978-0136074892 Solution Manual Chapter 06

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Chapter 6: Market Structure and Competitor Analysis

Chapter Objectives

After reading this chapter, students should understand:

·How to perform a market structure analysis, which identifies major competitors

·How to perform a competitor analysis

·Alternative sources of information for analyzing competitors

·Using game theory in the development of competitive strategy

Chapter Overview

The purpose of this chapter is to introduce the notion of competitor orientation.

Although customer focus has received considerable attention in the marketing literature,

recent years have seen an increased emphasis on understanding competitors and predicting

their moves.

Chapter Outline and Key Terms

Market Structure Analysis

Key Terms:

·Market structure analysis

·Competitor analysis

·Industry

·Product class/product category

·Product types

·Product variants

·Brands,

·Product class/product category competition

·Product form competition

·Generic competition

·Budget competition

·Cross-elasticity of demand

·Scenario planning

A. Definitions

1. Market structure analysis: An analysis in which the marketing manager

seeks to better understand who the competition is and thus define the

market.

2. Competitor analysis: An analysis in which the strengths and weaknesses of

competitors and their current and likely future strategies are examined.

3. Industry: A group of products that are close substitutes to buyers, are

available to a common group of buyers, and are distant substitutes for all

products not included in the industry.

4. Product class/product category: Also called a product category, one

5. Product types: Group of products that are functional substitutes.

6. Product variants: Also called product brands, different specific combinations

of features within a specific product types.

7. Brands: A name, term, sign, symbol, or design (or a combination thereof)

intended to identify the goods and services of a seller and differentiate them

from the competition.

8. Product form competition: A level of competition in which only products or

services of the same product types are considered.

9. Product class or product category competition: A level of competition in

which products or services that have similar features and provide the same

function are considered.

10. Generic competition: A level of competition that includes all products or

services that the customer views as fulfilling the need requiring satisfaction

on a particular purchase or use occasion.

11. Budget competition: A level of competition that includes any product,

related or unrelated, that could be viewed as substitutable in a budget.

12. Cross-elasticity of demand: the percentage of change in one product’s

sales caused by a percentage change in a marketing variable for another

product.

13. Scenario planning: Planning that involves asking “what-if” questions to

produce forecasts of alternative outcomes based on different assumptions.

B. Market Structure Analysis: Understanding the Competitive Environment

1. Classifying competitors into two classes:

·Demand-based approaches: Classifies competitors based on customer

attitudes and behaviors

·Supply-based approaches: Classifies competitors based on objective

attributes of the firms.

2. Demand-based approaches

·Figure 6.2 Page 154: An alternative way to define the competition that

better incorporates the customer’s perspective. Narrowest definition of

competition that results in the fewest competitors would include only

products or services of the sample product type.

·Illustration: Telepresence, Page 155

·Illustration: Halitosis, Page 155

3. Supply-based methods

·Table 6.1 Concentration by Largest Firms for the United States: 2002,

Page 157, demonstrates classification of competitors by kind of

business, number of businesses, dollar volume

C. Competitor Analysis

1. Competitor analysis: a forecast of competitor’s likely strategies

2. Framework for competitor analysis: Figure 6.4 Page 159 Competitor

Analysis Framework:

·Expected future strategies = What are their objectives? How do you

match up against them? What are their weaknesses? What is the current

strategy?

3. Main parts of a competitor analysis:

·Determination of the competitor’s major objectives: Useful to know

whether they are pursuing growth (sales volume, market share)

objectives or profit related objectives

·Assessment of their current marketing strategies: Includes segments

pursued, how they are positioning the products or services, their value

propositions, and the marketing mix

·Assessment of their strengths and weaknesses: These can be evaluated

on a number of dimensions, particularly key success factors in the

market

·Internal analysis of your firm’s strengths and weaknesses relative to the

competitors: How your firm matches up against your competitors

·Key objectives of the competitor analysis include:

·Insight into competitor strategies

·Insight into customer and competitor targets

·Assessment of competitors’ core strategies

·Assessment of competitors’ marketing mix:

·Price

·Communications

·Distribution

·Product or service capabilities

·Competitor strengths/weakness assessment can include:

·Ability of competitor to conceive/design new products

·Ability of each competitor to produce the product or deliver

the service

·Ability to market

·Ability to finance

·Ability to manage

·Illustration: Table 6.3 Competitor Capabilities Matrix Page

164 demonstrates a matrix that could be constructed to

assess each above area

·Illustration: Table 6.4 Types of Competitor Information to

Collect Page 165 details types of information that could be

collected about a competitor

·Illustration: Figure 6.6 SWOT Analysis Page 166 is an

alternative way to summarize strengths, weaknesses,

opportunities and threats

·Scenario planning: Asking “what-ifs” to produce alternative

outcomes based on different assumptions.

·Illustration: Rockwell Collins (www.rockwellcollins.com)

Page 168

·Illustration: Intuit (www.intuit.com) Page 168

Where Can We Get the Information?

A. Secondary Sources

1. Some of the best sources of secondary information include:

·Internal sources (old marketing plans, market research studies, sales

management reports, and other documents.

·Annual reports

·Patent and trademark filings

·Other government resources

B. Primary Sources

1. Some of the best sources of primary information include:

·Sales force and customers

·Employees

·Suppliers

·Trade shows

·Reverse engineering or sampling competitors’ products

·Plant tours

·Internet newsgroups and blogs

Illustration: Palm, Inc. (www.palm.com) Page 170

Illustration: Apple iPad (www.apple.com) 170

Competitive Strategy: Some Game Theory Notions

Key Terms:

·Payoff matrix

·Nash equilibrium

·Prisoner’s dilemma game

A. Definitions

1. Payoff matrix: In game theory, a graphic depiction of the rewards or costs to

each player for each possible combination of strategies.

2. Nash equilibrium: In game theory, the most common form of equilibrium,

which involves a list of strategies, one for each player, with the property that

no manager wants to change its strategy unilaterally.

3. Prisoner’s dilemma game: A particular form of competitive game in which

neither participant wants to change his or her current strategy because if one

does and the competitor matches, both will be worse off.

B. Using game theory: the game theory concept of equilibrium can help you strategically

apply your expectations of competitors’ likely future actions and their impact on

marketing outcomes such as profits and market share.

Teaching Tips and Strategies from Barbara S. Faries, MBA

This chapter introduces the usefulness and concept of the structure of markets and

competitor analysis. Both concepts are key to analyzing markets and creating strategies.

Key Terms and Concepts Introduced Include:

·Market structure analysis

·Competitor analysis

·Industry

·Product class/product category

·Product types

·Product variants

·Brands,

·Product class/product category competition

·Product form competition

·Generic competition

·Budget competition

·Cross-elasticity of demand

·Scenario planning

·Game theory

Note: Two recurring themes in this Instructor’s Manual are the first two items:

·Link theory to practice.

·Engage students to link work experience to the concepts demonstrated in

the text.

·Instructors are encouraged to link theory to practice by finding current examples

in the business environment that demonstrate the key concepts above.

·If your class contains those already working in the field, have them describe how

the concepts in theory match those in the actual workplace.

You may find that some of your students have been introduced to market and

competitor analysis in other courses. However, in my experience few students have been

taught how to actually perform a competitive analysis and what factors need to be

considered. This is an excellent chapter for introducing them to the fundamentals of

competitive analysis.

Conversely, I have found that students often become engrossed with the

competition and focused only on the competitors and their strategies. I encourage you to

point out that they should analyze and be aware of the competition and associated

strategies; however, they should not lose focus on their own strategies and objectives. I also

point out that setting strategy against or to match a competitor’s may be deadly. The

assumption is that the competitor’s strategy is correct, which is not always the case.

Good examples to focus on in this chapter (and ones which I have used as an

executive) include:

Table 6.2 Product Feature Matrix: Small Sports Sedan: This is one example of a

product competitive analysis. A product competitive analysis is very useful in

technical settings.

Table 6.3 Competitor Capabilities Matrix: This is one approach to analyzing

competitors. The students should understand that each situation is different and that

different parameters may be useful. In other words, the “template” will change

according to varying situations.

Table 6.4 Examples of Competitor Information to Collect: This is useful for the

students to use as a guide to the types of information that might be analyzed or

included in a competitive analysis. Again: They should understand that not all of the

listed items are necessarily appropriate or included. The “template” will change

from situation-to-situation.

NOTE: I emphasize the usefulness of using a table format. Using that format

enables them to see all competitors on equal parameters. The common error I find

that students often make is to randomly compare competitors on various

parameters. In addition, they do not use a table format so they can clearly

understand the need for looking at the competitor across common items.

Table 6.5 Differential Competitor Advantage Analysis: As an executive, I have

used this type of analysis infrequently, however, it is useful and succinctly lays out

competitive advantages.

Figure 6.6 SWOT Analysis: Most of the students have been exposed to the SWOT

as part of an environmental analysis. However, it is very useful in summarizing key

strengths, weaknesses, opportunities, and threats of the competition.

Review Questions

1. Most marketing managers consider their product form or product category competitors

to be the most serious threats. What are the pros and cons of this perspective?

2. Suppose you were the marketing manager for Steinway in charge of its line of grand

pianos. How would you design a research study to better understand the generic

competitors of the product?

3. In most case, competitors are viewed as being undesirable, that is, having fewer

competitors is better than having many. Can you think of situations in which

competitors can help you?

4. What are the limitations of game theory approach to understanding competitive

strategy?

5. Other than the Coke/Pepsi illustration used in the beginning of this chapter, have you

observed any other markets in which the competitors appeared to be acting

strategically in the game theory sense?

Exercises, Activities, and Projects

Purpose: To help students link theory to real life.

To demonstrate the usefulness of competitive analysis.

·Have the students create a mini-competitive analysis of their own companies or

a company of interest to them. Limit the number of competitors to 2 – 3

maximum. Pick some basic parameters that might be likely included in a real-

life setting. This is a “learn by doing” exercise. This is probably best used as a

project versus an in-class exercise. The objective is to give them a feel for

creating a competitive analysis and not overwhelm them.

·Create a scenario situation for the students using a well-known company. Have

the students discuss the scenario in class.