Market Structure and Competitor Analysis

Market Market Structure Structure

and and Competitor Competitor

AnalysisAnalysis

Chapter SixChapter Six

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 6-2

Key Learning PointsKey Learning Points

Performing a market structure Performing a market structure analysis, which identifies a firm’s analysis, which identifies a firm’s major competitorsmajor competitorsPerforming a competitor analysisPerforming a competitor analysisAlternative sources of information Alternative sources of information for analyzing competitorsfor analyzing competitorsUsing game theory in the Using game theory in the development of competitive development of competitive strategystrategy


OverviewOverview

Market Market structure and structure and competitive competitive analysis are analysis are critical to the critical to the development development of marketing of marketing plans. plans.


- Russell S. Winer

““The purpose of a market structure The purpose of a market structure analysis is to enable the marketing analysis is to enable the marketing manager to understand who the manager to understand who the competition is. Misidentification of competition is. Misidentification of the competitive set can have a the competitive set can have a serious impact on the success of a serious impact on the success of a marketing plan, especially in the marketing plan, especially in the long run.”long run.”


Market Structure AnalysisMarket Structure Analysis

Identifying competition is Identifying competition is critical.critical.

Failing to identify a competitive Failing to identify a competitive threat can have disastrous threat can have disastrous consequences.consequences.Competitors must be identified in Competitors must be identified in order to properly compute market order to properly compute market share.share.



Methods of Methods of identifying identifying competitorscompetitors

Supply-based Supply-based approachesapproachesDemand-Demand-based based approachesapproaches


Figure 6.1Figure 6.1Product-Industry HierarchyProduct-Industry Hierarchy


Figure 6.2Figure 6.2Levels of Competition: Levels of Competition:

Drip Coffee MakersDrip Coffee Makers


Discussion QuestionDiscussion Question

What brands, products, What brands, products, or services would you or services would you classify as product form, classify as product form, product class, generic, product class, generic, and budget level and budget level competitors?competitors?

Consider Miller Genuine Consider Miller Genuine Draft for a moment.Draft for a moment.


Four-level model of competition Four-level model of competition implies different tasks for each implies different tasks for each competitive level.competitive level.

Product form competitionProduct form competition

Product category competitionProduct category competition

Generic competitionGeneric competition

Budget competitionBudget competition


Figure 6.3Figure 6.3Altoids AdvertisementAltoids Advertisement

Altoids created a Altoids created a desire for stronger desire for stronger or “nasal flaring” or “nasal flaring” products, resulting products, resulting in $117 million in in $117 million in sales during 2004.sales during 2004.

How would you How would you define Altoids define Altoids competition?competition?



Demand based methods of Demand based methods of defining competitiondefining competition

Cross-elasticity of demand:Cross-elasticity of demand:Positive cross-elasticity Positive cross-elasticity indicates competitors.indicates competitors.Major problems exist with cross-Major problems exist with cross-elasticity interpretation.elasticity interpretation.



Demand based methods of Demand based methods of defining competitiondefining competition

Substitution in useSubstitution in useConsumers estimate the degree of competitiveness through judged similarity of products in usage contexts.



Supply-based methods of Supply-based methods of defining competition defining competition

Observation (managerial Observation (managerial judgment)judgment)External data sourcesExternal data sources

Government documents provide Government documents provide a great deal of data.a great deal of data.NAFTA classifications are often NAFTA classifications are often used.used.


Table 6.1Table 6.1Concentration by Largest Firms Concentration by Largest Firms

for the United States: 2002for the United States: 2002



Supply-based methods of Supply-based methods of defining competitiondefining competition

Trade associations, consultants, Trade associations, consultants, and others may supply category and others may supply category or industry definitions.or industry definitions.

Generic and budget level Generic and budget level competitors are the most difficult competitors are the most difficult to determine.to determine.


Competitor AnalysisCompetitor Analysis

Competitor analysis is increasing in Competitor analysis is increasing in importance.importance.

Training effortsTraining efforts

Visit the Visit the society for competitive analysis

Competitive intelligence activities Competitive intelligence activities have an unsavory reputation.have an unsavory reputation.

The competitor analysis framework The competitor analysis framework consists of four key phases of consists of four key phases of analysis.analysis.


Figure 6.4Figure 6.4Competitor Analysis FrameworkCompetitor Analysis Framework



Assess competitive objectives: Assess competitive objectives: Competitors’ objectives offer Competitors’ objectives offer insight into future strategies. insight into future strategies.

Ownership status should be Ownership status should be considered when assessing considered when assessing objectives.objectives.

Private-owned firmsPrivate-owned firms

Government-owned firmsGovernment-owned firms



Assess competitive strategy:Assess competitive strategy:Customer and competitor targetsCustomer and competitor targetsProduct featuresProduct featuresCore strategiesCore strategiesSupporting marketing mixSupporting marketing mix


Table 6.2Table 6.2Produce Feature Matrix: Produce Feature Matrix:

Small Sports SedansSmall Sports Sedans


Figure 6.5Figure 6.5Xerox AdvertisementXerox Advertisement

The value proposition of this ad focuses on the reduced cost of color printing.

SRDS can be used to discern the target market.



Assess competitive strategy.Assess competitive strategy.Supporting marketing mix:Supporting marketing mix:

PricePriceCommunicationsCommunicationsDistributionDistributionProduct or service capabilitiesProduct or service capabilities

Assess competitor strengths Assess competitor strengths and weaknesses.and weaknesses.


Table 6.3Table 6.3Competitor Capabilities Matrix Competitor Capabilities Matrix


Table 6.3Table 6.3Competitor Capabilities Matrix Competitor Capabilities Matrix



Firms must also assess their own Firms must also assess their own strengths and weaknesses strengths and weaknesses accurately.accurately.Information should be summarized Information should be summarized using one of two techniques.using one of two techniques.

Differential competitor advantage Differential competitor advantage analysisanalysisSWOT analysisSWOT analysis


Table 6.5Table 6.5Differential Competitor Differential Competitor

Advantage AnalysisAdvantage Analysis


Figure 6.6Figure 6.6SWOT Analysis SWOT Analysis



Expected future strategiesExpected future strategiesEnd result of competitive analysis End result of competitive analysis is a forecast of competitors’ likely is a forecast of competitors’ likely actions.actions.

Sources of forecasts varySources of forecasts varyPublishedPublished

Trend forecastingTrend forecasting

SimulationSimulation

Scenario planningScenario planning


Table 6.6Table 6.6Three Scenarios Three Scenarios


Where Do We Get the Where Do We Get the Information?Information?

Secondary Information Secondary Information SourcesSourcesInternal sourcesInternal sources

Annual reportsAnnual reports

Trademark and Trademark and patent filingspatent filings

Other govt. Other govt. sourcessources

General business General business & trade & trade publicationspublications

ConsultantsConsultants

Trade Trade associationsassociations

Help wanted Help wanted advertisementsadvertisements

Electronic data Electronic data servicesservices


Electronic data services:Hoover’s onlineDin & Bradstreet’s online accessNewsDirectory’s 24-hour newsstandAmerican demographicsCompetitive intelligence guideDIALOGSpecialized web-based services


Primary Information Primary Information SourcesSources

Sales force Sales force and customersand customers

EmployeesEmployees

SuppliersSuppliers

Trade showsTrade shows

Reverse Reverse engineeringengineering

Plant toursPlant tours

Blogs & Blogs & Internet Internet newsgroupsnewsgroups



IllustrationIllustration

Trade shows Trade shows are important are important for displaying for displaying new products, new products, but are also but are also excellent excellent sources of sources of information information about about competitors.competitors.


ActivityActivity

Partner with another student Partner with another student who represents your competitor. who represents your competitor. You each must decide whether You each must decide whether to raise your price to $300 or to raise your price to $300 or keep it at $200. Do not discuss keep it at $200. Do not discuss your strategy with your partner. your strategy with your partner. Write down your price on a piece Write down your price on a piece of paper, fold it, and hand it to of paper, fold it, and hand it to your partner to keep until later.your partner to keep until later.


Competitive Strategy: Competitive Strategy: Some Game Theory NotionsSome Game Theory Notions

Game theory offers a more Game theory offers a more formal and analytical process formal and analytical process for anticipating competitors for anticipating competitors future strategies into decision-future strategies into decision-making.making.

AssumptionsAssumptionsNon-cooperative game theoryNon-cooperative game theoryRequirementsRequirements


Figure 6.7Figure 6.7A Pricing GameA Pricing Game


- Russell S. Winer

““A Nash equilibrium is a list of A Nash equilibrium is a list of strategies, one for each player, strategies, one for each player, with the property that no manager with the property that no manager wants to unilaterally change his or wants to unilaterally change his or her strategy. In other words, for her strategy. In other words, for each manager, its strategy in the each manager, its strategy in the equilibrium is the best response to equilibrium is the best response to the others’ strategies in the the others’ strategies in the equilibrium.”equilibrium.”


Prisoner’s dilemma gamePrisoner’s dilemma game

Game theory can be extended Game theory can be extended to incorporate the leader–to incorporate the leader–follower concept.follower concept.



Figure 6.8Figure 6.8A Leader-Follower GameA Leader-Follower Game


Game theory imposes disciplined Game theory imposes disciplined thinking on managers.thinking on managers.

Game theory can be used with Game theory can be used with new product entrants.new product entrants.

Game theory can be applied to Game theory can be applied to manufacturer – retailer relations.manufacturer – retailer relations.



Key Learning PointsKey Learning Points

Market structure analysis assesses Market structure analysis assesses competition.competition.A broad view of competition is A broad view of competition is desirable.desirable.Analyze competitive strengths and Analyze competitive strengths and weaknesses, and predict strategies.weaknesses, and predict strategies.Primary and secondary sources provide Primary and secondary sources provide competitive information.competitive information.Applying game theory can help reveal Applying game theory can help reveal competitors’ future actions and impact.competitors’ future actions and impact.


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Market Structure and Competitor Analysis