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MARKETS
Often, firms have a good overall understanding of the markets they are in or wish to
compete in, but they tend to operate with the same attitude and perspectives that have
existed in the company and industry for many years. To truly understand the market, the
potential new competitor should have a solid grasp of the factors that make and drive the
market for the product or service. For example, the firm should have a detailed
compendium of the following, by firm within the industry:
Market segmentation
Customer base (markets targeted, regional sales analysis, penetration,
importance to each firm)
Profiles of markets and customers (including product mix and sales data
by product line)
Market growth and potential for future growth
Market share by product line
Market and geographic areas targeted for expansion
Marketing tactics and strategies (4 Ps, especially price and promotion)
Distribution network/channels of distribution
Advertising/marketing/sales efforts including budgets and advertising /
marketing firms used
Among the sources that could be used on this activity are: PTS MARS, magazine ads,
Prompt, Investext, Trade & Industry, SEC reports, Newspapers, Newswires, BW,
Fortune, WSJ, company Web sites, etc.
INTERNATIONAL/GLOBAL
Depending on the expected competition and market activity, it is essential that the
competitive intelligence effort include a foreign trade analysis. Without access to some
expensive databases that provide specific product sales and market share information, it
would be best to look at and evaluate recent order information, government contracts, and
individual sales forces overseas (performance, experience, compensation, etc.). For U.S.
firms, StatUSA provides an excellent data source, along with PIERS Exports & Imports,
Commerce Business Daily, Newspapers (especially WSJ, NYT, BW), LEXIS-NEXIS, and
DIALOG.
STRATEGY/DECISION MAKING
Identification of marketing and corporate strategies probably is one of the more important
requirements of any competitive analysis. For this, most firms need experienced
professional input, along with extensive use of the Internet, DIALOG, and other similar
tools noted above. Below, we have established for each firm in the industry several
important the intelligence needs, followed by selected sourcing:
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Apparent strategic (long-range) plans, including details of acquisition and
divestiture strategy, etc. (SEC filings)
New products on the horizon—with indications of a new direction for the
company. (PROMPT, press releases, newspapers)
Apparent strategic objectives: corporate/divisional/subsidiary company
priorities; business unit/segment goals; basic business philosophy/targets.
(Suppliers, employees, wholesalers)
Analysis of company’s decision-making process. Overall company image
and reputation. Company’s ability to change. How will the company
look/perform in the future? Anti-takeover measures instituted; the firm’s
key success factors? The key objective: Why has the firm been successful,
overall? (Shareholder lawsuits pending, LEXIS-NEXIS)
Corporate attitudes toward risk. (legal databases, employees, suppliers)
Statements of plans to enter new markets, improve market position, and/or
increase market share. (Trade journals, top executive speeches, PROMPT,
marketing analysts).
Following this exercise, the analysis should provide a clear understanding of the
operation of the industry, and the competing firm should be able to utilize this
information to provide an overall planning framework, strategy plan, and marketing plan
to take advantage of current and future market opportunities.
A. “Does Preemptive Marketing Work?”
The focus here is on Porter’s framework for preemptive strategy in a marketing setting, and the
role and value of this concept in the overall marketing process and strategy for the company.
Many students will be able to identify readily with this concept based on their general
knowledge of the companies and products involved in the lecture/discussion.
The discussion begins by considering why a leader firm would consider preemptive strategy as
a means of maintaining or increasing the firm’s market position. This leads into a discussion of
the implications for the introduction of a preemptive strategy for other firms in the industry in
the medium and long-term.
Teaching Objectives
industry.
Discussion
INTRODUCTION
Preemptive marketing involves many different possibilities for the leader to assume a defensive
or offensive position in the market and with competitors. The primary elements for a firm to
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other strategic planning firm to develop a preemptive position, the reasons tend to be more to
disrupt the course of the industry in order to gain advantage against an entrenched leader.
While this can be a very beneficial move, it has a tendency to convey a message to other firms
in the industry that the firm could be posing a serious threat to all others in the industry. Firms
preemptive control of other resources critical to success in the industry.
IDENTIFYING PREEMPTIVE OPPORTUNITIES
There are many ways to succeed to achieve a preemptive advantage, but identification of a
weak link in the commitment from one or more firms in the industry is a good starting point.
made an impact. (Note to the Instructor: There are many current examples of these and other
preemptive approaches. Current examples, or examples the students may know, will enhance
the discussion).
Moving to the various functional area activities, in products and/or services, a number of other
proposition.
In the area of production systems, there have been in recent years some very good examples of
firms able to develop proprietary production methods, expand capacity aggressively, and
secure scarce and critical production skills. In addition, in the production systems area, firms
that achieve some level of vertical integration with key suppliers can create a considerable
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example of this approach is Merrill Lynch with the Cash Management Account of the late
1970s, and many others more recently.
“Positioning” the product more effectively also can be an effective preemptive strategy. This
can be an effective and relatively inexpensive strategy, given that there are many different
various positioning and re-positioning efforts).
Other examples of preemption relate to situations where a firm is able to secure accelerated
government agency approval because of strong technical capabilities and/or market
recognition. This situation obviously occurs most often in medical and pharmaceutical products
or other related areas where there are health and safety concerns.
smaller competitors with fewer resources.
Lastly, it is useful to consider the role of the preemptive in working with distributors. It is
appropriate for the leader firm engaging in preemptive marketing to capture key accounts,
occupy prime locations, develop preferential access/key distributors, control supply systems
and distribution logistics, and insure access to superior service systems. In addition, one of the
customers.
Note to the Instructor: In all of these examples there are many firms both winning and losing
with this strategy. Clearly among the best examples are firms winning, but there are many
situations where those losing can provide an interesting story.
II. Background Article(s):
Issue: Marketing in the High Tech Environment
With Good Reason
Whoever wins in this face-off will grab the lion’s share of the $50 billion corporate-software
market for years. For every Oracle product, IBM has a counterpunch: Databases, applications,
and e-business foundation software. At the same time, the companies’ philosophies are
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package of software—everything a company needs to manage its financials, manufacturing,
sales force, logistics, e-commerce, and suppliers. In contrast, IBM top management backed a
“best-of-breed” approach in which it stitched together a quilt of business software from various
companies, including itself.
company competes in the applications market with the same software makers it relies on to
help sell its databases. IBM has an advantage because it doesn’t sell applications of its own.
So, by setting itself up as a neutral party, IBM is able to gain those companies as allies. That
boosts its database sales, since application companies often recommend to customers which
software together.
Analysts are split on whether the Oracle or IBM strategy will succeed long-term. They expect
both companies to remain among the strongest players in the market. But competitive juices
are flowing. Ellison has only disdain for the idea of corporations buying major software
components from different suppliers and then hooking them together. “You would never buy a
car that way,” he says.
database software, with a 25 percent share.
Ellison, however, is worried about more than databases. Consider the e-business software
dubbed “application servers”—a foundation of e-commerce software that processes
transactions and connects to back-end programs such as databases. Because of an early jump in
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Way Back
There’s a lot of history between Oracle and IBM. In 1970, IBM researchers wrote the first
paper on so-called relational databases, creating a programming language called SQL that, for
the first time, allowed people to analyze, rather than just store computer information. IBM
systems.
In the late 1980s, a new wave of business software companies, led by SAP, helped boost
Oracle’s fortunes. They built their software to run on Oracle databases even though Oracle sold
its own competing applications software. In the mid-1990s, analysts estimate that those
software companies helped drive at least 25 percent of Oracle’s database sales.
automation, or supply-chain management.
The new partnership strategy was like a pincer movement against Oracle. IBM signed also 60
alliances with application makers such as Siebel Systems, Ariba, and PeopleSoft—all Oracle
rivals. Many of them, long under Oracle’s thumb, were happy to align with a company they did
not compete with, and were rather vocal about their willingness to help IBM. To be sure,
customers would not have to rip out old systems to do e-commerce. “IBM clearly jumped on
this growing business early and they had a goal to sign up hundreds more Net-infrastructure
software partners, many of which would compete against Ellison & Co.
IBM went so far in the fight to rent a billboard near Oracle’s Silicon Valley headquarters
Who’s Cheaper?
The latest fracas is over pricing. Ellison derides IBM software as nothing more than a come-on
to sell “services, services, services.” While IBM typically sells its database software at nearly a
fifth the price of Oracle’s, Ellison says the consulting work to get it up and running makes IBM
products pricier. Some customers beg to differ. Recently, the Toronto Police Service switched
run Oracle anymore”
To forestall more damage, Ellison introduced the new version of his database, and analysts said
the easier-to-use update should cut maintenance costs. However, IBM is, after all, the world’s
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long nightmare for Ellison.
Tale of the Tape
For years, IBM and Oracle were like two bullies who played in the same sandbox but rarely
bumped into each other. Now, they are increasingly butting heads, competing in nearly every
part of the e-business software market. Here’s how they stack up:
DATABASES
INTERNET INFRASTRUCTURE SOFTWARE
IBM was one of the first to jump into this nascent market. It is the second-biggest provider of
application servers, with market share of about 30 percent. Oracle has a 9 percent share.
Winner: IBM hands down. Oracle is going to have a hard time catching up.
ENTERPRISE APPLICATIONS
friends.
B. Source: “Oracle,” New York Times, March 15, 2002.
The first quarter of 2002 was the fifth consecutive quarter that Oracle announced that earnings
would not meet its own initial projections. In the previous four quarters, Oracle said that the
dot-com collapse was a large factor in the downturn. A company officer acknowledged that
software purchases by companies that have found themselves with more software than they
need.
Some industry analysts question whether Oracle is feeling acute pressure in its database
business because I.B.M. and Microsoft have increased their efforts. Meanwhile, with the
tough for Oracle to differentiate itself.
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IV. Case
“Matching Dell”
HBS Case: 799-158 TN: 700-084
Teaching Perspectives
The case is designed to serve a variety of purposes in a course on business-unit strategy. In
declining order of importance, the case does the following:
Examines barriers to imitation. Specifically, it illustrates how the corporate fit
among numerous activities, such as tradeoffs between positions, historical
downstream “partners.”
Illustrates different types of imitation attempts: “Straddling” by Compaq and
IBM, “repositioning” by Gateway, and potentially new entry by some members
of the channel.
Permits a rich discussion of competitive dynamics. One can see, for instance,
backward integration by channel players.
Allows students to quantify Dell’s cost advantage and estimate the portion of
that advantage which is threatened by the imitation attempts of others.
Illustrates, with Dell, a highly consistent and richly elaborated set of activities
that, together, yield advantage.
mathematical mechanics.
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Recommended Readings
Business School Working Paper 98-066, 1998.
Jan W. Rivkin, “Imitation of Complex Strategies,” Management Science (46), 2000, pp.
824-844.
Michael E. Porter, “What Is Strategy?” Harvard Business Review (74:6), November-December
1996, pp. 61-80.
Pankaj Ghemawat, “Anticipating Competitive and Cooperative Dynamics,” Strategy and the
Business Landscape (Reading: Addison-Wesley, 1999), pp. 75-110.
For further background on Dell, see:
Das Narayandas and V. Kasturi Rangan, “Dell Computer Corporation,” Harvard Business
School Case 596-058, 1996.
Kasturi Rangan and Marie Bell, “Dell Online,” Harvard Business School Case 598-116, 1998.
For a discussion of competitive positioning, especially quantitative analysis of competitive
advantage, see
“Creating Competitive Advantage” (HBS 798-062).
Questions
profitability?
2. Why has Dell been so successful despite the low average profitability in the PC industry?
3. Prior to the recent efforts by competitors to match Dell (1997-1998), how big was Dell’s
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