Developing a Strategic Vision about the Future

Answers to the following questions may indicate the possibility of a market changing significantly in the future.

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

2. Do firms compete as “distinct entities” or as families of suppliers and end product firms?

3. Is there competition for managing migration paths?

4. Is competition taking place at product line, business, and corporate levels? Do these levels of competition influence each other?

5. Can there be competition between clusters of firms to influence standards and industry evolution?

Phases of Competition

It is useful to distinguish between different phases in the development of competition.

Anticipating the Future

Increasingly, we find that change and turbulence, rather than stability, characterize many product-markets.

Hamel and Prahalad offer a compelling blueprint for analyzing the forces of change. While the details of their process cannot be captured in a few pages of discussion, the following questions are illustrative of the information needed to anticipate the future.

· 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.

· How will the trend impact customers?

· What is the likely economic impact?

· How is exploiting this trend?

· Who has the most to gain/lose?

· What new product opportunities will be created by this discontinuity?

· How can we learn more about this trend?

Market Size Estimation

Three key measures of market size are: market potential, sales forecast, and market share.

Market Potential

Market potential is the maximum amount of product sales that can be obtained from a defined product-market during a specified time period.

Sales Forecast

The sales forecast indicates the expected sales for a defined product-market during a specified time period.

The Boeing Current Market Outlook is a very complete analysis of demand for commercial airplanes and aviation support services. It is a useful basic forecasting guide for the various companies serving the commercial aviation market.

Market Share

Company sales divided by the total sales of all firms for a specified product-market determines the market share of a particular firm.

Evaluating Market Opportunity

Since a company‘s sales depend, in part, on its marketing plans, forecasts and marketing strategy are closely interrelated.

Analyzing Competition

Competitor analysis considers the companies and brands that compete in the product-market of interest.

Defining the Competitive Arena

Competition often includes more than the firms that are considered to be direct competitors, like Coke and Pepsi.

The industry identification is based on product similarity, location at the same level in the value chain (e.g., manufacturer, distributor, retailer), and geographical scope. The industry analysis consider:

· Industry size, growth, and composition.

· Typical marketing practices.

· Industry changes that are anticipated (e.g., consolidation trends).

· Industry strengths and weaknesses.

· Strategic alliances among competitors.

Analysis of the Value-Added Chain. The study of supplier and distribution channels is important in understanding and serving product-markets.

Competitive Forces. Michael porter’s five competitive forces that impact industry performance:

1. Rivalry among existing firms.

2. Threat of new entrants.

3. Threat of substitute products.

4. Bargaining power of suppliers.

5. Bargaining power of buyers.

Key Competitor Analysis

Competitors analysis is conducted for the firms directly competing with each other (e.g., Nike and Reebok) and other companies that management may consider important in strategy analysis (e.g., potential market entrants).

We now look at two major aspects of competitor analysis: (1) preparing a descriptive profile for each competitor, and (2) evaluating the competitor’s strengths and weaknesses (Step 2 and 3 of Exhibit 3.7).

Describing and Evaluating the Competitor. A key competitor is any organization going after the same market target as the firm conducting the analysis.

Anticipating Competitor’s Actions

The information obtained in the previous steps of the analysis should be helpful in estimating future trends, although possible strategy shifts by competitors may occur.

Estimating Competitors’ Future Strategies. Competitors’ future strategies may continue the directions that they have established in the past, particularly if no major external influences require changing their strategies.

Identifying New Competitors. Market entry by a new competitor is more likely under these conditions:

· High profit margins are being achieved by market incumbents.

· Future growth opportunities in the market are attractive.

· No major market-entry barriers are present.

· Competition is limited to one or a few competitors.

· Gaining an equivalent (or better) competitive advantage over the existing firms(s) serving the market is feasible.

Describing and Analyzing End Users

After determining the product-market structure it is useful to develop profiles of end user buyers for the generic, product-type, and product-variant levels of the product-market.

Identifying and Describing Buyers

Characteristics such as family size, age, income, geographical location, and occupation are often useful in identifying buyers in consumer markets.

How Buyers Make Choices

Often, simply describing buyers does not provide enough information to guide targeting and positioning decisions. We also need to try find out why people buy products and specific production brands.

Environmental influences

The final step in building customer profiles is to identify the external factors that influence buyers and thus impact the size and composition of the market over time.

Building customer profiles

Describing customers starts with the generic product-market.

Product-Market Scope and Structure

Matching Needs with Product Benefits

The term product-market recognizes that markets exist only when there are buyers with needs who have the ability to purchase goods and services (products) and products are available to satisfy the needs.

Determining Product-Market Boundaries and Structure

Product-Market Structure. A company’s brands compete with other companies’ brands in generic, product-type, and product-variant product- markets. The generic product-market includes a broad group of products that satisfy a general, yet similar, need.

The product-type product-market includes all brands of a particular product type or class, such as ovens.

Guidelines for Definition. In determining the scope of the product-market, it is helpful to identify (1) the basis for identifying buyers in the product-market of interest (geographical area and buyer characteristics such as age group), (2) the market size and characteristics, and (3) the brand and /or product categories competing for the needs and wants of the buyers included in the product-market.

Forming Product-Markets

The factors that influence how product-market boundaries are determined include the purpose for analyzing the product-market, the rate of changes in market composition over time, and the extent of market complexity.

Purpose of Analysis. If management is deciding whether or not to exit from a business, primary emphasis may be on financial performance and competitive position.

Changing Composition of Markets. Product-market composition may change as new technologies become available and new competition emerges.

Extent of Market Complexity. Three characteristics of markets capture a large portion of the variation in their complexity: (1) the functions or uses of the product required by the customer, (2) the technology contained in the product to provide the desired function, and (3) the different customer segments using the product to perform a particular function.

Ø Customer function considers what the good or service does.

Ø Different technologies may satisfy the use situation of the customer.

Ø Customer segment recognizes the diversity of the needs of customers in a particular product-market such as automobiles.

Markets and Competitive Space CH: 3

Markets are increasingly complex, turbulent, and interrelated, creating challenges for managers in understanding market structure and identifying opportunities for growth. Consider, for example, the pervasive impact of digital technology on computer, telecommunications, photography, and office equipment markets and competitive space.

There is perhaps no better example of the importance of understanding markets and developing a vision of how they are likely to change in the future than the market for cell phones.

Markets and Strategies

Market knowledge is essential in guiding business and marketing strategies.

Markets and Strategies Are Interlinked

Market changes often require altering business and marketing strategies. Managers that do not understand their markets, and how they will change in the future, may find their strategies inadequate as buyers’ value requirements change and new products become available that better satisfy buyers’ requirements.

Value Migration

Value migration describes the process of customers shifting their purchases away from the products generated by outmoded business designs to new ones that offer superior value.

Preparing the Marketing Plan

Marketing plans vary widely in scope and detail.

Planning Relationships and Frequency

Marketing plans are developed, implemented, evaluated, and adjusted to keep the strategy on target. Since the marketing strategy normally extends beyond one year, it is useful to develop a three-year strategic plan and an annual plan to manage marketing activities during the year.

Planning Considerations

Suppose that you need to develop a plan for a new product to be introduced into the national market next year.

Responsibility for Preparing Plans. A marketing executive or team is responsible for preparing the marketing plan.

Planning Unit. The choice of the planning unit may vary due to the product- market portfolio of the organization.

Preparing the Marketing Plan

The Conference Board offers several examples of plan formats in its excellent reports on marketing planning. Format and content depend on the size of the organization managerial responsibility for planning, product and market scope, and other situational factors.

The Situation Summary. This part of the plan describes the market and its important characteristics, size estimates, and growth projections.

Describe the Market Target. A description of each market target, size and growth rate, end users’ characteristics, positioning strategy guidelines, and other available information useful in planning and implementation are essential parts of the plan.

Objectives for the Market Target(s). Here we spell out what the marketing strategy is expected to accomplish during the planning period.

Marketing Program Positioning Strategy. The positioning statement indicates how management wants the targeted customers and prospects to perceive the brand.

Forecasting and Budgeting. Financial planning includes forecasting revenues and profits and estimating the costs necessary to carry out the marketing plan.

International Planning Process. Planning for global operations is more complex than domestic planning

Internal Strategy

The explosive growth of Internet initiative has resulted in a variety of Web strategies which may impact the business and marketing strategies of existing firms, and lead to the formation of new business designs.

Major Force for Change

The Internet era provides a new way of developing relationships between and user customers, value-chain members, and alliance partners.

Strategy and the Internet

While some authorities argue that the Internet will make conventional strategies obsolete, a more compelling logic is that the Internet is a powerful complement to traditional business and marketing strategies.

While there are various strategy initiatives regarding the Internet, they correspond to one of the following:

· Formation of a separate business model as an independent venture or an initiative by an existing company.

· Amazon.com Inc. is an example of the former whereas Sabre’s Travelocity. Com venture was initiated by an existing company.

· Creation of a separate value-chain channel direct from the producer to the end user. Dell Inc. uses this Internet strategy.

· Using the Internet as an information resource.

This initiative is used by various organizations such as Business Week.

· Using the Web for advertising and sales promotion activities.

· These activities may be provided for one or more sponsors by a Web-based enterprise that offers users information at no charge. Ad revenues support the enterprise.