【中国经济管理大学MBA讲义】科特勒《营销管理》第13版《Chapter8》
Chapter 8 - Creating Positioning and Dealing with CompetitionI. Learning Objectives
After reading this chapter, students should:
q Know how a firm can choose and communicate an effective positioning in the market
q Know how brands are differentiated
q Know how marketers identify primary competitors
q Know how we should analyze competitors’ strategies, objectives, strengths, and weaknesses
q Know how market leaders can expand the total market size and defend market share
q Know how market challengers should attack market leaders
q Know how market followers or nichers can compete effectively
II. Chapter Summary
Deciding on positioning requires the determination of a frame of reference—by identifying the target market and the nature of the competition—and the ideal points-of-parity and points-of-difference brand associations. To decide on the proper competitive frame of reference, one must understand consumer behavior and their considerations in making brand choices.
Points-of-difference are those associations unique to the brand that are also strongly held and favorably evaluated by consumers. Points-of-parity are those associations not necessarily unique to the brand but perhaps shared with other brands. Category point-of-parity associations are associations consumers view as necessary to a legitimate and credible product offering within a certain category. Competitive point-of-parity associations are associations designed to negate competitors’ points-of-difference.
The key to competitive advantage is relevant brand differentiation—consumers must find something unique and meaningful about a market offering. These differences may be based directly on the product or service itself or on other considerations related to factors such as personnel, channels, or image.
To prepare an effective marketing strategy, a company must study competitors as well as actual and potential customers. Marketers need to identify competitors’ strategies, objectives, strengths, and weaknesses.
A company’s closest competitors seek to satisfy the same customers or needs and make similar offers. A company should also pay attention to latent competitors, who may offer new or different ways to satisfy the same needs. Competitors should be identified using both industry and market-based analyses.
A market leader has the largest market share in the relevant product market. To remain dominant, the leader looks for ways to expand total market demand and attempts to protect or even increase its current market share.
A market challenger attacks the market leader and other competitors in an aggressive bid for greater market share. Apart from a choice of five types of general attack, challengers must also select specific attack strategies.
A market follower is a runner-up firm willing to maintain its market share and not “rock the boat”. A follower can play the role of counterfeiter, cloner, imitator, or adapter.
A market nicher serves small market segments not being attended to by larger firms. The key to nichemanship is specialization. Nichers develop offerings to fully meet a certain group of customers’ needs, commanding a premium price in the process.
III.Chapter Outline
I. Developing and Communicating a Positioning Strategy
Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the mind of a target market. The result of positioning is the successful creation of a customer-focused value proposition.
A. Competitive Frame of Reference - The product or sets of products with which a brand competes and which function as close substitutes
B. Points-of-Parity and Points-of-Difference
1. Points-of-difference (PODs) are attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe that they cannot find to the same extent with a competitive brand (e.g. Toyota - reliability, FedEx - guaranteed overnight delivery, Miller Lite Beer - less calories with a great taste)
2. Points-of-parity (POPs) are associations that are not necessarily unique to the brand but may be shared with other brands
a) Category POPs - associations consumers view as necessary to be a legitimate and credible offering within a certain category but not necessarily sufficient for brand choice. Category POPs are dynamic
b) Competitive POPs - associations designed to negate competitors’ points-of-difference
C. Establishing Category Membership - organizations must inform consumers of a brand’s category membership. Sometimes even when informed, consumers must be convinced that a brand is a valid member of a respective category. Several ways to convey a brand’s category membership:
1. Announce category benefits - define how specific product or service offerings link to benefits perceived by the respective category
2. Compare to exemplars - associate brand with known brands in category
3. Rely on product descriptor - descriptor that follows a brand’s name can convey category origin (e.g. XM Satellite Radio places XM in category that delivers radio via satellite)
D. Choosing and Creating POPs and PODs
1. Choosing POPs and PODs
a) Consumers must find POD desirable and perceive the organization to also have the capability to deliver
b) Consumer criteria for POD - relevant, distinct, believable
c) Organization criteria for delivering POD - feasible and capable, communicability, sustainability
2. Creating POPs and PODs
a) Major challenge is the fact that many attributes or benefits that make up POPs and PODs are negatively correlated from the consumer’s perspective
b) Negative correlation can be addressed by:
(1) Launching specific advertising campaigns for each respective brand attribute or benefit at the same time or sequentially. This approach can be expensive
(2) Providing consumers with a different perspective
c) Brands can be linked to another entity to establish an attribute or benefit (e.g. “Intel Inside”). Risk with this approach is entity being linked to can become a viable competitor and “cannibalize” customers
II. Differentiation Strategies
A. Product Differentiation - products will vary in their ability to be differentiated. They can be differentiated via:
1. Form, size, shape, and appearance
2. Features - characteristics that supplement the product’s basic function
3. Performance quality - the level at which the product’s primary characteristics operate
4. Conformance quality - the degree to which all the produced units are identical and meet the promised target specifications
5. Durability - a measure of the product’s expected operating life under natural and/or stressful conditions
6. Reliability - a measure of the probability that a product will not malfunction or fail within a specified time period
7. Repairability - a measure of the ease of fixing a product that malfunctions or fails
8. Style - the product’s look and feel to the buyer
9. Design - the integrating force, the totality of features that affect how a product looks and functions from the customer’s viewpoint
B. Services Differentiation - main service differentiators can include:
1. Ordering ease
2. Delivery - speed, accuracy, and care
3. Installation - making a product operational
4. Customer training - instruction on proper and efficient use
5. Customer consulting - data, information systems, and advisory services
6. Maintenance and repair - keeping products in good working order
C. Channel Differentiation
1. Amount of market coverage
2. Expertise present throughout channel
3. Channel performance as a whole, which requires optimal integration relative to differentiation strategy
D. Personnel Differentiation
1. Competence (skill and knowledge)
2. Courtesy (respect and consideration)
3. Credibility (trustworthiness)
4. Reliability (consistent and accurate performance). Also note that reliability is probably the top priority for most consumers
5. Responsiveness (quick to respond)
6. Communication (ability to understand consumer needs)
E. Brand Image Differentiation
1. Identity is the way an organization aims to position itself, its product or service
2. Image is what the consumer perceives
III. Competitive Forces and Competitors
A. Market Attractiveness - Porter’s five forces determine the attractiveness of the market
1. Three of the Porter forces emanate from threats related to competitors:intense segment rivalry, new entrants, and substitute products
2. The other two forces respond to threats connected to the firm’s more immediate market environment: buyer bargaining power and supplier bargaining power
B. Identifying and Analyzing Competitors
1. Identifying competitors
a) Easier to identify current competition (e.g. Pepsi Co. knows Coca-Cola’s Desani competes with its Aquafina brand)
b) More difficult to identify emerging or new competitors that come into existence as a result of advances in technology
2. Analyzing competitors - assess strategies, objectives, strengths, and weaknesses
a) Strategies: Strategic groups - differs, depending on various key variables in an industry
b) Objectives: What drives the competitors - constant monitoring
c) Strengths and weaknesses - competitive positions in the market:
(1) Dominant, strong, favorable, tenable, weak, nonviable
(2) The basis for evaluation of strengths and weaknesses:
(a) Share of market
(b) Share of mind
(c) Share of heart
(d) Result: those that make steady gains in mind and heart share inevitably gain market share and profitability
d) Selecting competitors - after completing customer value analysis and competitor analysis, organizations can focus on one of the following:
(1) “Strong versus weak” - weak is easier and less costly to target but must also try to maintain competitiveness with the stronger competitors
(2) “Close versus distant” - also recognize distant competitors (e.g. Coca-Cola recognizes tap water as a competitor besides Pepsi Co.)
(3) “Good versus bad” - support good and attack bad. The former stabilizes and grows the market. The latter upsets market equilibrium
C. Analyzing Competition
1. Industry concept of competition - industry is defined as a group of firms that offer a product or class of products that are close substitutes for one another. Industries can be classified as follows:
a) Number of sellers and degree of differentiation (monopoly, oligopoly, monopolistic competition, and pure competition)
b) Entry, mobility, and exit barriers
(1) Ease of entry into market and various (existing and new) segments
(2) Exit and shrinkage barriers - ease of exit and reduction in size
c) Cost structure - reducing largest costs and building most cost-efficient plant(s)
d) Degree of vertical integration
(1) Backward and forward
(2) Integration from source through retail (degree of)
(3) Outsourcing to specialists so as to lower costs
e) Degree of globalization
2. Market concept of competition
a) Many companies make the same product
b) Many companies pay attention to other companies that satisfy the same customer need
D. Balancing Customer and Competitor Orientations
1. Competitor-centered companies monitor their competitors’ actions and formulate competitive reactions
2. Customer-centered companies focus more on customer developments and formulate strategies based on these developments. Customer-centered companies are in a better position to identify new opportunities and set strategies for long-term growth and profitability
IV. Competitive Strategies
A. Market-Leader Strategies
1. Expanding the total market, with new users, new uses, and more usage
2. Defending market share, with position, flank, preemptive, counteroffensive, mobile, and contraction defensive strategies
3. Expanding market share (note Procter & Gamble and Caterpillar case studies)- line-extension, brand-extension, multibrand, etc. strategies
B. Market-Challenger Strategies - define strategic objective (e.g. increase market share), decide who to attack, and then create an attack strategy. Five general market-challenger attack options are:
1. Frontal attack - match competitors’ marketing mix
2. Flank attack - focus on areas where competitor is underperforming or areas that have unmet needs. This strategy is attractive to a challenger with fewer resources and is more likely to succeed in such a case
3. Encirclement attack - launch attack on several fronts. Good option if attacker has superior resources and feels competitors can be broken quickly
4. Bypass attack - go after easier markets (i.e. diversify into unrelated products or into new geographical markets and consider adoption of emerging technologies to supplant existing consumer solutions)
5. Guerilla warfare - small intermittent attacks (surgical price cuts, intensive and selective promotions)
C. Market-Follower Strategies
1. Levitt: product imitation might be as profitable as product innovation
2. Broad strategies: counterfeiter, cloner, imitator, and adapter
D. Market-Nicher Strategies
1. Avoid large markets and specialize
2. Constantly create, expand, and protect new niches
E. Innovative Marketing
Blue Ocean Strategy - High Growth through Value Innovation
V. Summary
IV. Opening Thought
A barrier to effective learning that may be experienced by students in this chapter comes from the concept of “positioning”. Students will be familiar with different products or services, but it can be challenging for them to verbalize the positioning of products and services within their frame of reference. The instructor is encouraged to use examples of products or services familiar to the students to bring this concept across fully.
Secondly, the understanding of the terms “points-of–difference” (PODs) and “points-of-parity” (POPs) can easily be confused. The instructor is encouraged to use a number of similar products (e.g. computers, cell phones, pens, PDAs) and ask the students to differentiate these products in terms of the POPs and PODs; students should also explain why these concepts are so important to the marketing of products.
This chapter adds an additional element to the complexity of marketing – competitive analysis. Students that have difficulty just understanding consumers and potential markets might be overwhelmed when you add to their load the concept of understanding and predicting competitive responses to marketing’s responsibility! While care should be taken not to over emphasize the importance of monitoring competition, some emphasis is still needed as many firms do not give competitor reaction the attention it merits.
A key concept introduced in this chapter is that of market nicher – a specialist in small markets underserved by larger corporations. Many large firms today started out as “nichers” and many large firms of tomorrow are nichers today. The concept of nichers and the potential of growing them into larger firms can be exciting – the reason so many students choose to study marketing!
V. Teaching Strategy and Class Organization
PROJECTS
1. At this point, student projects should be completed to include their fictional product or service’s brand positioning. In relation to this chapter’s material, students should have delineated and designed a differentiated brand positioning for their projects.
2. Students should also be prepared to present their competitive analysis. Who are the market leaders for their chosen product or service? What niche have they identified for their product or service? Is their product or service going to be a leader, follower, or challenger to well-established products or brands?
3. Michael Porter’s Five Forces model is as applicable today as it was when it was introduced. Have the students select a market or market segment (jeans, cell phones, etc.) and using Porter’s model, completely define these five forces for the market or market segment. Who are the potential entrants; who are the suppliers (and how much power do they have); who are the buyers (and what sort of buying power do they have); what are the substitutes and how is the industry segmented (market share is a good indicator of segmentation for this project)? Students’ analyses and answers should be comprehensive.
ASSIGNMENTS
Small Group Assignments
1. Determining the proper competitive frame of reference requires understanding consumer behavior and the consideration sets they use in making brand choices. Students are to select a set of three products or services, research on companies that have supplied these, and draft the companies’ (and its products) value proposition in a matrix similar to Table 8.1.
2. To prepare case studies based on the following materials from Chapter 8 and to present these:
• Mini case: UPS
• Mini case: Burberry
• Mini case: Inventec
Individual Assignments
1. Points-of-difference and points-of-parity are two important concepts of brand development and are driven by two differing strategies – inclusion and differentiation. Students should devise a list of at least five other products/services that they believe demonstrate points-of-difference and points-of-parity in their brand positioning. Inclusions of these products/services into a category are to be accompanied with reasons. Good students will present “proof” of their correct selection by including advertising copy supporting the product or service’s POD or POP.
2. For a market leader, increased sales must come from expanding the total market through adding new customers or increasing the usage of the product. Picking a market leader in an industry (e.g. Dell for computers), explain how this market leader can expand the total market by adding new customers or increasing the usage of the product. Be as specific as possible.
Think-Pair-Share
1. In challenging a market leader, the challenger has a number of differing strategies to employ. Choosing the right (or wrong) one could result in a larger market share and increased profits (or disaster) for the challenger. In choosing a specific attack strategy, the challenger must go further and develop specific strategies of price, lower-priced goods, value-priced goods and services, and so on. Students should explore these strategies and come prepared to identify one company (or brand) that has chosen each of these strategies to implement, and to defend their selection(s).
2. Market-nichers avoid large markets and try to be the leader in a small market or niche. Nichers have three tasks: creating niches, expanding niches, and protecting niches. Multiple niching is preferable to single niching. Students should identify three “nichers” (firms and/or brands) and explain why these have been chosen based upon the criteria in the chapter.
END-OF-CHAPTER SUPPORT
MARKETING DEBATE
How Do You Attack a Category Leader?
VI. Case Study
1. Marketing in China: Repositioning of Wong Lo Kat
1) Analyze the strategies and reasons of Wong Lo Kat’s breakthrough in the China market.
2) Take this case as an example, and discuss how positioning changes a brand’s and product’s market fortune.
2. Innovative Marketing: Accenture
3. Chapter Case: Baidu Challenges Google
1) What is Baidu’s strategy to achieve a leading position in China’s market for search traffic?
2) How did Baidu succeed in its competition with Google?
VII. Main Topic(s)
A. “Competitive Intelligence”
This discussion focuses on the uses of various sources of information for marketing. It is useful to update the examples so that students will be able to identify readily with this concept based on their general knowledge of the techniques, companies, and products involved in the lecture/discussion. There are many different approaches to competitor research. Marketers should consider the process and implications.
1. Marketing Insight: Guerrilla Marketing
2. Marketing Insight: Different Approaches to Innovative Marketing
3. Marketing Insight: Blue Ocean Strategy
Teaching Objectives
· To stimulate students to think about the need for and value of competitive analysis.
· To present points to consider in proceeding with development of a competitive analysis program.
· Recognize some of the better sources of information for various marketing questions.
Discussion
Introduction
In the textbook and several of the applications exercises, it is clear that segmentation is an important element in managing a new or existing market. Image, perceived rank, customer perception, product features, and competitive advantages are the primary tools for positioning a product in the marketplace. A firm may position its product in numerous ways, by attributes, price, quality, use/application, and type of end user, all with respect to a competitor(s). To turn this into a positioning strategy, it is essential to identify the competitors and assess the customer’s perception of them, identify competitive positions, research and understand the customers, choose the positioning strategy, and monitor the effectiveness of the positioning choice.
There are many examples of positioning strategies that have either succeeded or failed. The business literature is replete with winners and losers, but the process by which the positioning strategy has been implemented proves by far to be the most critical variable for determining success.
In the marketplace, many companies do a first-class job of developing a great product, great channels, great pricing, and great advertising. You might say—Wow! That is great. However, many of these companies not only lose in the marketplace, but they lose big. The reasons may be management, financial, etc., but when we get right down to it the answer may be much more interesting. The critical variable may be the competitive intelligence that the firm failed to get at the right time, with the right detail. In this discussion, we will look at some of the issues and questions behind choosing the right sources as well as approaches that might be useful in preparing the competitive intelligence program that will do the job.
First, the Kotler text gives some excellent examples of how to scan the competitive environment. As part of this framework, it also is useful to determine where to get the information, that the analyst is able to decide where and how to use the questions asked, and that the data developed is based on the marketing and strategic plans, not just collected in a random manner. This requires knowledge of a number of variables and then bringing it all together to be utilized in the firm’s marketing positioning effort. Remember, to achieve an effective competitive analysis it is essential to place the process in perspective.
The Positioning Concept
Positioning as a strategy started with positioning the product itself. Positioning refers to efforts to position the product in the mind of the consumer. As Reis and Trout pointed out in the 1960s and 1970s, the United States is very overadvertised, and any firm or product that seeks a more effective market position will have to achieve mental positioning before undertaking further marketing activity. If the position achieved is too general, the resulting image will be of no value to the customer who will not be able to differentiate clearly between the product choices. For example, a shampoo cannot maintain a strong position by claiming as its primary benefit the ability to clean the consumer’s hair.
Many companies have repositioned, or are attempting to reposition, their products in recent years. A growing number of firms have repositioned based on one or more service variables. This may appear on the surface as incongruous, but when one recognizes the level of competition in the United States and the world today, it makes sense. Declining profit margins and the need to differentiate many products that have become virtual commodities make it easy to realize the value of repositioning so that the consumer sees the entire product and service package in the broadest sense. Since a lawyer or hospital, for example, generally is distinguishable on any basis other than service, many providers in these areas today are focusing on a specialty or specific service in their marketing as the means to get the customer mentally repositioned on who and what they are, compared to their competitors.
To conclude, the primary means for promoting differences include focusing on those differences that are important, distinctive, superior, communicable, preemptive, affordable, and profitable.
Competitive Analysis
The logical starting point for the strategy analysis is to understand effectively the competitive structure and attractiveness of the industry. It is important to recognize that some industries are and will be more profitable than others. It is important also to know the real strengths of the industry, and the firms within the industry, not only in overall terms but also in specific detail. Many times, appearances can be deceiving. Consider, for example, companies that project a great image but in reality are quite the opposite (Enron could serve well as an example).
A logical overview of this process comes from Porter’s five basic forces of competition:
· Threat of new entrants
· Rivalry among existing competitors
· Bargaining power of suppliers
· Bargaining power of buyers
· Threat of substitutes
What determines the strength of each of these five forces in the industry? The process is shaped by a number of underlying structural determinants. It is important to remember that any of the forces that undermine the structure of an industry likely will cause profitability to decline. A good example is the dot-coms that raced to steal markets from existing well-organized physical retailers but had little to offer except investor hype. Their inability to show quality and superior results led to investor disenchantment and the loss of confidence that they could produce a profit against the competition. This, in turn, led to massive dot-com failures, consolidation in the industry, and finally the successful entrance of many major retailers with name, cash, and ability to stay the course.
To begin this process, the firm should develop a complete evaluation of the competitive framework and the specific competition. This would include a detailed compilation of the competitors, both real and potential, along with their products, marketing capability, service, production strength, financial strength, and management. Next, you must detail where each firm, including your own, fits into the industry in terms of the above parameters. At this point, you should be able to develop a thorough analysis of the following, for the past, present, and future:
· Degree of industry concentration
· Changes in type and mix of products
· Market “segments” in the firm and industry (and changes)
· Companies that have left and/or entered the industry (and why)
· Industry market share changes (and why – technology, substitution, etc.)
· Company market shares and share changes
· New technology substitution
· Each firm’s vulnerability to new technology
In addition to these specific competitive characteristics, the firm should focus on the various financial, economic, technological, and socio-political factors in the industry environment. This information is available through a variety of sources, including:
· Company websites and literature
· Industry trade show observation and contacts
Online databases, including LexisNexis, EBSCO, First Source, PROMPT, Trade & Industry, and Investext, along with various other online sources, such as the TV networks, Hoover, investment houses (Schwab, Merrill Lynch, etc.), The Wall Street Journal (WSJ), BusinessWeek (BW), etc.
It is important to understand each firm’s position within the industry. Companies in large or small industries have varying levels of profitability, and it is important to understand what it takes to be a superior performer in an industry. Information that may assist in this process includes some or all of the following:
· How the industry might change, in the short to long term.
· How the competing firms within an industry differ in the way in which the competitive forces influence each of them.
· Identify the companies that have the power to shape the industry. These companies could either make the industry or cause its demise.
· New-product development potential within the industry and which firms have the ability to make it happen.
This analysis should first provide a detailed and technical description of the products and services offered, including product mix, depth, and breadth of product line.
This should lead to a clear understanding and listing of market position by product, citing product strengths and weaknesses individually and in the overall product line.
Among the sources for this information are company websites, company product literature, WSJ, BW, and online databases including DIALOG, LexisNexis, and Hoover.
Another important area is the analysis of the industry’s and each company’s research and development expenditures and capabilities, along with a run down on technical personnel and expertise. Sources for this information include EBSCO, LexisNexis, DIALOG, Hoover, PROMPT, Trade & Industry, and Investext.
Next, it is important to understand clearly who holds which patents (current and pending), the product standards and specifications, including a quality and technical analysis. Some of the better sources for this could include: Claims, World Patent Index, Derwent, and IFI/Plenum Claims. Company websites and trade show industry contacts also can provide valuable clues in this part of the effort.
The last piece of information needed in this section of the competitive intelligence analysis includes a new-product introduction analysis (past, present, and expected). Some good sources for this information include press releases (company/industry websites), Predicast New Product Announcements, and sales force contacts. In addition, EBSCO, LexisNexis, DIALOG, and various investor sources can provide valuable insight.
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 (Four P’s, 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 websites, 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), LexisNexis, and DIALOG.
Strategy/Decision Making
Identification of marketing and corporate strategies is probably 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 ntelligence needs, followed by selected sourcing:
· 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, LexisNexis)
· 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.
B. “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
· Stimulate students to think about the critical issues, pro and con, for a firm when it moves toward adoption of a preemptive strategy approach.
· To consider how to proceed with a preemptive strategy.
· To discuss the role of preemptive strategies in helping the firm achieve a position in the 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 consider in a preemptive action are that delay and/or position are critical and that nothing is forever. The firm must recognize that eventually it will be essential to conduct some type of preemptive action if it is to maintain control or partial control of the niche or share position.
There are many reasons for a leader to adopt a preemptive strategy approach, but often it is a consequence of product maturity. The leader firm recognizes that another firm(s) has developed a superior capability in product or service. While it is possible for a challenger or 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 them. Firms that have done this, such as People Express, often find they are able to ride the crest of the wave of success only so far and so long, unable to sustain against the retaliatory moves of the industry in general. The primary preemptive objective of the leader or challenger is to maintain or occupy more of the critical or prime positions in the industry. This could include positioning their company or product in the mind of the consumers or distributors, preemptive control of the physical locations for retail facilities, of critical raw materials, and/or of other resources critical to success in the industry.
IDENTIFYING PREEMPTIVE OPPORTUNITIES
There are many ways 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. Among the various positions that Porter demonstrates is the attempt to secure access to raw materials or components. This ploy has worked mainly in those industries where raw materials or primary industries are critical to operations or success.
In like manner, programs to preempt production equipment have worked effectively. This situation works best where the production equipment involves proprietary processes or patents. Efforts to dominate supply logistics, such as brokers, transportation, or similar settings, have made an impact.
Moving to the various functional area activities, in products and/or services, a number of other preemptive methods are utilized. For example, introducing new product lines and expanding production aggressively, such as IBM and many other firms have done. A competitor attempting to follow the lead of the leader can find it a very expensive proposition that is likely to lose.
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 barrier for competitors without the same economies of scale.
In the 1980s, IBM, among others, applied the principle that if a firm provides the dominant product design in the industry, it will be able to constantly keep the competitors as followers. Constantly expanding the scope of the product is another variation on this theme. A classic 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 usefully also can be an effective preemptive strategy. This can be an effective and relatively inexpensive strategy, given that there are many different types of positioning in the marketplace, including positioning in the mind of the consumer, distributors, suppliers, and others.
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.
Keeping the competitors off balance by constantly adding to the market segments is another useful preemptive action. Coke achieved this effectively with New Coke. Even though the company had to return to the earlier formula and publicly back down from the decision, they were able to further fragment the market and take more share from the 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 most important areas for great potential is to engage in educational and promotional activities that are designed to develop the skills of the distributors. This could include a number of activities designed to enhance the capabilities for the distributors to better serve their customers.
VIII.Background Article(s)
Issue:Marketing in the High Tech Environment
A． Source:“Oracle vs. IBM,” BusinessWeek, May 28, 2001, p. 65.
Ask Oracle Corp. CEO Lawrence J. Ellison what keeps him up at night, and the answer might surprise you. It’s not his longtime nemesis, Microsoft Corp. It’s not up-and-comer Siebel Systems Inc. It’s IBM, the awakening tech giant that is vying for the No. 1 spot in the corporate-software world. “He has stopped with that ‘Microsoft is the devil’ stuff,” says Steve Mills, IBM’s software head. “He has moved on to us.”
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 strikingly different. Oracle’s strategy is to offer customers a complete and tightly integrated 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.
The outcome of this battle had huge implications for the software industry. If IBM’s partnering strategy carries the day, it means there will be plenty of breathing room for major application makers such as SAP, Siebel, and PeopleSoft, and for countless upstarts that are bringing Internet programs to market. If Oracle gains the upper hand, it will be pushing its own applications, leaving less room for other players.
To get ahead, IBM has targeted what it sees as Oracle’s chief vulnerability: The Silicon Valley 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 database they think should be used with their software. IBM’s consultants then sew the 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.
Yet IBM’s momentum has been undeniable. Take Oracle’s flagship database business. Oracle is still in the lead in the non-mainframe piece of the market, with a 50% share, according to AMR Research. But Oracle’s database sales have stagnated while IBM’s have surged. IBM’s sales on high-end computers running the Unix operating system have jumped substantially, while Oracle’s grewapproximately 1/6 as much. In addition, thanks in part to the $1 billion acquisition of Informix Corp., IBM became the second-largest maker of non-mainframe database software, with a 25% 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 the business, IBM owns about 30 % of the market—three times Oracle’s share—according to Giga Information Group Inc. “The problem is that we didn’t have a very good product until recently,” concedes Oracle Chief Financial Officer Jeffrey O. Henley.
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 applied this research to its then-thriving mainframe-database business. That allowed Ellison, then a young mainframe programmer, to exploit its potential in the emerging market for Unix 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 % of Oracle’s database sales.
IBM’s key move was getting out of the application business in late 1999. That freed Big Blue to focus on providing infrastructure technologies, such as databases, and to partner with companies that were leading players in various application markets such as sales-force 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, Oracle remains an important partner. PeopleSoft and companies like it still sell a majority of their software to run on Oracle’s databases. But IBM began catching up in 2000 when the percentage of Siebel projects that included IBM’s database jumped from 2% to 30%, while Oracle’s share dropped from 81% to 60%, according to Siebel.
In May, 2001, IBM announced that its Internet-infrastructure software would soon support Internet standards that make it easier to connect disparate computing systems. That meant that 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 declaring a “search for intelligent software,” only to find, a few days later, an Oracle billboard retorting “Then you’ve come to the right place.”
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 from Oracle to IBM database software. A longtime consultant to the police service recommended the switch, noting that Oracle’s database was three to five times as expensive as IBM’s, including IBM’s service fees. The consultant pointed out that: “We could not afford to 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 second-largest software company. And its new partnering strategy could be the beginning of a 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
IBM owns the mainframe-database business, and Oracle is the heavyweight everywhere else, with a 50% share on Unix servers. Now, IBM is coming on strong. Thanks to its acquisition of Informix in 2001, Big Blue held a 25% market share. The winner should still be Oracle by a long shot, though IBM is gaining ground.
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%. Oracle has a 9% share. Winner: IBM hands down. Oracle is going to have a hard time catching up.
Enterprise Applications
Oracle’s new e-commerce applications have had moderate success. Sales of its business software have grown substantially. Big Blue has decided to stay out of the applications business, instead partnering with Oracle’s rivals. Winner: A draw. Oracle is picking up steam, but IBM has more 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 Oracle could not continue to use the Internet boom as a basis for comparison. The dot-com comparison went away and Oracle continued the downward trend. The company instead saw “more fall-off” in other sectors, notably telecommunications. “Customers aren’t doing big deals,” he said. “They aren’t sure their businesses are going to grow.”
While it has been a difficult time for the software industry because it has been hit both by a drop in corporate technology investments, spurred by the recession, as well as delays of new 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 IBM and Microsoft have increased their efforts. Meanwhile, with the applications business maturing, products from various competitors look similar, making it tough for Oracle to differentiate itself.
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