1-2 Competition and Product Strategy

COMPETITION AND
PRODUCT STRATEGY
INTRODUCTION
• Basic objective – Survive
• Achieved by – fittest and most flexible
organizations
• To survive one must compete
• Product strategy is fundamental to a firm’s
competitiveness
• The emergence of global competition
– Competition is the process by which the
‘invisible hand’ of the market seeks to solve
the basic economic problem of maximizing
satisfaction from the consumption of scarce
resources
– Elimination of want through
• Organizational innovation : Task specialization and
the division of labor
• Social innovation : The establishment of markets
and exchange
• Technological innovation : The harnessing of
energy, creation of tools, etc.
• Task specialization increases productivity and
adds value
• Specialists must be able to exchange surpluses
of their output through the establishment of
markets
• Technological innovation, entrepreneurship, the
division of labor and professional management
increases volume and variety of goods
• International trade leads to global competition
and further increases in productivity
COMPETITIVENESS, MARKETING
AND PRODUCT STRATEGY
• Marketing is concerned with ‘mutually
satisfying exchange relationships’
• Decisions about what to produce, where,
in what quantities, etc. must be
determined by reference to consumer
demand
• Firms create competitive advantage by act
of innovation (NPPD)
Existing segment
New market opportunity

MARKETING AND COMPETITIVE
SUCCESS
• Factors for competitive success
– At strategic level
• Long-term approach
• Specific strategic objectives
• Linking strategic plans closely with changes in
markets
• Continuous commitment to new product
development
– At tactical level
• Market research
• Market segmentation
• Promotional techniques
• A commitment to continuous innovation through
new product and process development is the
source of sustainable competitive advantage
(SCA)
• The introduction of new or improved products,

which meet the needs of the customer, quickly,
reliably and at a competitive price, gives a
company an edge over its competitors
ENVIRONMENTAL CHANGE
• All firms compete within the same macro-
environment.
• The nature of this environment is determined by
a wide variety of factors usually summarised as:
– Political and legal
– Economic
– Social
– Technological
• Impact of innovation and technological
change
Standardization --------------- ---> Customization
Centralization --------------- ---> Decentralization
Dependence --------------- ---> Self-help
Transportation --------------- ---> communication
Autocracy --------------- ---> Participation
Hierarchy --------------- ---> Network
Information scarcity --------------- ---> Information overload
• In the domain of marketing
Past Future
Demographics ------------------------ Psychographics
Individualism ------------------------ Community
Status objects ------------------------ Status activities
Consumer ------------------------ Co-author
Message ------------------------ Dialogue
Corporation ------------------------ Cooperation
Transaction ------------------------ Transformation
Brand image ------------------------ Brand culture
Segmentation ------------------------ Integration
Destination ------------------------ Journey
LIFE CYCLE ANALYSIS
• Evolutionary cycles initiate by social or
technological innovation
• Survival of the fittest
• After growth three possible outcomes
– The phenomenon cannot find a way round the barrier
and goes into decline
– The phenomenon adjusts to the barrier and
establishes an equilibrium (extended maturity)
– The phenomenon finds a way forward and initiates a
new growth phase
• Application of knowledge, imagination and logic
to develop successful product strategies
• Focus on new product development
MANAGING COMPETITION :
PRODUCT STRATEGY IS CENTRAL
• The nature of competition
• The threat of new entrants
– Seven major barriers to entry are proposed by
Porter:
1. Economies of scale
2. Product differentiation
3. Capital requirements
4. Switching cost
5. Access to distribution channels
6. Cost disadvantages independent of scale
7. Government policy
• The threat of substitution
– Substitute products is a matter of searching for other
products that can perform the same function as the
product of the industry
• The bargaining power of suppliers
– According to porter a supplier group is powerful if the
following apply :
•It is dominated by a few companies and is more concentrated
than the industry it sells to.
•It is not obliged to contend with other substitute products for
sale to the industry.
•The industry is not an important customer of the supplier group.
•The supplier’s product is an important input to the buyer’s
business
•The supplier group’s product are differentiated or it has built up
switching costs
•The supplier group poses a credible threat of forward
integration
• The bargaining power of customer
– Eight specific condition are proposed by porter where
a buying group will exercise power
• The buyer group is concentrated or purchases large
volumes to seller
• The products it purchases from the industry represent a
significant fraction of the buyer’s costs or purchases
• The products it purchases from the industry are standard or
undifferentiated
• It faces few switching cost
• It earns low profits
• Buyers pose a credible threat of backward integration
• The industry’s product is unimportant to the quality of the
buyers’ products or services
• The buyers has full information
• Rivalry between current competitors
– Eight factors
• Numerous or equally balanced competitors
• Slow industry growth
• High fixed or storage costs
• Lack of differentiation or switching costs
• Capacity augmented large increments
• Diverse competitors
• High strategic stakes
• High exit barriers
• In competing with one another firms have only a
limited number of strategic options available to
them. These were identified by Ansoff (1957) in
a Growth Vector Matrix.
• Basic aim : to create and maintain SDA or SCA
• Unique position
• Creation of franchise with a group of customers
• Competitive advantage arises from :
– Cost leadership
– Differentiation
• In saturated and highly competitive markets,
firms differentiate through branding, positioning,
the provision of service and availability through
location and distribution advantages
• Marketing mix strategies
Strategy Product Price Distribution Promotion

Undifferentiated Standardized Low Intensive Mass
(cost
leadership)
Differentiated Different for What the Extensive Targeted by
each market market will segment
segment bear
Concentrated Customized Premium Highly Direct
(focus) selective
• Large firms
• Medium-sized firms
• Small, single product firm
PRODUCT STRATEGY AND
MANAGEMENT
• Why companies diversify :
– Survival
– stability
– Productive utilization of resources.
– Adaptation to changing customer needs.
– Growth
– Miscellaneous
• Product diversification consist of five
steps:
– A clear definition of objectives.
– An analysis of the diversification situation in
the light of present operations.
– An audit of the tangible and intangible
corporate resources for diversification.
– Establishment of specific criteria for new
products in line with the three preceding
points.
– A comprehensive search for products and
their evaluation against the criteria.
• Five basic strategies for competing through
products:
1. Competing through product proliferation
• Trial and error marketing
• Single shot
2. Competing through Value
• Continuous improvement
• Radical restructuring
3. Competing through design
• Combination of engineering and aesthetic design
4. Competing through innovation
• Incremental or breakthrough
• Top-down or bottom-up
5. Competing through services
THE PROCESS OF
INNOVATION
• First-generation Innovation Process
(1950s to mid 1960)
– Technology ‘push’
– Demand outstripped supply
– Basic science ---> Design & engineering --->
Manufacturing ---> Marketing ---> Sales
• Second-generation Innovation Process
(mid 1960s)
– Manufacturing productivity increased
– Manufacturing employment was static
– Supply and demand were in balance
– Market need ---> Development --->
Manufacturing ---> Sales
• Third-generation Innovation Process (early
1970s to mid 1980s)
– Demand saturation
– High rates of inflation
– Supply outstripped demand
• Fourth-generation Innovation Process
(early 1980s to early 1990s)
– Economic recovery
– Emphasis on core business and core
technology
• Fifth-generation model
– Logical evolution of the fourth-generation approach
– Time to market become accepted as a major critical
success factor
– Advantages
– For implementation of model there needs to be :
• Greater overall organization and systems
integration
• Flatter, more flexible organizational structures for
rapid and effective decision making
• Fully developed internal data bases
• Effective external data link
QUESTIONS ??
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COMPETITION AND

New market opportunity

• The introduction of new or improved products,

Strategy Product Price Distribution Promotion

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