Chapter 3 notes marketing
Chapter 3 notes marketing MKTG 3310-001
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This 13 page Class Notes was uploaded by Mary-Cynthia Okeke on Saturday September 17, 2016. The Class Notes belongs to MKTG 3310-001 at Auburn University taught by MICHAEL KINCAID in Fall 2016. Since its upload, it has received 59 views. For similar materials see PRINCIPLES OF MARKETING in MKT-Marketing at Auburn University.
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Date Created: 09/17/16
Principles of Marketing Chapter 3 notes Creating Competitive Advantage In today’s world, companies are facing their toughest competition ever and to succeed, companies must move from a product-and-selling philosophy to a customer-and- marketing philosophy. What is Competitive Advantage? It is an advantage over competitors gained by offering consumers greater value. Building profitable customer relationships require delivering more value and satisfaction to target customers than competitors do. What are Competitive Marketing Strategies? These are strategies are how companies analyze their competitors and develop value-based strategies for profitable customer relationships. It gives companies the greatest possible competitive advantage. What is Competitor Analysis? This is the process of identifying, assessing and selecting key competitors. To plan effective strategies, a company needs to find out all it can about its competitors. Identifying Competitors Normally, identifying competitors would seem to be a simple task. However, this is not the case. At the lowest level, companies may define its competitors as all firms making the same product or class of products, all firms making products that supply the same service and all firms competing for the same consumer dollars. Companies should try to avoid “competitor myopia”. It is defined as a focus on a competitor or rival that is so intense that it causes distraction from larger strategic threats or opportunities. Companies can also identify their competitors from an industry and market point of view. Industry vs Market point of view From an industry point of view, Nike might see Adidas and Under Armor as competitors because they are in the same industry. Athletic Apparel. From a market point of view, Nike might see all outdoor apparel firms (Columbia, Timberland, Solomon) as competitors because they attempt to satisfy the same customer need or build relationships with the same customer group. Assessing competitors After identifying your competitors, you need to determine your competitor’s objectives. The company wants to know the relative importance that a competitor places on current profitability, market share growth, cash flow, technological leadership, service leadership and other goals. Knowing a competitor’s mix of objectives reveals whether the competitor is satisfied with its current situation and how it might react to different competitive actions. Identifying competitors’ strategies A Strategic Group is a group of firms in an industry following the same or similar strategy in a given target market. It offers the strongest competition. For example, GE and Whirlpool belong to the same strategic group. Each produces a full line of medium-price appliances supported by good service. Assessing Competitors’ Strengths and Weaknesses Marketers need to carefully assess each competitor’s strengths and weaknesses to answer a critical question: what can our competitors do? Companies normally learn about their competitors’ strengths and weakness through secondary data, personal experience, and word of the mouth. Alternatively, they could do benchmarking which is comparing the company’s products and processes to those of other competitors or leading firms in other industries to identify best practices and find ways to improve quality and performance. Benchmarking is a powerful tool used to increase a company’s competitiveness. Estimating Competitors’ Reactions Marketing managers need a deep understanding of a competitor’s mentality if they want to anticipate how that competitor would react. Knowing how major competitors react gives the company clues on how best to attack competitors or how best to defend its current positions. Selecting Competitors to Attack and Avoid Strong or Weak competitors A useful tool for assessing competitor strengths and weaknesses is customer value analysis. This is an analysis conducted to determine what benefits target customers value and how they rate the relative value of various competitors’ offers. Most companies would prefer to compete against weak competitors. These would obviously require fewer resources and less time. But in the long run, the firm may gain little. You could also argue that a company should compete with strong competitors to sharpen its abilities. But even strong competitors have some weaknesses and succeeding against them often provides greater returns. Close or Distant Competitors Firms will compete with those firms that resemble them most (“closeness”). SO, Nike will compete more with Adidas and Under Armor than with Timberland. Sometimes it is better to “support” a healthy, close, but weaker competitor than not. The danger in destroying a close competitor is that a much stronger competitor may take their place. Remember, in the BCG Matrix, an unattractive SBU (The Dog) may become a “Star” for another firm through divesting. Good or Bad Competitors Good competitors play by the rules. They share the costs of market and product development and help legitimize new technologies. They help increase total demand and They may serve less attractive segments or lead to more product differentiation. In contrast, bad competitors break the rules. They try to buy the market share rather than earn it. Sometimes, they take large risks that destabilize the industry. Example, the Huffington Post. Designing a Competitive Intelligence System The competitive intelligence system first identifies the vital types of competitive information needed and best sources of this information. Then the system continually collects information. Next, the system checks the information for validity and reliability, interprets it, and organizes it in an appropriate way. Finally, it sends relevant information to decision makers and responds to inquiries from managers about competitors. This way companies can receive timely intelligence and information about their competitors. They use it when they need to interpret a competitors’ sudden move, know the competitors’ strengths and weaknesses and assess how a competitor would respond to a planned company move. Competitive strategies Approaches to Marketing strategies Entrepreneurial Marketing This involves visualizing an opportunity and constructing and implementing flexible strategies. Most companies are started by individuals who live by wits. They visualize an opportunity, construct flexible strategies on a piece of paper and knock on every door to get attention. Example Jim Koch’s Samuel Adams Boston Lager beer. Formulated Marketing This involves developing formal marketing strategies and following them closely. Although Boston beer is less than formal and sophisticated in its strategy, it has adopted some of the tools used in professionally run market companies. Intrepreneurial Marketing This involves the attempt to reestablish an internal entrepreneurial spirit and refresh marketing strategies and approaches. Sometimes companies lose the marketing creativity and passion they had at the start. Intrepreneurial marketing is done to encourage more marketing initiative and “intrepreneurship” at the local level. Not one strategy is best for all companies. Each company must determine what makes the most sense given its position in the industry and its objectives, resources and opportunities. Basic Competitive Strategies Michael Porter suggested four basic competitive positioning strategies that companies can follow; Overall cost leadership A company achieves the lowest production and distribution costs and allows it to lower its prices and gain market share. Walmart and JetBlue Airways are leading practitioners of this strategy. Differentiation A company concentrates on creating a highly differentiated product line and marketing program so it comes across as an industry class leader. Most customers would prefer to own this brand if its price is not too high. Nike and Caterpillar follow this strategy. Focus Here, the company focuses its effort on serving a few market segments well rather than going for the whole market. Examples of companies that follow this strategy are Four Seasons, Bose, Ritz-Carlton. Basic Competitive Strategies Michael Treacy and Fred Wiersema suggest companies can gain leadership positions by delivering superior value to their customers in three strategies or what they call “value disciplines.” Operational Excellence This 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. Examples include Walmart, Zara, Southwest airlines. Customer Intimacy The company provides superior value by precisely segmenting its marketing and tailoring its products or services to exactly match the needs of targeted customers. It specializes in satisfying unique customer needs through a close relationship with and intimate knowledge of the customers. Companies that follow this strategy will almost anything to build long-term customer loyalty and capture customer lifetime value. Examples are Lexus, Nordstrom, Zappos and Ritz- Carlton hotels. Product leadership The company provides superior value by offering a continuous stream of leading-edge products or services. It aims to make its own and competing products obsolete. Product leaders are always open to new ideas and would relentlessly pursue new solutions and work to get new products to the market quickly. An example of a company that follows this strategy. Competitive Positions There are three roles firms play in the target market. Market Leaders These are firms in an industry with the largest market share. They are defined by 40% minimum market share and usually leads the other firms in price changes, new product introductions, distribution coverage and promotion spending. Some of the best-known leaders are Walmart, Amazon, Verizon, Nike, Coca-Cola, Google, Facebook and McDonald’s. As a leader, life is not always easy. It must maintain a constant watch. Other firms keep challenging its strengths or trying to take advantage of its weaknesses. The market leader can easily miss a turn and may fall into second place or third place. Market leaders expand total demand by developing; • New users • New uses for products • More usage of products Market leaders protect current market share by; • Fixing or preventing weaknesses that provide opportunities to competitors • Maintaining consistent prices that provide value • Keeping strong customer relationships • Promoting continuous innovation Market leaders expand market share by; • Increasing profitability with increasing market share in served markets • Producing high-quality products • Creating good service experiences • Building close relationships Market Challenger Strategies Market Challengers are defined by 30% market share. Examples are PepsiCo, Ford, AT&T, Hertz. A market challenger must define which competitors to challenge and its strategic objective. The challenger can attack the market leader which is considered a high-risk but could potentially gain high returns. Sometimes the goal of a Challenger may be to take over market leadership or to simply wrest more market share. Challengers observe what has made the leader(s) successful and improves on it. Alternatively, Challengers can avoid the leader and challenge firms its own size, smaller local and regional firms. Market Follower Strategies A follower can gain many advantages. The market leader often bears the huge expenses of coming up with new products and markets, expanding distribution, and educating the market. Unlike challengers, the market follower can learn from the market leader’s experience. It can copy or improve on the leader’s products and programs, usually with much less investment. Following is not the same thing as being passive or a carbon copy of the market leader. A follower must know how to hold current customers and win a fair share of new ones. Each follower tries to bring distinctive advantages to its target market. A market follower is most times, a major target for challengers. Market Nicher Strategies Almost every industry includes firms that specialize in serving market niches. Instead of pursuing the whole market or even large segments, they pursue sub- segments. Why is niching profitable? The main reason is that the Nicher ends up knowing the target customers so well that it meets their needs better than other firms that casually sell to the niche. The key to market niching is specialization: • Market • Customer • Product • Marketing mix Balancing Customer and Competitor Orientations A Customer-centered company spends most of its time focusing on customer developments in designing strategies. Obviously, the customer- centered company is in a better position to identify new opportunities and set long-run strategies that make sense. By watching customer needs evolve, it can decide what emerging needs are the most important to serve. A Competitor-centered company is one that spends most of its time tracking competitors’ moves and market shares and trying to find strategies to counter them. This has advantages and disadvantages. The advantage is that the company becomes a fighter. It watches for weaknesses on its own position and searches it out competitors’ weaknesses. A Market-centered company is that spends most of its time watching both their customers and competitors. However, they do not let competitor- watching blind them to customer-focusing.
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