Chapter 3

The Competitive Market

Competition

https://www.youtube.com/watch?v=MHZQAYrr5-Y

Iconic commercial: https://www.youtube.com/watch?v=1VM2eLhvsSM

The Benefits of Competition

Increased Selection Alternative Choices – i.e. bad

service Better Prices Increased Productivity Product Improvements Technology Advancements

3.1 Competition in a Free Market

In a free market, businesses can make a profit. Profit drives business; the more successful a business becomes, the more profit the owner keeps. (private property)

Competition is allowed and defines the structure of market

Four major market structures

Perfect competition - large # of small companies; nobody controls market

Agricultural Market, eBay Monopolistic Competition – large # of

companies; each of them has an opportunity for market control

Most products e.g. detergent, fast food Oligopoly - small # of large companies,

each with a substantial amount of market control

Banking Industry, Apple Micosoft Monopoly – a single company has complete

market control Hydro, Enbridge,

Benefits of Competition

Direct competition Products that are similar Consumers choose among products in the same

category Indirect competition

Every business is in competition with every other business for consumers’ discretionary income.

Competition leads to better products at better prices.

INDIRECT COMPETITION DIRECT COMPETITION

Example:

3.2 Competitive Advantage

Businesses look for advantages over their competition. A true advantage is one that is sustainable over the long term.

Sustainable competitive advantages: methods by which a business holds on to its customers, in spite of the competition (ideas?)

Sustainable competitive advantages

Create a unique selling proposition (USP) – patented design, licensed products

Lowering production costs: cost-efficient, high technology manufacturing systems

Servicing a niche market – keep competitors out of that market

Create customer loyalty – relationship marketing

Non-sustainable competitive advantages

Non-SP used by competitors to shift sales in their direction Promotion: “top of mind” Placement: more placement=more competitive

(Category Killer ) Quality: high quality vs boost sales by improvement CS Benefits of use: do more and better than other

products Price: all features being equal…price & reputation Design features: catch consumers’ interest – product

design

Activity!

Before entering a market, marketers must study the competition. One way of doing so is by preparing a competitive analysis of the sustainable and non-sustainable advantages that the major competitors have. In this activity, you will develop a comparative analysis for a marketer in the video game market.

Competitive Advantages Sony Play Station 2 Microsoft’s Xbox

Sustainable

Unique Selling Position

Niche

Cost Advantage

Customer loyalty

Non-sustainable

Promotion

Placement

Quality

Benefits of Use

Price

Product’s design features

Activity Time – try it for yourself!

Competitive Advantages Sony Play Station 2 Microsoft's Xbox

Sustainable    

Unique Selling Position Yes. System doubles as a CD and DVD player.  Yes. Ethernet port for rich, fast-action online gaming via a broadband connection.

Niche No. Video game systems are very popular. No. Video game systems are very popular.

Cost Advantage No. All manufacturers of video game systems have access to inexpensive electronic components produced in countries with cheaper labour costs.

No. All manufacturers of video game systems have access to inexpensive electronic components produced in countries with cheaper labour costs. 

Customer loyalty Yes. Sony Play Station is better known. Consumers are familiar with it. Many have used Sony Play Station 1 for years. 

No. This is Microsoft's first venture into this market. 

Non-sustainable    

Promotion Yes. Sony promoted its new product in time for Christmas gift giving.

Yes. Introduced and well promoted by Bill Gates.

Placement Yes. In stores and online at the Sony Store. Yes. In major stores and online.

Quality No. Both products have equally high quality.  No. Both products have equally high quality.

Benefits of Use Yes. Games for Play Station 1 can be used as well as a wide selection of new games for this system. Doubles as a DVD and CD player.

Yes. 67 games now available. Many games are educational in nature.

Price Yes. U.S. $299.99. No. Introductory price was much higher.

Product's design features No. 128 bit, 300 Mhz processor. No. Video system delivers the most realistic games.

3.3 Service Competition

Some Businesses offer services: Fed Ex, Moving companies)

Others offer Value – Added Services:support the sale of a product or other service.

Both service businesses and businesses that offer value-added services market intangibles. (hair salons, dentists, personal trainers)

Service CompetitionService companies are in competition with other companies that perform the same service. e.g., UPS vs. FedEx

1.Convenience• Internet shopping, ease of use

2.Degree of service• e.g., Barber vs. Hair Salon

3.Selection4.Reputation 5.Price

Convenience

Making some activity easier or more comfortable. Some services actually sell convenience.

Degree of Service

: offers more services (full service salon/spa) or fewer services (West Jet, Ikea)

Selection Offering a greater selection of

services Wide – a store carries a wide array of

different brands of types of merchandise or it can be

Deep – a store carries a large quantity of one specific product or type of product.

See page 103

Reputation

Important for a service business to maintain a good reputation because it does not have a tangible product to show the customer (word of mouth, professional reviews)

Price

If two services are similar, the business with the lower price has the competitive edge.

However, in some cases, consumers may question services with prices that seem ‘too low’.

Price depend on supply & demand

Product/Service Mix

Retail & wholesale businesses are part of the service sector, providing a service to both the consumer and to the manufacturer…

The Competitive Market

Every new product introduced into the market has the potential to dislodge at least one product that is already there.

Businesses look at all the similar products in a category to determine the nature of the competitive market.

The Competitive Market

Competitive market consists of specific types of products as well as the companies that manufacturer these products.

The amount of money consumers spend annually on these specific products defines the competitive market in dollars.

Sectors

What is a sector? A business sector is a closely related

group of products or services Also called a market segment

Measuring Results We compare within certain market

segments to understand how a company performs vs. the competitive set. (Direct Competition)

How it is Measured: Market Share – what % of the category

or sector sales is a certain brand Example: BRAND MARKET SHARE

Tropicana 58%

Private Label

17%

Minute Maid 7%

All Other 18%

Ready to Drink, Chilled

Fruit Juice Market

Example:

59% market share Market leader – how

to sustain position over compeititors?

18% market share Market follower – how

to increase market share from leader?

Competing within Sectors

How can a company improve MARKET SHARE?

Give competition handout- Recall: Coke vs Pepsi

A company can increase market share in one of two ways: increase the size of the overall

market E.g. Drink more juice

take sales away from its competitors. Other promotion effort School Cafeteria, etc.

International Competition

What do you think the impact has been of the internet with international competition?

Multinational Corporations Does business in more than one country Some large MNCs have budgets greater

than an entire country’s wealth! Trend of “micro-multinationals” = small

businesses enabled by technology

International Competition

DOMESTIC Canadian products Domestic

production or international production

INTERNATIONAL International-based

products/companies

Produced outside of North America

May want to expand internationallyfor future growth

Factors to consider with International Competition

Factors to consider with International Competition

Regulations Promotion restrictions / local laws

Research Consumer preferences / consumer needs

Distribution How will it be sold? Local partners?

Pricing Covering expenses, plus tariffs

Design Legal standards + local taste

Competing in International Markets

Businesses use the same methods to compete in international markets that they use in domestic markets: promotion, placement, quality, benefits of use, price & design

Business must tailor its competitive efforts to the foreign market customs and preferences.

Culture

It is important to consider factors such as climate and religious beliefs when considering entering a foreign market.

For example, there is no market for Canadian pork in Pakistan or Egypt, as Islamic culture forbids eating this product.

Cultural DifferencesThe Culture of Saudi Arabia Revolves around the religion of Islam Activity stops five times a day for

prayer Friday is the holiest day for Muslims;

weekend begins on Thursday and ends on Saturday

Clothing is loose and flowing as climate is extremely hot

Women must wear clothing that leaves only the hands, feet, and face bare

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The name Coca-Cola in China was first rendered as Ke-ke-ken-la. Unfortunately, the Coke company did not discover until after thousands of signs had been printed that the phrase means "bite the wax tadpole" or "female horse stuffed with wax" depending on the dialect. Coke then researched 40,000 Chinese characters and found a close phonetic equivalent, "ko-kou-ko-le," which can be loosely translated as "happiness in the mouth."

Named the sedan version of Golf the Jetta. However, the letter "J" doesn't exist in the Italian alphabet, so Jetta is pronounced "Ietta", which means Misfortune...

Volkswagen

Sells this workbench as the FARTFULL.

Swedish is a Germanic language, and "Fährt" is German for travel, so "fartfull" is being used here to suggest mobility. Swedish has several words for fart, but one of them is "Fjärt", which strikes as close enough that their marketing department knew what it was doing. If even bad press is good public relations, then this is a case of allowing an ill wind to blow some good.

IKEA

Pepsi

In Taiwan, the translation of the Pepsi slogan "Come alive with the Pepsi Generation" came out as "Pepsi will bring your ancestors back from the dead."

Promotion - Distribution

Promotion is challenging in international markets. In many cases, a Canadian promotion may not translate well in other countries

Distribution of products in other countries can also be difficult. Canadian firms may set up their own offices in other countries, or they may enter into joint ventures.

Joint Ventures

Joint Venture

A Canadian firm and a foreign business with similar goals combine resources (money, facilities, distribution networks) to make or sell a specific product in another country

Tariffs are taxes placed on goods being imported into a country in order to protect the local industries from too much foreign competition.

Marketers must also be able to calculate the landed cost of the product which takes into account the shipping costs and the currency exchange as well as tariff rates.

FLAG OF NATIONSIdentify each flag in the space provided below. Combine the first letter of every country to make a word.

(a) _____________ (b) _____________ (c) ______________ (d) _____________

(e) _____________ (f) _____________ (g) ______________ (h) _____________

(i) _____________ (j) _____________ (k) ______________ (l) _____________ Bonus

(m) ____________

Word:(a) ___ (b) ___ (c) ___ (d) ___ (e) ___ (f) ___ (g) ___ (h) ___ (i) ___ (j) ___ (k) ___ (l) ___ (m) __

Activity – SECTOR STATIONS ROTATION

Travel in pairs to the stations around the room – but EVERYONE MUST COMPLETE THEIR OWN HANDOUT

Must fill in questions for at least 6 sectors

Hand-in sheets at the end of class