18 Reviewing and Extending the Concepts

Objectives Review and Key Terms

Objectives Review

Today’s companies face their toughest competition ever. Understanding customers is an important first step in developing strong customer relationships, but it’s not enough. To gain competitive advantage, companies must use this understanding to design market offers that deliver more value than the offers of competitors seeking to win over the same customers. This chapterexamines how firms analyze their competitors and design effective competitive marketing strategies.

Objective 18-1 Discuss the need to understand competitors as well as customers through competitor analysis. (pp 518525)

To prepare an effective marketing strategy, a company must consider its competitors as well as its customers. Building profitable customer relationships requires satisfying target consumer needs better than competitors do. A company must continuously analyze competitors and develop competitive marketing strategies that position it effectively against competitors and give it the strongest possible competitive advantage.

Competitor analysis first involves identifying the company’s major competitors, using both an industry-based and a market-based analysis. The company then gathers information on competitors’ objectives, strategies, strengths and weaknesses, and reaction patterns. With this information in hand, it can select competitors to attack or avoid. Competitive intelligence must be collected, interpreted, and distributed continuously. Company marketing managers should be able to obtain full and reliable information about any competitor affecting their decisions.

Objective 18-2 Explain the fundamentals of competitive marketing strategies based on creating value for customers. (pp 525535)

Which competitive marketing strategy makes the most sense depends on the company’s industry and on whether it is the market leader, challenger, follower, or nicher. The market leader has to mount strategies to expand the total market, protect market share, and expand market share. A market challenger is a firm that tries aggressively to expand its market share by attacking the leader, other runner-up companies, or smaller firms in the industry. The challenger can select from a variety of direct or indirect attack strategies.

A market follower is a runner-up firm that chooses not to rock the boat, usually from fear that it stands to lose more than it might gain. But the follower is not without a strategy and seeks to use its particular skills to gain market growth. Some followers enjoy a higher rate of return than the leaders in their industry. A market nicher is a smaller firm that is unlikely to attract the attention of larger firms. Market nichers often become specialists in some end use, customer size category, specific customer group, geographic area, or service.

Objective 18-3 Illustrate the need for balancing customer and competitor orientations in becoming a truly market-centered organization. (pp 535536)

A competitive orientation is important in today’s markets, but companies should not overdo their focus on competitors. Companies are more likely to be hurt by emerging consumer needs and new competitors than by existing competitors. Market-centered companies that balance customer and competitor considerations are practicing a true market orientation.

Key Terms

Objective 18-1

Objective 18-2

Objective 18-3

Discussion and Critical Thinking

MyMarketingLab

Go to mymktlab.com to complete the problems marked with this icon A blue star icon..

Discussion Questions

  1. 18-1 Define competitive advantage. How do companies go about finding their competitive advantage? (AASCB: Communication)

  2. A blue star icon. 18-2 How does a company identify its competitors? What do marketing managers want to know about the companies identified as competitors? (AACSB: Communication; Reflective Thinking)

  3. 18-3 Describe the strategies market challengers can adopt and explain why challengers might have an advantage over market leaders. (AACSB: Communication)

  4. A blue star icon. 18-4 What is a market nicher? Discuss the strategies and risks associated with this competitive position. (AACSB: Communication)

  5. 18-5 Compare the evolving company orientations used to adapt to the fast-changing competitive environment. Is there one orientation that companies should be following? (AACSB: Communication; Reflective Thinking)

Critical Thinking Exercises

  1. 18-6 Form a small group and conduct a customer value analysis for your college or university. What are the strong and weak competitors? For the strong competitors, what are their vulnerabilities? (AACSB: Communication; Reflective Thinking)

  2. 18-7 Using the internet, find one company market nicher in each of three different industries. Identify the competitive strategy each one uses. (AACSB: Communication; Reflective Thinking)

  3. A blue star icon. 18-8 The chapter describes Apple, Redbox, and Keurig as examples of companies that have been successful with a Blue Ocean strategy. Find another example of a company that has successfully pursued a blue ocean strategy. Explain. (AACSB: Communication; Reflective Thinking)

Applications and Cases

Online, Mobile, and Social Media Marketing Social Logins

How many times have you left a website or app because of the hassle of setting up a login account or because you forgot your username or password for one you had already set up? If you are like the 90 percent of users bothered by having to log in, you probably just leave the site and never return. Social networks are helping with that problem by offering social logins on third-party sites and applications. With more than 1.6 billion monthly active users, 1.44 billion of whom are monthly mobile users, Facebook is the largest social network. The company is using that power to become even more valuable to both users and businesses. Facebook Login allows website visitors and app users to use their Facebook login credentials to log in to other sites and apps instead of establishing a separate login for each one. Google+, Twitter, LinkedIn, and other social networks also offer social login capabilities, but Facebook is the leader, powering more than half of all social logins online and more than 60 percent of mobile logins. This seems to be a winning arrangement for all parties—users conveniently log in to multiple sites with one username and password, third-party sites and apps gain access to Facebook users’ demographic data, and Facebook gathers useful information on users’ behavior to better sell advertising.

  1. 18-9 How is Facebook Login expanding the total demand for social networks? (AACSB: Communication; Reflective Thinking)

  2. 18-10 A major criticism of social logins is consumer privacy. How has Facebook addressed this issue? Do you think it will hurt the company’s competitive advantage in this area? (AACSB: Communication; Reflective Thinking)

Marketing Ethics Creating Competitive Advantage . . . to What End?

In late September 2015, Volkswagen found itself in the midst of a firestorm. The company, which captures 70 percent of the U.S. diesel-powered passenger-car market, was caught cheating on diesel emissions tests. Over the past many years, Volkswagen had installed software on more than half a million diesel cars in the United States—and roughly 10.5 million more ­worldwide—that detected when the cars were undergoing emissions tests and triggered so-called “defeat devices” that temporarily switched operating modes and allowed them to pass the tests. VW diesel autos were found to actually be emitting up to 40 times the allowable levels of nitrogen oxide pollutants.

Volkswagen has long pitched its diesel cars as efficient, nonpolluting vehicles. But in 2008, when U.S. rules on diesel exhaust became stricter, VW faced difficulties meeting the new standards and living up to its “clean diesel” advertising promises and image. So, under competitive pressures, it covertly installed the secret “defeat devices.” When the scandal broke, Volkswagen’s global sales plunged along with its reputation. The company halted sales of affected diesel models and suspended all of its “clean diesel” marketing and advertising. To mitigate the damage, Volkswagen created a “Customer Goodwill Package” in which it doled out $1,000 in cash and dealership purchases to VW diesel owners along with access to free 24-hour roadside assistance for three years. It also reached a more than $15 billion settlement with U.S. regulators to cover the costs of possible vehicle buybacks and other remedial actions. The full long-run harm to VW’s reputation and market performance remains to be seen.

  1. 18-11 Is Volkswagen a competitor-centered company, customer-centered company, or market-centered company? Explain your answer. (AACSB: Communication, Reflective Thinking)

  2. 18-12 What competitive thinking moved Volkswagen, one of the world’s major automakers, to cheat on emission standards rather than comply with them? How could Volkswagen have prevented this scandal, and what are the lessons for other firms? (AACSB: Ethical Reasoning, Communication)

Marketing by the Numbers Market Share

Bottled water is a hot industry with sales of $11.8 billion in the United States. Big players in this industry include Nestlé, PepsiCo, and Coca-Cola. Nestlé is the market leader with four brands in the top 10 leading brands. Nestlé’s Pure Life brand was the top-selling brand with sales of $1.18 billion, but the company’s other brands make up an additional $1.6 billion, giving the company total overall sales of almost $3 billion. Nestlé saw opportunity in this market and launched a new brand called Resource, targeted to affluent women. Resource is fortified with electrolytes and is promoted as “more than ­hydration, it’s total electrolytenment.” Nestlé is attempting to take market share away from Glaceau’s Vitaminwater and Smartwater. If Resource attains just 3 percent market share, it will be in the top 10 selling brands.

  1. 18-13 Refer to Appendix 2, Marketing by the Numbers, and calculate Nestlé’s Pure Life and the company’s overall market share in the bottled water industry. (AACSB: Communication; Analytical Reasoning)

  2. 18-14 How much revenue does one market share point represent in this industry? Assuming total market sales remain the same, what sales must Resource attain to be in the top 10 selling brands? (AACSB: Communication; Reflective Thinking)

Video Case Umpqua Bank

The retail banking industry has become very competitive. And with a few powerhouses that dominate the market, how is a small bank to thrive? By differentiating itself through a competitive advantage that the big guys can’t touch.

That’s exactly what Umpqua has done. One step inside a branch of this Oregon-based community bank and it is immediately apparent that this is not your typical Christmas club savings account/free toaster bank. Umpqua has created a business model that has transformed banking from retail drudgery to a holistic experience. Umpqua has created an environment where people just love to hang out. It not only has its own music download service featuring local artists, it even has its own blend of coffee.

But under all these bells and whistles lies the core of what makes Umpqua so different: a rigorous service culture where every branch and each employee gets measured on how well they serve customers. That’s why every customer feels like he or she gets the help and attention needed from employees.

After viewing the video featuring Umpqua Bank, answer the following questions about creating competitive advantage:

  1. 18-15 With what companies does Umpqua compete?

  2. 18-16 What is Umpqua’s competitive advantage?

  3. 18-17 Do you think that Umpqua will be able to maintain this advantage in the long run? Why or why not?

Company Case YouTube: Google’s Quest for Video Dominance

There’s no doubt about it. Google—now part of holding company Alphabet—is an unquestioned success. With annual revenues of $71.5 billion last year, only 35 U.S. companies were bigger—and Google is younger than every one of them. But even its rapid rise in revenues doesn’t capture the power and influence of this brash, young company. After all, Google powers a whopping 70 percent of all desktop internet searches, a statistic that balloons to 95 percent on mobile devices.

But when it comes to defining its competition, the picture isn’t cut so clear for the undisputed sultan of search. Certainly, Microsoft (Bing) and Yahoo! are in Google’s crosshairs when it comes to search. But when it comes to keeping an eye on competitors, Google is likely more concerned about Apple, Amazon, Facebook, and Samsung. In fact, not one of these companies makes a move that Google doesn’t notice and evaluate.

How do such seemingly diverse companies end up competing so fiercely with one another? It turns out that these companies really aren’t so different when it comes to their ultimate goal—to meet the digital needs of consumers everywhere, a need set that is rapidly evolving and tricky to define. But as consumers have turned more and more of their time and attention to the connected devices they hold in their hands, Google has realized that capturing the biggest possible share of “time spent” in the digital space is what it really seeks. And although Google and competitors Apple, Amazon, Facebook, Microsoft, and Samsung each started out focusing on specific product categories, the quest for online dominance has blurred those market borders and placed the companies in direct competition with each other.

Consider Google’s portfolio of internet-oriented products—Gmail, Chrome, Google Maps, Google Earth, Google Drive, Google Docs, and Google Photos. Throw in Android, Google Wallet, Chromebooks, and Google+ and suddenly Google and its competitors lock horns in more ways than one. Expand even further to the “moonshot” projects that fall under Google parent Alphabet’s umbrella—the Internet of Things (IoT), drones, robots, alternative energy production, and autonomous vehicles—and Google and its competitors become so intertwined that its hard to tease things apart.

Google knows that to be as competitive as possible, it isn’t enough to diversify into various businesses and product lines. Rather than being disjointed pieces, every piece must fit neatly into a holistic pie. For Google, all those projects may center around internet search and organizing the world’s information. But ultimately, Google wants a big piece of consumers’ digital world. And perhaps nowhere is this more apparent than in Google’s efforts to be the leading source of streaming video programming, with its YouTube unit at the heart of those efforts.

“I Want My TV!”

When it comes to how people carve up their days, working and sleeping occupy the most ticks of the clock. But according to one recent study, leisure activities take a strong third place. Americans average 5.3 hours each day of leisure time, including activities such as socializing, playing games, reading, recreation and exercise, and relaxing. But a whopping half of all leisure time is spent watching TV. Nowadays, that includes any and all video programing on any and all devices. And although traditional television is still king, the average person now consumes 70 minutes of online video each day, a number that is growing rapidly. Most of that viewing time is spent on mobile devices over traditional computers. In fact, video will account for 80 percent of all mobile traffic within the next few years.

The compelling new viewing outlets brought to us by mobile, on-demand, and digital technologies are part and parcel to the slow but inevitable fraying of traditional primetime lineups and cable TV bundles. All of this has sparked an intense battle to capture viewing audiences that have never before been more in play. Content that was once only consumed via long-standing broadcast and cable networks such as NBC, ABC, CBS, HBO, MTV, TNT, TBS, and ESPN is now being gobbled up through new venues.

The most dominant new player is Netflix. The company that once established itself as the leading distributor of rented DVDs by mail is now the leading source of streaming television and movie programming. More than 75 million paying Netflix subscribers in 190 countries have their eyes glued to 3.8 billion ad-free hours of streaming content every month. In the United States, Netflix commands more than one-third of all internet traffic on any given weeknight. And although most of its content originates from outside sources, Netflix is fast becoming a force as a producer of original content. In fact, with hit series such as House of Cards, Orange Is The New Black, Jessica Jones, and The Unbreakable Kimmy Schmidt, Netflix is winning Golden Globes and Emmys, not to mention adding millions of new subscribers to its massive user base each month. And with the soon-to-be-released talk show starring comedian Chelsea Handler, Netflix is making its first move into live television. With annual revenues of $6.7 billion and most of that being spent on content, Netflix is keeping television and cable network executives awake at night.

But Google is no shrinking violet when it comes to internet video. Through its Google Play media store, it rents and sells movies and TV programs à la iTunes. More important, its own YouTube unit is still far and away the leading source for streaming video with a whopping 77 percent share of all video site visits. YouTube has always generated revenue for Google, with advertising accounting for the vast majority of that income—a model that has set a standard for internet video. In addition, YouTube provides viewers with a second Google option to rent or purchase movies and TV programs as well as a selection of pay-per-view subscription channels. By itself, YouTube generated an estimated $9 billion in revenue for Google last year.

Making more money on internet video than even Netflix, you might think Google would be satisfied with its offerings. But Google has never been satisfied with the status quo. It knows that it must keep doing more if it wants to remain on top of the online video heap.

The Competition Intensifies

As online video explodes, Netflix is hardly Google’s only concern. Other premium viewing sites such as Hulu and Crackle are also of concern. But perhaps even more pressing, every one of Google’s formidable competitors poses a credible threat with its own online video portals. When it comes to subscription services, Amazon Prime is second only to Netflix with about one-third the number of paying subscribers. Hulu Plus is close behind. Apple invented the online media store with iTunes. And with more than a billion users, Apple certainly has a captive audience for its video portal through the most coveted devices in the world.

Facebook now boasts 8 billion video views a day and ­growing—a statistic that some suggest makes the world’s largest social network YouTube’s biggest threat. And with its Surface and Xbox interfaces, even Microsoft has a foot in the door for its Windows media store. Even Twitter recently signed a deal with the NFL to live-stream Thursday night games. With Verizon, Yahoo!, and even Alibaba vying for the attention of eyeballs worldwide with their video content, the industry is red hot.

Lately, each of these players has poured money into building a video empire. And these days it’s all about original content. In that arena, Netflix is leading the way and has completely shaken up the competitive landscape. Many Hollywood actors, directors, and producers have jumped ship to Netflix not only for the money but for the lure of artistic freedom that traditional channels simply cannot provide. “[Competitors are] in awe of the clout Netflix carries with both consumers and media companies,” says Blair Westlake, former chairman of Universal Television and head of media and entertainment for Microsoft. And although they may not walk with Netflix’s swagger, Amazon, Hulu, and Crackle each hold a hand at the table of original content.

At the most recent Sundance Film Festival, it was “invitation only” at the iTunes Lounge, the Apple-hosted revolving door of A-listers at the Imperial Hotel on Park City’s main drag. Apple’s presence at the high-profile festival was part of its current plan to develop a roster of exclusive content intended to rival the options on Netflix—content that will be available only through iTunes and apps on Apple devices.

Apple is pursuing a “two-lane” approach to content development. The first is a collection of short films, music videos, and documentaries built around associates of Dr. Dre and Jimmy Iovine—the founders of Beats Electronics, which Apple purchased for $3 billion and rebranded as Apple Music, its answer to Spotify. In a holistic fashion, this content not only will attract viewers but will serve to promote Apple Music. The second lane is to develop original TV-style programming in the vein of Netflix, Amazon, and Hulu. With a stockpile of cash that exceeds $200 billion, Apple has the funds to pave both lanes with gold.

While Apple is putting together deals behind closed doors, Facebook is pursuing its own path. Rumor has it that Facebook’s Mark Zuckerberg is obsessed with video. In fact, Facebook is predicting the end of the written word on its platform. In five years’ time, Facebook “will be definitely mobile, it will be probably all video,” says Nicola Mendelsohn, head of Facebook for Europe, the Middle East, and Africa. “The best way to tell stories in this world, where so much information is coming at us, actually is video.”

With its unparalleled reach, analytics, and targeting capabilities, Facebook has been very successful in getting studios to use the social network as a platform for trailers and sneak peeks. But Facebook is currently pushing hard with its money and other resources to move beyond promotional partnerships with Hollywood. It aims to be a serious option for destination viewing of original content. Enter Facebook Live, a live streaming platform designed to house just about anything. For example, Whoopi Goldberg provided a behind-the-scenes play-by-play of the most recent Academy Awards in a series of video diaries that received millions of hits. But that’s just the tip of the iceberg. Facebook is in talks with everyone from TV producers, comedians, and musicians to athletes, chefs, politicians, and journalists to stream live shows, including exclusives.

Doing Video Its Own Way

So what is Google doing to surpass competitors in this very crowded field? You might think that it would turn Google Play into a Netflix or Hulu clone. Indeed, some analysts have suggested that Google simply purchase one of the proven video portals, pointing to the $75 billion pile of cash it’s sitting on. But Google doesn’t want to be Netflix. Rather, Google is out to fortify its position as the online video leader based on its own strengths—and that means YouTube. Last year, YouTube launched its own paid subscription service, Red. For $9.99 a month, viewers receive ad-free access to all YouTube content across all YouTube interfaces. Subscribers can save videos and playlists on devices to be viewed offline. There is even a “music only” setting for music videos, integrating with YouTube Music and Google Play Music to make Red a commercial-free streaming music service.

Although such features are nice, YouTube Red’s biggest draw will likely be its recently launched Originals—original programming available exclusively to Red subscribers. But unlike Netflix, Amazon, and even Apple, YouTube is developing content with its own twist. First and foremost, it’s capitalizing on the personalities made famous at home. There’s Scare PewDiePie, a scripted reality horror show from the producers of The Walking Dead and starring YouTube’s biggest celebrity, Felix Kjellberg. There’s A Trip to Unicorn Island, a documentary focusing on Lilly “Superwoman” Singh. And there’s Fight of the Living Dead, which puts YouTube talent in a fight to survive a zombie apocalypse.

But even as YouTube signs its own celebrities to star in top-quality programs, it doesn’t have a lock on these stars. In a first-ever competitive move, Netflix recently signed YouTube sensation Miranda Sings to star in an original comedy series, Haters Back Off! Although YouTube has plenty of homegrown personalities to choose from, it must now add them to the list of possible competitive threats.

YouTube Red currently has 10 programs available. And with many more in the works, including more high-profile shows featuring high-profile industry talent, YouTube Originals is off and running. Offering very competitive compensation for personalities, directors, and producers, Hollywood insiders as well as Google’s competitors have gotten the message—YouTube means business.

Questions for Discussion

  1. 18-18 Define YouTube in terms of competitive advantage.

  2. 18-19 Of all Google’s competitors, which ones should it attack? Which ones should it avoid?

  3. 18-20 Which basic competitive strategy does Google follow?

  4. 18-21 How would you classify Google in terms of competitive position? Why?

  5. 18-22 Is Google a market-centered company? Support your answer.

Sources: Nicole LaPorte, “Apple, Facebook, Google, and Alibaba Take Hollywood,” Fast Company, May, 2016, pp. 68–96; Sarah Mitroff, “Everything You Need to Know about YouTube Red,” Cnet, February 17, 2016, www.cnet.com/how-to/youtube-red-details/; Cassie Werber, “Facebook Is Predicting the End of the Written Word,” Quartz, June 14, 2016, www.qz.com/706461/facebook-is-predicting-the-end-of-the-written-word/; “Mobile Spearheads Digital Video Advertising’s Growth,” eMarketer, February 22, 2016, www.emarketer.com/Article/Mobile-Spearheads-Digital-Video-Advertisings-Growth/1013611; Leah Libresco, “Here’s How Americans Spend Their Working, Relaxing, and Parenting Time,” FiveThirtyEight, June 24, 2015, http://fivethirtyeight.com/datalab/heres-how-americans-spend-their-working-relaxing-and-parenting-time/; Farhad Manjoo, “The Great Tech War of 2012,” Fast Company, November, 2011, pp. 106–146; and www.youtube.com/red, accessed July 2016.

MyMarketingLab

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

  1. 18-23 Explain the difference between a good and a bad competitor.

  2. 18-24 Discuss the similarities and differences between Michael Porter’s competitive strategies and the Treacy and Wiersema “value disciplines.” Which classification of competitive strategies has more appeal for marketers and why?

..................Content has been hidden....................

You can't read the all page of ebook, please click here login for view all page.
Reset
3.145.47.130