Competitors

What Defines a Competitor?
A: A substitute is one that embodies
1) Similar performance characteristics: Not Toyota and Mercedes
2) Similar ocassion of use: Not OJ vs Beer?
3) Sold in the same geographic region: Cement can't be easily moved
B: A good substitute is measured by its cross price elasticity of demand

There are 1) Direct Competitors -where the performance of one firm affects the other and 2) Indirect Competitors - Where one causes a chance in performance due to a third firm

Steps for Identifying Competitor
1) Find out where customers are coming from
2) Where do your customers shop? - Be wary of technology and virtual competitors

The Market Structure
1) Monopoly
2) Monopolistic Competition
3)Oligopoly
4) Perfect Competition

For Profits to be driven to 0,
-There are many sellers
-Customers perceive the product as homogenous
-Excess Capacity

An important determinant of demand is customer switching, and switching is less likely when
-customers are not well informed
-customers face high transportation cost
-preferences are idiosyncratic

Pricing Model (marketing)

Since the beginning of time, pricing was done face-to-face negotiations with the seller increasing price until the buyer says no. Then the seller would decrease their price. 

The Final Pricing Decision is somewhere between the Price Ceiling and the Price Floor.

This is really where economics also plays into Business.. where pricing decisions are a factor of demand and competitive factors such as competition, market penetration, and risk, and the capacity of the industry. 

Willingness to Pay: Self-explanatory. 

There are psychological factors to play into pricing such as Framing: the perception of price differences, references prices, and accounting. 

Cost-Based Pricing: Pricing with a MarkUp

Value-Based Pricing: Companies sell Value, not Price. Marketers should convince consumers that price is justified by value provided. 

Type of Price Segmentation: 

-Customer Segment: Different customers pay different prices for the same good

-Product Segment: Different versions priced differently for different products

-Location Pricing: Customers pay different prices in different geographic locations

-Time-based Pricing: Customers Pay prices based on Time of Year. 

Porter's Five Forces

Michael Porter, the father of competitive strategy, came up with Porter's Five Forces. The Five Forces are the 5 different factors that affect the competitiveness of the company. 

The Five Forces are 

Threat of New Entrants

-Cuts into market share and intensifies internal rivalry

-Factors that affect: Brand loyalty, access to natural resources, knowhow, government, steepness of learning curve

Supplier Power and Buyer Power

-Competitive nature of input market, concentration of upstream and downstream firms. 

Substitutes and Complements

-Availability of substitutes erode demand

-When price elasticity is large, then substitute pressure is large

Internal Competition

-Price competition erodes price cost margin and profitability

-Non-price competition can drive up costs - such as improvements in product. However profitability is less affected since costs are more likely to be passed onto consumers

-Reasons for internal rivalry; non-differentiated product, cost reductions, increased # of competitors, transparency of price and sale terms. 

What Should Firms Do to Cope with the Five Forces

1. Increase Switching costs to reduce internal rivalry - Google does a good job with gmail and calendar
2. Adopting Entry-deterring strategies
3. Doing vertical integration

Value Net - of Brandenberger states that competitive forces can be both beneficial and bad.

Six Segments Analysis (Competitive Strategy)

The first step to understanding in understanding whether a company's competitive strategy is sustainable is understanding the macroeconomic environment. Here, the question we want to answer is: Is the company's edge based on external trends such as government or from internal processes?

One example that comes to mind is Lan Airlines who derives its value from monopolizing the airline industry in Chile with government support vs Southwest Airlines who derives value from a strong culture and cost leadership. Lan Airlines derives its competitive advantage  from the benefits of government who protect the industry from outside competition, which can then be considered arguably sustainable - since other companies cannot produce the same relations.

The six categories of the industry environment are

1. Demographic: Biggest Change in US includes aging population - Baby boomers.
2. Economic: The economy lately has been in a slump but optimistic about improvement
3. Socio Cultural: What are the new trends? Do people prefer hipper clothes?
4. Global/Environment: Natural disasters, natural resources?
5. Technological: New expansions in technologly
6. Political/Legal: What are the political and legal factosr?

Research Methods

How do you decide on the research method? The following mental model helps you decide.

There are four different scenarios to decide which sort of research is the best.

1. Surveys
1. Great for when the researcher and the participant knows the answer and question.
2. Is very versatile in that it can capture quantitative, behavioral, attitudinal,and opinions
3. Low entry cost
4. Also can be used for most marketing problems (segmentation and positioning)
5. Inappropriate when answer from respondent is not useful
2. Exploratory Research (Focus Groups and In-depth interviews)
1. Used when customer knows the answer but interviewer doesn't know the question
2. Self explanatory, is versatile, low entry cost
3. Can be used for many marketing problems
4. Can be costly and not receive information they want
3. Observational Research
1. Bringing cameras into stores
2. Keeping a tracking sheet to know what's going on
4. Experimentation
1. Respondent doesn't know the answer
2. Needs a control group! 
3. Can be costly

Positioning (Competitor Analysis)

Again, placed in the 3Cs, Positioning relies on Competitors and how our product is thought of in relation to them.

Competitive Analysis is done 2 ways, by differentiation (creating a fundamentally different product) and positioning (Finding how our product fits into the minds of our customers).

Positioning can be done in three steps - 1) Finding the dimensions of our comparison, 2) Understanding how we fare in relation to our competitors, and 3) Understanding where the GAP lies. The goal is to be slotting your product in the mind of the customers and away from the competitor. The questions you want to be able to answer are:

1. Who is my target market? The specific audience I am trying to reach. This can be done through segmentation and then targeting to find the most profitable market.

2. Who am I? The product and service that you provide and the value that you add to the consumers.

3. Why Buy Me? Because our product will help you achieve your goals and will make your life easier.]

4. Why not the competitors? Among other competitors, you should buy our product because of any number of attributes ( price, service, brand, celebrity endorsement, convenience, utility)

Categories for Positioning a Product (thought not on the positioning map)

• Product Quality: "Fastest processor and best specs"
• Class of Users: Burberry plays up the "High end and hip look"
• Owning the category: Ipad- there's the one and only and nothing really like that
• Against a Competitor: "I'm a mac and not a dopey PC" - Subway "Eat Fresh" unlike unhealthy fastfood joints

DO NOT DOS for Positioning (Positioning Traps)

• Unimportant Attributes: If burberry, do not position based on variety of color
• Wrong Attributes: Instead of Diet Beer, do light beer, because people want to drink more
• Someone else's Benefit: Microsoft can't do sleekness and design because Apple is so good at it

Segmentation and Targeting (Marketing)

Analyzing customers in the 3Cs, here's another for the marketing series on Segmentation and Targeting. I'm going to explain these two subjects on a high level and then expand upon their application. Segmentation and Targeting are both essential for analyzing customers and focusing marketing and sales efforts on the customer that is deemed most profitable.

Segmentation simplifies the complexity in understanding customers by boxing them into categories based on consumer characteristics- whether they be demographic, behavior, attitudes or benefits sought.

Demographics: Separating based on "What" consumers are.. whether it be age, income, gender, geographic region
Pros: Easy to segment
Cons: Does not capture behaviors or attitudes

Psycholographic: Separating based on what consumers think and why they buy a product
Lifestyle: How a product reflects their lifestyle and opinions and attitudes of life
Personality: how a product engender's one's personality

Behavior: Segmenting based on usage, response, and loyalty
-Usage Occasions: Ex: Kodak cameras are single usage, outdoors, etc
-Usage Rates: how much people use products? - Everyday facebookers or once a week
-Loyalty: Do you exclusively go on facebook or also myspace too?

History of Segmentation
1. Began with mass marketing - (shotgun) where one product was marketed to everybody
1a. With increasing competition and fragmentation of markets...
2. Came Segment marketing as we know today where companies actively search for segments (example- Mac has 3 different types of computers)
2a. Then there exists another shift towards an information revolution, and JIT manufacturing
3. Finally there are segments of "one" where each product is individualized to the customer with individualized marketing.

A quick rule of thumb: 5% of your customers make 80% of your revenues. 
Formula for expected value including retention: Value = retention x rev x (1/(1-retention)

Targeting Quickfact: You want to target the audience that is highly profitable and has high loyalty
Also, you want companies that are accessible.