Giáo trình: Marketing Management_ Chapter 06

ƒ Using game theory in the development of competitive strategy... Market Structure Analysisƒ Methods of Identifying Competitors – The Product-Industry Hierarchy identifies four levels

Key Learning Points

ƒ Performing a market structure

analysis, which identifies your major competitors.

ƒ Performing a competitor analysis.

ƒ Alternative sources of information

for analyzing competitors.

ƒ Using game theory in the

development of competitive strategy.

competition is Misidentification of the competitive set can have a

serious impact on the success of a marketing plan, especially in the

long run.”

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- Russell S Winer

products for the same customer benefit.

– Crucial to understanding / developing a value proposition and appropriate

marketing implementation decisions.

– Allows firms to be proactive and

anticipate competitive actions.

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Market Structure Analysis

ƒ Identifying competition is critical

– Failing to identify a competitive threat can have disastrous consequences.

• New product forms (e.g electronic watches

in the 1970’s) can become key competitors.

– Competitors must be identified in order

to properly compute market share.

• Market share = “(us / us + them)”

• Unethical managers can manipulate market share computations by changing

competitors included in calculation.

Market Structure Analysis

ƒ Methods of Identifying Competitors

– The Product-Industry Hierarchy

identifies four levels of competition.

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Figure 6-1:

Product-Industry Hierarchy

Market Structure Analysis

ƒ Defining Competition:

Demand-Based Methods

– Competition can be defined at every

level of the hierarchy (Figure 6.1)

• This method fails to adequately get at the heart of competition or market definition

• Competition is best defined by the customer, rather than by the marketing manager, as implied in the following definition.

products that are close

substitutes to buyers, are

available to a common group

of buyers, and are distant

substitutes for all products not

included in the industry.”

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- Joe S Bain

Market Structure Analysis

ƒ Defining Competition: Demand-Based

Methods

– Figure 6.2 defines competition from the

customer’s perspective.

products of the same product type.

similar features that provide the same basic function.

need.

same discretionary budget dollars.

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Figure 6-2:

4-Level Model of Competition

What brands, products,

or services would you classify as product form, product class, generic, and budget level

competitors?

Discussion Question

Consider the DiGiorno brand of frozen pizza.

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Market Structure Analysis

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

activities at direct competitors.

customers that your product form is best in

the category.

the superiority of your product category’s

ability to satisfy needs over other categories.

generic competition.

Market Structure Analysis

ƒ Four-level model of competition:

– Cross-elasticity of demand is often

used as an indicator of substitutability when defining generic competitors.

• The percentage change in product A’s sales due to the percentage change in product

B’s sales is termed cross-elasticity

• Positive cross-elasticities indicate that the two products are competitors.

• Major problem relates to interpretation of cross-elasticities.

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Product & Service

DecisionsGeneric competition characterizes the

breath-freshening industry

A number of products in various categories compete for this market,

including chewing gum, toothpaste, breath mints,

breath sprays, and mouthwashes.

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Market Structure Analysis

ƒ Defining Competition:

Demand-Based Methods

– Substitution in use is another method

of using customer-based assessments

of competition.

• Focus groups help determine consumer perceptions of the similarity of products in usage contests.

• Results in many budget and generic level competitors.

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Market Structure Analysis

ƒ Defining Competition: Supply-Based

Methods

– Managerial judgment and external data

sources are used to determine product form and product category competitors.

is an excellent resource.

supply category or industry definitions.

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

readily observable.

Competitive Analysis

ƒ Competitive analysis is becoming

increasingly important.

– Executive education in competitive

intelligence gathering is a key training topic.

– Some universities offer certification in

competitive intelligence programs.

ƒ Competitive intelligence activities have

an unsavory reputation due to ethical

lapses by some companies.

ƒ The competitor analysis framework

consists of four key phases of analysis.

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Figure 6-4:

Competitor Analysis

Framework

ƒ Ownership status (public, private, government) should be considered when

assessing objectives.

– Price

– Distribution

– Product

– Communications

Product & Service

Decisions Core strategies can be assessed

by examining marketing

communications

The value proposition in this ad focuses

on the power generated by the Big Bertha golf club.

– Produce the product

or deliver the service

– Market their products

– Finance

– Manage

assess their own strengths and

weaknesses accurately.

ƒ Information should be summarized using one

of two techniques.

success factors in market and rate each competitor

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Figure 6-6:

Competitor Analysis

Framework

Competitive Analysis

ƒ Expected Future Strategies

– End result of competitive analysis is a forecast of competitors’ likely actions.

• Competitor’s strategies may be discussed

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Product & Service

Decisions Key Decisions

Competitive Analysis Secondary Information Sources

ƒ Help Wanted Advertisements

ƒ Electronic Data Services

Product & Service

Decisions Key Decisions

Competitive Analysis Primary Information Sources

ƒ Plant Tours

ƒ Internet Newsgroups

ƒ Elements of game theory:

– List of participants and players

– A list of strategies for each player

– A payoff matrix of rewards and costs for each combination of strategies

Figure 6-7:

A Pricing Game

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Game Theory

ƒ Pricing Game Explanation

or increase price to $300

• $8,000 if both managers keep price at $200

• $10,000 if both managers raise price to $300

• Pricing Strategy: A - $200, B - $300;

Payoff: A - $13,000, B - $4,000

• Pricing Strategy: A - $300, B - $200;

Payoff: A - $4,000, B - $13,000

Game Theory

ƒ Game Theory Benefits

– Forces firms to conceptualize possible competitive actions.

– Forces consideration of financial or

market share outcomes under various scenarios.

ƒ Solutions to game theory models

require determination of the game’s equilibrium.

– The Nash equilibrium is most common.

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Product & Service

Decisions

“ A Nash equilibrium is a list of

strategies, one for each player,

with the property that no manager wants to unilaterally change his or her strategy In other words, for

each manager, its strategy in the

equilibrium is the best response to the others’ strategies in the

equilibrium.

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- Russell S Winer

Game Theory

ƒ Prisoner’s Dilemma Game

– Competition leads to less than optimum

outcome for both competitors.

ƒ Game theory can be extended to

incorporate the leader-follower concept.

– Typical in industries in which one company

has traditionally been the first to change price

or other marketing mix elements.

– Figure 6.8 illustrates a leader-follower price

game

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Figure 6-8:

A Pricing Game

Game Theory

ƒ Using Game Theory With New

Product Entrants:

– Key issues in new entrant strategy:

• Is there a first-mover advantage?

• Can entry be deterred by an incumbent (existing competitor)? How?

• What is the incumbent optimal defensive strategy?

• What is the entrant’s optimal entry strategy?

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Game Theory

ƒ Applying Game Theory

– Industries with four or fewer competitors offer the best potential for applying game theory.

– When purchases are few, but large in size,

competition is more intense, making strategic thinking (and game theory) more valuable.

– Game theory is also valuable in industries

where costs are largely fixed.

– Situations requiring competitive bidding are particularly appropriate for game theory usage.