CHAPTER: MARKETS AND
COMPETITIVE SPACE
Topics to be covered:
Markets and Strategies
Matching the Needs with Product Benefits
Defining and Analyzing the Product-Markets
Markets and Strategies
• Knowledge about markets and competitive
space is essential in guiding business and
marketing strategies. The importance of
such knowledge will be addressed from the
following perspectives:
• Markets and Strategies are Interlinked
• Thinking Outside the Competitive Box
• An Array of Challenges
(continued…)
• Markets and Strategies are Interlinked: Market
changes often require altering business and
marketing strategies. Market-driven companies
proactively alter their strategies to deliver
superior value to existing and new customers.
(continued…)
• Thinking outside the Competitive Box: Threats as well
as exciting opportunities may be present outside the
conventional competitive box as they are shown in the
figure given below:
(continued…)
• An Array of Challenges: Changes in markets are drastically altering
opportunities and competitive space and increasing the importance of
strategic thinking in these changing markets. The major challenges
and opportunities are as follows:
• Disruptive Innovations: They provide simpler and less costly ways to
match the value requirements offered by the products of incumbent firms
serving the market.
• Commoditization Threats: When modularization (products comprised of
standardized components) occurs products become commodities, making
it difficult to earn anything more than subsistence returns.
• Creating New Market Space: Blue Ocean Strategy (Kim and Mauborgne)
offers an interesting and relevant perspective on how companies can
create new market space. The purpose is to target new opportunities
where buyers’ value requirements are not being satisfied by existing
products.
• Fast Changing Markets: Increasingly, fewer markets are stable, and
instead, many are changing rapidly.
Matching Needs with Product Benefits
• The product-market matches people with needs
—needs that lead to a demand for a good or
service—to the product benefits that satisfy those
needs. Thus, a product-market combines the
benefits of a product with the needs that
motivate people to express a demand for that
product.
(continued…)
• More technically, a product-market is the set of
products judged to be substitutes within those
usage situations in which similar patterns of
benefits are sought by groups of customers. If
one type of product is a substitute for another,
then both should be included in the product-
market.
Defining and Analyzing Product Markets
• There are basically five steps in defining and analyzing
product-markets as they are shown in the figure given
below:
Determining Product-Market Boundaries and Structure
• Product-market consists of a specific product or
line of related products that can satisfy a set of
needs and wants for the people or organizations
willing and able to purchase it. Determining the
product-market boundaries involves the
understanding regarding the following issues:
• Product-Market Structure
• Guidelines for Definition
(continued…)
• Product-Market Structure: A company’s brand
competes with other companies’ brands in
generic, product-type, and product-variant
product-markets:
• Generic Product Market: Generic product-market
includes a broad group of products that satisfy a
general, yet similar need.
• Product-Type Product-Market: The product-type
product-market includes all brands of a particular
product type.
• Product-Variant Product-Market: Difference in the
products within a product-type product market may
exist, creating product variants.
(continued…)
• Guidelines for Definition: In defining the
product market, it is helpful to indicate—
• The basis for identifying buyers in the product-market of
interest
• The market size and characteristics
• The brand and/or product categories competing for the
needs and wants of the buyers included in the product-
market.
(continued…)
• Consider the following figure determining the composition
of a product-market:
Forming Product-Markets
• The factors that influence how
product-market boundaries should be
determined include the following—
• Purpose of Analysis
• Changing Composition of Markets
• Extent of Market Complexity
(continued…)
• Purpose of Analysis: If management is deciding
whether or not to exit a business, primary
emphasis may on financial performance and
competitive position. Detailed analysis of the
product-market may not be necessary. In
contrast, if the objective is finding one or more
attractive market segments to target in the
product-market, a much more penetrating
analysis is necessary.
(continued…)
• Changing Composition of Markets: Product-
markets may change as new technologies
become available and new competition emerges.
New technologies offer buyer different ways of
meeting their needs.
(continued…)
• Extent of Market Complexity: Three
characteristics of markets capture a large portion
of the variation in their complexity:
• The functions or uses of the product needed by the
customer
• The technology used in the product to provide the
desired function
• The different customer segments using the product to
perform a particular function.
Describing and Analyzing End-Users
• After determining the product-market structure it
is useful to develop profiles of end-user buyers
for the generic, product-type, and product-variant
levels of the product-market. Activities involved in
describing and analyzing end-users include:
• Identifying and Describing Buyers
• How Buyers Make Choices
• Environmental Influences
• Building Customer Profiles
(continued…)
• Identifying and Describing Buyers:
Characteristics, such as family size, age, income,
geographical location, gender, and occupation
are often useful in identifying buyers in
consumer markets. Illustrative factors used to
identify end-users in organizational markets
include type of industry, company size, location
and types of products. Many published sources of
information are available for use in identifying and
describing customers.
(continued…)
• How Buyers Make Choices: In considering how
customers decide what to buy, it is useful to analyze how
they move through the sequence of steps leading to a
decision to purchase a particular brand. Buyers normally
follow a decision process as it is shown in the figure given
below:
(continued…)
• Environmental Influences: The final step in building
customer profiles is to identify the external
environmental factors that influence buyers and thus
impact the size and composition of the market over time.
These influences include government actions, social
changes, economic shifts, technology, and other factors
that may alter buyers’ needs and wants. Typically these
factors are not controlled by the buyer or the firms that
market the product and substantial changes in
environmental influences can have a major impact on
customers’ purchasing activities.
(continued…)
• Building Customer Profiles: Describing customers
begins with the generic product-market. At this level
customer profiles are likely to describe the size and
general composition of the customer base. The product-
type and product-variant profiles are more specific about
customer characteristics such as needs and wants, use
situations, activities and interests, opinions, purchase
processes and choice criteria, and environmental
influences on buying decisions.
Analyzing Competition
• Competitor analysis considers the companies and
brands that compete in the product-market of
interest. Analyzing the competition involves the
following steps:
• Defining the Competitive Arena
• Identifying the Key Competitors
• Evaluate Key Competitors
• Anticipate Actions by Competitors
• Identify and Evaluate Potential Competitors
(continued…)
• Defining the Competitive Arena: Competition often
includes more than the firms that are direct competitors.
The product variant is the most direct type of competition.
A complete understanding of the competitive arena helps
to guide strategy design and implementation. Since
competition often occurs within specific industries, study
of the industry structure is useful in defining the
competitive arena, recognizing that more than one
industry may be competing in the same product market,
depending on the complexity of the product market
structure.
(continued…)
• Consider the following illustration:
(continued…)
• Defining the competitive arena also
involves the following tasks:
• Industry Analysis
• Analysis of the Value-Added Chain
• Competitive Forces
(continued…)
• Industry Analysis: Competitor analysis is
conducted from the point of view of a particular
firm. The industry analysis considers:
• Industry size, growth, and competition
• Typical marketing practices
• Industry trends that are anticipated
• Industry strengths and weaknesses
• Strategic alliances and potential mergers/acquisitions
among competitors
(continued…)
• Analysis of the Value-Added Chain: The study of
supplier and distribution channels is important in
understanding and serving product markets. While some
producers may go directly to their end users, many work
with other organizations through distribution channels.
(continued…)
• Competitive Forces: Different competitive forces are
present in the value-added chain. The traditional view of
competition is expanded by recognizing Michael Porter’s
five competitive forces that impact industry performance:
(continued…)
• Key Competitors Analysis: Competitor analysis is
conducted for the firms directly competing with each other
(e.g., Coke and Pepsi) and other companies that
management may consider important in strategy analysis.
(continued…)
• Describing and Evaluating Key Competitors:
The following factors are usually considered in
describing and evaluating key competitors:
• Business scope and objectives
• Management experience, capabilities, and weaknesses
• Market position and trends
• Market target(s) and customer base
• Positioning strategy for each target
• Distinctive capabilities
• Financial performance (current and historical)
(continued…)
• Anticipating Competitors’ Actions:
Competitors’ future strategy may continue the
directions that they have established the past or
may take new turns due to changes in the
environmental factors. Competitors’ current
actions may signal probable strategy shifts that
may create future threats.
(continued…)
• Identifying New Competitors: New competitors may
come from four sources: (1) companies competing in the
related product-market (2) companies with related
technologies (3) companies already targeting similar
customer groups with other products, and (4) companies
competing in other geographical regions with similar
products. Market entry by a new competitor is likely under
one or more of these conditions:
• High profit margins are being achieved by market
incumbents
• Future growth opportunities in the market are attractive
• No major market-entry barriers are present
Market Size Estimation
• An important part of market opportunity analysis is estimating the
present and potential size of the market. Three key measures of
market size are:
• Market Potential: Market potential is the maximum amount of
product sales that can be obtained from a defined product-market
during a specified time period.
• Sales Forecast: The sales forecast indicates the expected sales
for a defined product-market during a specified time period. A
forecast can be made for total sales at any product-market level
(generic, product-type, product-variant) and for specified subsets
of the product-market (e.g., market segments).
• Market Share: Company sales divided by the total sales of all
firms for a specified product-market determines the market share
of a particular firm.
Thank You
