Stmkt auc-class.9-10-spring.2013
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  • 1. 2/17/2013 Generic Strategy 1Porter’s Generic Strategies 2 1
  • 2. 2/17/2013 Exercise: Which is which??..1. McDonalds.2. GAD3. KFC4. Burger King5. AmrHamdy designs kitchens6. GW Marriott7. Metro market8. Canary fast food9. Kiosk in your street 3 Competitive Strategy 2
  • 3. 2/17/2013How to analyze the competitors? Identify the competitor’s: Analyze the competitor’s - Share of SWOT Market Determine the - Share of Mind competitor’s Strategies - Share of Heart Analyze the competitor’s Objectives Identify the potential competitors Which competitor to compete with? Strong Weak Ferrari Ford Chevrolet Branded Good X Bad Counterfeit Products Tap Coke Pepsi water indirect Direct 3
  • 4. 2/17/2013Competitor Map11-7Competitors & Market Dominance Market Leader Market Challenger Market Follower Market Nichers 4
  • 5. 2/17/2013 Market Leader  It’s the dominant company in the market with the largest Market Share.  It leads the price changes, promotional intensity & Distribution Coverage  Ex.: Boeing (airliners), Nestle (food). Microsoft (software), LOreal (cosmetics), Royal Dutch/Shell (oil). McDonalds (fast food) and De Beer (diamonds). Market Leader Market Pioneer is the first company introduced a certain product to the market. Market leader must be Market pioneer to protect its market share.  Motorola was the market Pioneer & Leader as well in cell phone industry ..but Nokia& Ericsson were pioneers so that they became market leaders  Coca Cola was the Market pioneer & Leader establishing a positioning that it’s the original .. but Pepsi positioned itself as a choice of new generation thus became the market leader 5
  • 6. 2/17/2013Objectives & Strategies ofMarket LeaderA. Expanding total market, through: 1. More Usage/consumption  The dominant company will gain the most when the consumers increase the quantity or frequency of consumption.  Ex.: Heinz will gain more profits if the American consumers increase their consumption of Ketchup. How to increase the Usage/Consumption??..  Ex.: larger packages have been shown to increase the amount of product consumed at one time.  Ex.: increase the availability of the product will increase its consumption esp. soft drinks, snacks  Ex.: tie the product to a certain occasion Nescafe at morning, Coke & football matchsObjectives & Strategies ofMarket LeaderA. Expanding total market, through: 2. New Customers  The dominant company will gain the most when the no. of consumers increases even if some of them are buying competitive brands. How to attract new customers??..  Market penetration Growth Strategy, by: more ads, discounts, promotional campaigns..etc  Market development Growth Strategy, by: targeting new segment, target new geographical market  Product development Growth Strategy, by adding new features that will encourage more customers to buy it 6
  • 7. 2/17/2013 Objectives & Strategies of Market LeaderA. Expanding total market, through: 2. New uses  The dominant company will gain the most when discovering and promoting new uses for the product.  Ex.:  Nylon is an example of new-use expansion. Every time nylon became a mature product, some new use appeared. Nylon was first used as a fiber for parachutes; then for womens socks ; later as a leading material in shirts; and in vehicle tires ..etc  Arm & Hammer baking soda the company discovered that consumers were using baking soda as a refrigerator deodorizer. It launched a heavy advertising and publicity campaign focusing on this use and persuaded consumers to place an open box of baking soda in their refrigerators and to replace it every few months. Objectives & Strategies of Market Leader B. Defending market share, through: 1. Position defense (Fortification strategy)  The dominant company must defend its current position esp. in the consumer’s mind in order to minimize the threat of being attracted to the competitor (attacker) Ex.:  Pampers & Dryness,  BMW & Performance,  Coke & The Original,  Pepsi & New generation choice. 7
  • 8. 2/17/2013Objectives & Strategies ofMarket LeaderB. Defending market share, through: 1. Position defense (Fortification strategy)  The dominant company must defend its current position by offering premium performance & superior value through anticipative & creative marketers. Ex.:  Shell must constantly guard against BP,  Gillette against Bic;  Kodak against Fuji;  Boeing against AirbusObjectives & Strategies ofMarket LeaderB. Defending market share, through: 1. Position defense (Fortification strategy)  The dominant company must keep diversifying its business portfolio in order to protect its position in the market. Ex.:  Coca-Cola in spite of being the world leader in soft drinks, is aggressively extending its beverage lines (related diversification) and has diversified into equipment and plastics (unrelated diversification). 8
  • 9. 2/17/2013Objectives & Strategies ofMarket LeaderB. Defending market share, through: 2. Flank defense  The dominant company must improve its weaknesses to avoid threats or being attacked through these points or to add more advantages even by diversifying its business portfolio.  Ex.: after launching “Range Rover”, land-Rover company became under attack by Japanese & US Companies which launched similar cars but with lower prices. Therefore, Land-Rover improved the engine of Range Rover to justify the high price targeting high-end market and launched “Discovery” with lower price to target low-end market.Objectives & Strategies ofMarket LeaderB. Defending market share, through: 3. Pre-emptive defense  The dominant company must start to attack before being attacked by the challengers Ex.:  when being threatened in the mid-1980s by the impending entry of Japanese manufacturers into the US market, Cummins Engine slashed its prices by almost a third to save its no. 1 position in the $2 billion heavy-duty truck engine market. Today, no single US-built tractor-trailer truck contains a Japanese engine. 9
  • 10. 2/17/2013 Objectives & Strategies of Market Leader B. Defending market share, through: 4. Counter-offensive defense  The dominant company will respond to any attack by counterattack action  This strategy will be very successful if the competitor is vulnerable. Ex.:  When Fuji attacked Kodak in the film market, Kodak counterattacked by dramatically increasing its promotion and introducing several innovative new film products which pushed fuji to go again to its main interest. Objectives & Strategies of Market LeaderB. Defending market share, through: 4. Counter-offensive defense (con’t)  Mars attack on the ice-cream market, using its brand extensions of Mars Bars, Snickers, Bounty and so on, created a new product class of ice-confectionery. Unilevers Walls ice- cream division, which is market leader in parts of Europe, had difficulty countering this because it had no confectionery brands to use in that way. It overcame the problem by developing brand extensions of Cadburys products, a competitor of Mars, which has no ice-cream interests. In other parts of Europe, Nestle is leader in the ice-cream market. With its strength in both confectionery and ice cream, it was able to launch brand extensions to match Mars. 10
  • 11. 2/17/2013 Objectives & Strategies of Market LeaderB. Defending market share, through: 4. Counter-offensive defense (con’t)  Xerox attacked IBM in mainframe computers, then IBM counterattacked by producing lower price photocopier to compete with Xerox bread and butter copiers with a leasing option which attracted a lot of customers and pushed Xerox to sell its mainframe computer business unit to honeywell to focus on protecting its copier business unit Objectives & Strategies of Market LeaderB. Defending market share, through: 5. mobile defense  The dominant company must have a flexible response capability thus The leader can stretch into new markets and from the current product to the broader underlying consumer need.  EX.: Armstrong Cork redefined its focus from floor covering to decorative room covering (including walls and ceilings)  Philip Morris faced growing curbs on cigarette smoking, they moved quickly into new consumer products industries, by buying General Foods and Kraft to become the worlds largest consumer packaged goods company. 11
  • 12. 2/17/2013Objectives & Strategies ofMarket LeaderB. Defending market share, through: 5. mobile defense (cont’)  This strategy is depending on 2 pillars (R&D) & external environment analysis.  Ex.: Persil has a leadership in UK soap powder market due to the constant attempts to keep the product in line with changing customer requirements.  However, Persil went to far twice, first, by product development to be with “biological formula” which made Persil market- driving company all competitors started to imitate although this feature had been proved later to be weakness since it caused skin irritation for some customers.  Second, by another product development trial by adding magnesium accelerator which damaged clothes and every time Persil original formula was back again.Objectives & Strategies ofMarket LeaderB. Defending market share, through: 6. Contraction defense (strategic withdrawal)  The dominant company sometimes prefer to give up weak market to reduce overstretching and allow concentration on the core business.  The company will serve fewer markets, but serve them much better.  Ex.: McDonald’s –Egypt started to produce “falafel” to attract new segments but failed. So it phased out that SBUand went back again to its main interest “burger “.  Virgin will face dramatic failure if its management board continues its extensive unrelated diversification strategy 12
  • 13. 2/17/2013Objectives & Strategies ofMarket LeaderC. Expanding market share, through: 1. Win competitor’s customers  The dominant company can eat from the competitor’s market share by offering Sales promotions and price reductions but such gains may disappear once the promotion ends.  Exceptions to this are price fights stimulated by market leaders with more resources than competitors.  Ex.: Pampers & kiddy, caudles..etcObjectives & Strategies ofMarket LeaderC. Expanding market share, through: 2. Win competitor  The dominant company may find it easier to buy competitors rather than win their customers. Moreover, this action may take the company into new field  Ex.: BMWs purchase of the Rover Group with its small cars and cross-country vehicles.  Nestle intends to hold its position as the worlds leading food company, although DANONE also intends to be.  Both have been acquiring businesses, Nestle buying Perrier and Rowntree among others, while DANONE own Jacobs, Kronenbourg, Amora, Lee & Perrins and IIP sauce 13
  • 14. 2/17/2013Objectives & Strategies ofMarket LeaderC. Expanding market share, through: 3. Win loyalty  The dominant company will benefit from customers loyalty and this will definitely increase its market share positively.  Ex.: In the UK grocery market Tesco challenged and overtook Sainsburys as the market leader by introducing a hugely popular loyalty scheme while Sainsburys was resisting this trendMarket Challenger A runner-up firm in an industry that is fighting hard to increase its market share. They can attack the leader and other competitors in an aggressive way.  Ex.: Colgate, Fiat, Toyota, Roche, Sandoz, HSBC, Carlsberg and PepsiCo. 14
  • 15. 2/17/2013 Market Challenger  To succeed with such an attack, a company must have some sustainable competitive advantage over the leader, a cost advantage leading to lower prices or the ability to provide better value at a premium price.  Ex.: Komatsu successfully challenged Caterpillar by offering the same quality at much lower prices, Glaxo became Europes leading drug company by aggressively marketing its 1st product Zantac.Objectives of Market Challenger  To gain market share from:  Market leader  Xerox overtook 3M in the copy market then Canon overtook Xerox later  Company of its own size  Any company which is underfinanced or not satisfying the customers’ needs well.  Smaller or weaker companies  Most Banks are growing up by acquiring smaller ones. 15
  • 16. 2/17/2013Market Challenger Strategies1. Frontal Attack  The challenger matches the competitors product, advertising, price and distribution efforts. It attacks the competitors strengths rather than its weaknesses.  IBM & Apple  Vodafone & Mobinil  Unilever & P&GMarket Challenger Strategies2. Flanking attack  Rather than attacking head on, the challenger can concentrates its resources to attack the competitor’s weak spots. Flank attacks make good sense when the company has fewer resources than the competitor  Ex.: Airbus challenged Boeing a company that dominates the industry by developing the A300 with range and payload performance different from Boeings established 727, 737 and 747 range. 16
  • 17. 2/17/2013Market Challenger Strategies2. Flanking attack  Another flanking strategy is to find unserved segments or new geographical areas to fill them in with its products and develop them into strong segments.  Ex.: European & Japanese car makers do not try to compete with American car makers by producing large forms Instead they recognized an unserved consumer segment that wanted small, fuel-efficient cars and moved to fill this hole.  Coca cola is dominating Soft drink market except some eastern & Asian areas where Pepsi dominates.Market Challenger Strategies3. Encirclement attack  It involves attacking from all directions even by isolating the competitor from the supply of its raw material and/or the customer they serve.  The encirclement strategy makes sense when the challenger has superior resources to produce better products that can break the competitor quickly.  Ex.: For several years, Seiko has been gaining distribution in every big watch outlet and overwhelming competitors with its variety of constantly changing models. In most markets Seiko offers about 400 models, but its marketing strength is backed by the 2,300 models it makes and sells worldwide. 17
  • 18. 2/17/2013 Market Challenger Strategies 4. Bypass attack  is an indirect strategy. The challenger bypasses the competitor by diversifying into unrelated products, or moving into new geographic markets or into new technologies to replace existing products.  Ex.: Technological leapfrogging is a bypass strategy used often in high-technology industries. Instead of copying the competitors product and mounting a costly frontal attack, the challenger patiently develops the next technology. When satisfied with its superiority, it launches an attack where it has an advantage. Market Challenger Strategies5. Guerrilla attack  The challenger typically makes small, periodic attacks to harass the competitor, hoping eventually to establish permanent footholds.  It might use selective price cuts, novel products, executive raids, intense promotional outbursts or assorted legal actions  Ex.: When entrepreneur F.Laker frontally attacked the established airlines (TWA) by offering cheap transatlantic flights, they fought back and bankrupted him. Now TWA has all but disappeared and British Airways is facing Virgin Atlantic run by a much wilier entrepreneur. Richard Branson. He makes guerrilla attacks on his much larger competitors..  Normally, guerrilla actions are by smaller firms against larger ones. 18
  • 19. 2/17/2013Market Follower Strategies Product imitation might be as profitable as product innovation. Many companies prefer to follow rather than challenge the market leader. 37 11-37 Follower Strategies Counterfeiter - duplicates product Cloner - slight variations  Eg Addidas in Abbidas & Addidos Imitator - differentiation in packaging, advertising, pricing, location 38 11-38 19
  • 20. 2/17/2013Objectives of the Nicher:1. Creating niches2. Expanding niches3. Protecting niches 39 11-39Nicher Strategies Small firms target small markets that are of little/no interest to large firms Create, expand & protect niches Offer high value, premium price, low production costs. Multiple niches increases chance of survival 40 11-40 20
  • 21. 2/17/2013Why is Niching Profitable? The main reason is that the market nicher ends up knowing the target customers so well that it meets their needs better than other firms selling to this niche. The nicher achieves high margin, while, the mass marketer achieves higher volume. 41 11-41 21