates recycling and other environmentally sensitive practices Buyers Experience Cycle: 3 questions for each stage 1. Do customers need to complete specific tasks, solve specific problems or satisfy specific needs at this stage in the cycle? 2. Do customer experience pains (undesired costs, situations, and risks) at this stage in the cycle? 3. Do customers have any desires (benefits they expect or desires they would be surprised by) at this stage in the cycle?  If you reduce customer effort, you increase brand loyalty  High levels of service can substitute for high customer effort o Example- Charter  They give you free HBO to make you feel better about missing an appointment; but does that really compensate for them just being better to begin with  HBO isn't working- call the number- can't connect  This is a good opportunity for a competitor to come and pull market share  You have to wait from 12-5pm to have it installed  Effort is a cost  Risk- time lost, added hassle  Which of the 6 levels affect social risk- social risk is the fear of being disappointed because of the product you bought, use, disposed, etc. of it? IMAGE  Why do people wear camo to a restaurant? It is all about image. Creating Competitive Advantage  Competitive advantages- require delivering more value and satisfaction to target consumers than competitors  Competitive marketing strategies- how companies analyze their competitors and develop value-based strategies for profitable customer relationships Competitor Analysis 1. Identifying competitors o Competitors can include:  All firms making the same product or class of products  All firms making products that supply the same service  All firms competing for the same consumer dollars Test 2 Study Guide o Industry vs. Market Point of View Industry View Market View Nike might see Adidas and Nike might see all outdoor apparel firms Under Armor as competitors (Columbia, Timberland, Solomon) as because they are in the same competitors because they attempt to satisfy the industry- Athletic Apparel same customer need or build relationships with the same customer group 2. Assessing competitors' objectives, strategies, strengths and weaknesses, and reaction patterns Competitors' Competitors' Competitors' Estimating objectives strategies strengths and competitors' weaknesses reactions  Profitability  Strategic group  What can our  What will our  Market share offers the competitors do? competitors growth strongest  Benchmarking do?  Cash flow competition  Technological leadership  Service leadership  Competitor reactions to change in price o Develop a fighting brand  Lower priced product that competes- forces customers to compare two lower priced items rather than the premium price with the lower price  Example: Polo vs. Chaps - both branded by Ralph Lauren but one is distinctively priced cheaper than the other o Reduce prices  Reduce prices and follow the competition  You can liquidate your brand equity  Drops profitability of the entire industry o Increase advertising spend  Price elasticity of the demand- demand changes as price changes  As price increases, demand decreases  As price decreases, demand increases  Advertising elasticity of demand- the more you spend on advertising, the greater the demand will be o Increase sales promotions  Increase promotions - increase awareness - increase demand  If we know our competition, we can predict with some certainty, which of ALL of these actions we should take Test 2 Study Guide 3. Selecting Competitors to Attack and Avoid o Customer value analysis determines the benefits that target customers' value and how customers rate the relative value of various competitors' offers o Identification of major attributes that customers value and the importance of these values o Assessment of the company's and competitors' performance on the valued attributes o Close or distant competitors  Firms will compete with those firms that resemble them most ("closeness")  Example- Nike will compete more with Adidas and Under Armor than with Timberland  The smart competitor offers lots of benefits  Sometimes it's better to "support" a healthy, close, but weaker competitor than not  If you beat out all competitors, you run the risk of a different major company taking that market space, which causes your company an even great risk  An unattractive SBU (the dog) may become a "star" for another firm through divesting o Good or bad competitors  Good competitors: play by the rules of the industry (don't want to kill off, just beat)  "Share" in the cost of market and product development  Legitimize new technology  They may serve less attractive segments or lead to more product differentiation  They may help increase total demand  Bad competitors don't play by the rules (avoid)  Rather than engaging in market building by bringing new consumers to the market, they grow their business by buying share (share building) not earning it  Buy business instead of earning it  They take large risks that may destabilizes the industry resulting in decreased profits for all firms  They play by their own rules  Continental Airlines, Huffington Post Competitor Strategies  Approaches to marketing strategy o Entrepreneurial marketing- involves visualizing an opportunity and constructing and implementing flexible strategies  Gorilla marketing- getting extremely close to the customer  Replaces financial capital with intellectual capital o Formulated marketing- involves developing formal marketing strategies and following them closely Test 2 Study Guide o Intrepreneurial marketing- involves the attempt to reestablish an internal entrepreneurial spirit and refresh marketing strategies and approaches  Take existing products and use different strategies to give products a "rebirth" Basic Competitive Strategies  Michael Porter's four basic competitive positioning strategies 1. Overall Cost Leadership o A company achieves the lowest production and distribution costs and allows it to lower its prices and gain market share o You have found what your customer wants, so now in the production process, you try and create for the lowest price possible o Low price does not sacrifice quality- companies just find the sources of inputs for lower prices (outsource) o With lower prices, companies usually tend to sacrifice customer service  The effortless experience is more in line with Publix than with Walmart or Sam's o Examples- Walmart, JetBlue, Texas Instruments 2. Differentiation Strategy o A company concentrates on creating a highly differentiated product line and marketing program so it comes across as an industry class leader o Focus on adding value by creating the form, place, possession, etc, that the customer wants o Examples- Under Armor, Caterpillar, Publix, Apple, Delta 3. Focus Strategy o A company focuses its effort on serving few market segments well rather than going after the whole market o Going after a small,well-defined target market o Less competition, but costs are usually high o The Focus strategy does not physically add any greater value than the other two strategies, it just appears to add value from the targeted customer standpoint o Examples- Four Seasons, Bose 4. Middle of the Road o A company that pursues a clear strategy will achieve superior performance…a company without a clear strategy will not succeed o Examples- Sears, Holiday Inn Value Disciplines  Michael Treacy and Fred Wiersema suggest companies can gain leadership positions by delivering superior value to their customers in three "value Disciplines 1. Operational Excellence o Refers to a company providing value by leading its industry in price and convenience by reducing costs and creating a lean and efficient value delivery system o Examples- IKEA, Southwest Airlines, Walmart, Costco Test 2 Study Guide 2. Customer Intimacy o Refers to a company providing superior value by segmenting markets and tailoring products or services to match the needs of the targeted customers  These targeted customers are willing to pay a higher price to get exactly what they want o Delighting customers through a super high level of service may produce high levels of brand loyalty, but pales in comparison to "effortless experience"  Effortless experience- do what you say you are were going to do; deliver on your promises o Customer intimacy competes with customer relief 3. Product Leadership/Differentiation o Refers to a company providing superior value by offering a continuous stream of leading-edge products or services o Open to new ideas and solutions and bring them quickly to the market o Innovation: continuous, discontinuous, disruptive (in a positive way- things that require us to change the way we use a certain product) o Examples- Apple, Under Armor Competitive Positions  Market leader strategies o 40% share o Expand total market/demand  New users- untapped market segments in many places  New uses  More usage- use product more or use more per occasion o Protect market share- good defensive and offensive actions  Fixing or preventing weaknesses that competitors could take advantage of  Maintain consistent prices that provide value  Keeping strong customer relationships  Promoting continuous innovation o Expand market share- if market size remains constant  Increasing profitability with increasing market share in served markets  Producing high-quality products  Creating good service experiences  Building close relationships  Market challenger strategies o 30% share o Full frontal attack: challenge the leader with an aggressive bid for more market share o Indirect attack/second mover advantage: challenger observes what has made the leader successful and improve on it  Market follower strategies o 20% share o Play along with competitors and do not rock the boat o Copy or improve on leader's products and programs with less investment o Bring distinctive advantages Test 2 Study Guide o Keep costs and prices low or quality and services high  Market nicher strategies o 10% share o By market, customer, product, marketing mix o Multiple niching o Ideal market niche is big enough to be profitable with high growth potential and has little interest from competitors Balancing Customer and Competitor Orientations  Competitor-centered company o Spends most of its time tracking competitors' moves and market shares and trying to find ways to counter them  Advantage- the company is a fighter  Disadvantage- the company is reactive  Customer-centered company o Spends most of its time focusing on customer developments in designing strategies o Provides a better position than competitor-centered company to identify opportunities and build customer relationships  Market-centered company o Spends most of its time focusing on both competitor and customer developments in designing strategies o Balances the other two: you know and understand competitors' tactics, but you are familiar with what your customers value and want  Review o Product orientation- not customer or competitor centered o Competitor orientation- competitor centered but not customer centered o Customer orientation- customer centered but not competitor centered o Market Orientation- both customer and competitor centered Lowdown of what to know from Kincaid  Be able to distinguish between red and blue oceans and what makes them different o The main point- blue oceans have irrelevant competitors  Know the strategic sequence o Buyer utility --> price --> cost --> adoption === a commercially viable blue ocean idea  Buyer Utility Map: Industry circles are generic; blue ocean circles are where the company sticks out  Four action framework- how you use this process to find a blue ocean offer o (1)eliminate, (2)reduce, (3)raise, (3)create o If you complete 2-4 of these, you are creating uncontested market space  Value Innovation- middle orange wedge- innovate greatness and reduce risks  Strategic Canvas- look at one and describe the blue ocean o Where your product diverges from the industry Test 2 Study Guide  Price Corridor of the Mass oThe higher-leveled price usually means that you are harder to imitate and it is an easier product to defend  Buyer’s Experience and the 3 questions you ask oDo customers need to complete a specific task? oDo they experience pain? oDo they have desires or benefits you can surprise them with?  Know utility levers and how to define them oCustomer productivity, simplicity, convenience, risks, fun and image, environmental friendliness  Complete a buyer utility map…but on a multiple choice test, so…


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