Competition and Product Strategy

Slide 1.
Chapter 1 Competition and product strategy
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 1.2
Agenda
Global competition Marketing and competitive success Environmental change Life cycles and evolution The nature of competition Product strategy its nature and importance
Slide 1.3
The history of human development is based on the twin concepts of Task specialisation and exchange. Task specialisation increases productivity and value added, but specialists must be able to exchange surpluses of their output for other goods and services. The means of doing this is through the establishment of markets both real and virtual. Technological innovation, entrepreneurship, the division of labour and professional management increase both the volume and variety of goods and services available for exchange. International trade, based on the Theory of comparative advantage, leads to global competition and further increases in productivity.
Slide 1.4
Success in business is success in a market. Firms go out of business not by closing factories but by unprofitable marketing. Firms usually enter a business by creating products (i.e. goods and services) but stay in business only by creating and retaining customers at a profit.
[OShaughnessy]
Slide 1.5
A recent survey of top European CEOs identified eight factors which characterize the environment facing management: 1. 2. 3. 4. 5. 6. 7. 8. A demand for quality and advice. A move towards a service culture. An emphasis upon the specialist. Shortening strategic time horizons. Scenario planning replacing forecasting. Reduction in head office functions. A wider international outlook. Tighter legislation.
Slide 1.6
The changing business environment

Accelerating technological change Globalisation Mergers, acquisitions and strategic alliances Demographics Deregulation and privatisation Changes in business practices downsizing, outsourcing, re-engineering etc. Ethical and ecological concerns
Slide 1.7
Reasons for the success of the management best sellers:

1. They assert the superiority of American management and systems. 2. They stress the entrepreneurial values and the moneymaking ethic so strongly challenged by the consumerist movement of the 1960s and 1970s.
Slide 1.8
They are based on the analysis, practice and procedure in firms or of people who are leaders in their field and manifestly successful. They reduce the ingredients of success to simple catechisms or formulae. They emphasise that the essential catalyst and hero of the piece is the manager. Examples: In Search of Excellence, Iaoccoca, One Minute Manager, The IBM Way, Making it Happen.
Slide 1.9
Peters and Watermans eight attributes:

1. 2. 3. 4. 5. 6. 7. 8. A bias for action. Close to the customer. Autonomy and entrepreneurship. Productivity through people. Hands-on, value driven. Stick to the knitting. Simple form, lean staff. Simultaneous loose-tight properties.
Slide 1.10
Under modern conditions of competition it is becoming increasingly risky not to innovate. At the same time it is extremely expensive and risky to innovate:
Most product ideas which go into development never reach the market. Many of the products which reach the market fail. Successful products have shorter life cycles.
Slide 1.11
It is accepted that, at the national level,
more than 90% of all economic growth

and progress is due to innovation.
Slide 1.12
BUT.
Most new products fail!
Slide 1.13
We all agree that innovation benefits both world and nation. The question we must answer later is, will it help the innovator?
[Kenneth Boulding]
Slide 1.14
Research into competitiveness:

1. Popular, anecdotal track.
2. Academic track.
Slide 1.15
Research weaknesses:
1. 2. 3. 4. High-growth industries. High-growth companies. Single factor focus. Operational vagueness.
Slide 1.16
Project MACS
Extensive review of the literature Semi-structured interviews with opinion leaders Matched samples:
successful and unsuccessful sunrise and sunset
Structured interviews with MDs of 86 firms Funded by ESRC and IM
Slide 1.17
In above average companies:

Marketing personnel meet more often with the top-level decision makers.
Marketing responsibility is defined within a sales and/or marketing department.
Slide 1.18
In below average companies:

Marketing personnel meet less often with the top-level decision-makers Marketing responsibility is left to the parent company. Marketing responsibility is isolated in general-purpose, support functions.
Slide 1.19
Above average companies:

Do more strategic planning Have plans covering longer time horizons Quantify strategic objectives more frequently Are more aware of the strategic relevance of forecasts of market share Are more aware of the strategic importance of liquidity and of continuous product and process development Follow strategies of market penetration, market and product development simultaneously
Slide 1.20
Above average companies:

Invest more in in-house and external market research Are more actively involved in undertaking customer surveys and field experiments Are more committed to forecasting competitive activity Collect internal information more frequently Are involved in more types of market segmentation
Slide 1.21
Queens award winners:

Have product champions with power and authority Interact closely with customers/users in design and development stages Have a higher technological content than rivals Conduct continuous reviews of the environment during and after product design Make greater use of new and improved manufacturing techniques Design is involved through to commercialization.
[Ughanwa & Baker, 1989]
Slide 1.22
Japanese new product development:

Emphasizes strategic management of technology as a source of competitive advantage Constantly monitors consumer needs Makes little use of external consultants Sees users as an important source of new product ideas Makes little use of test marketing emphasizes speed.
[Kheir-El-Din & Baker,1991]
Slide 1.23
Seven conclusions:
Marketing is good for you. Distinguish between trappings and substance No MAGIC factors The correlates of successful companies are situation specific A customer orientation is key but not at any price! Production and selling are not dirty words Be yourself commitment and implementation
Slide 1.24
Characteristics of a successful business:

Vision directed with shared values and culture Innovative, entrepreneurial Flexible, learning
Customer focused
Source: Wind and West (1991,1993)
Slide 1.25
Three roads to competitive success:

Build a better product at the market price. Build the same product at a lower price. Create a monopoly through a customer franchise.
Slide 1.26
Environmental change
All firms compete within the same macro-environment.
The nature of this environment is determined by a wide variety of factors usually summarised as:
Political and legal Economic Social Technological
Hence, PEST analysis
Slide 1.27
Most predictions of environmental change are based on the assumptions that, ultimately, supply is fixed but that demand will continue to grow. As Demand is determined by the size of the worlds population it is clear that, if the former assumption is correct, then the latter cannot be an outcome predicted by Malthus in 1797. Fulfilment of Malthus prediction has been deferred largely as a result of technological innovation or, in marketing terms new product and process development
Slide 1.28
Technological innovation is both an evolutionary and a revolutionary process. Evolution is essentially a gradual and cyclical process whereby more successful species displace less successful ones the survival of the fittest. However, this cycle may be punctuated by discontinuities which have a major impact on the process. A consequence of this is that all phenomena have a Life cycle.
Slide 1.29
In business the survival of the fittest is determined by the forces of competition. These forces have been summarised by Porter(1979) as: 1. The threat of new entrants 2. The threat of substitution 3. The bargaining power of suppliers 4. The bargaining power of customers 5. Rivalry between current competitors Analysis of these forces confirms that differentiation is the key to survival.
Slide 1.30
In competing with one another firms have only a limited number of strategic options available to them. These were identified by Ansoff (1957) in a Growth Vector Matrix. Product New Present Market penetration New product development
Present Mission
New
Market development
Diversification
Slide 1.31
The MACS study showed that the most successful companies pursued strategies of market penetration, market development and new product development simultaneously.
In seeking to develop and maintain a sustainable competitive advantage (SCA) firms compete through cost leadership or differentiation. Cost leadership is only possible for very large firms.
Differentiation is the preferred approach for the vast majority and it is this that has resulted in the emphasis on innovation and new product development as the favoured strategy.
Slide 1.32
Five alternatives are open to the firm when competing through products based on:
Product proliferation
Value
Design
Innovation
Service

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Slide 1.

Chapter 1 Competition and product strategy

The changing business environment

Reasons for the success of the management best sellers:

Peters and Watermans eight attributes:

It is accepted that, at the national level,

more than 90% of all economic growth

Research into competitiveness:

Structured interviews with MDs of 86 firms Funded by ESRC and IM

In above average companies:

Marketing responsibility is defined within a sales and/or marketing department.

In below average companies:

Above average companies:

Above average companies:

Queens award winners:

Japanese new product development:

Characteristics of a successful business:

Source: Wind and West (1991,1993)

Three roads to competitive success:

Hence, PEST analysis

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