1.Competition and Product Strategy_ver2

7/24/2019 1.Competition and Product Strategy_ver2

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COMPETITION AND

PRODUCT STRATEGYDr M R Suresh

SDMIMD


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TWO RESPONSIBILITIES OF

PRODUCT MANAGERS

First, product manager is responsible for

planning activities related to a product or

product line. This involves analysing the market,

including customers, competitors, the external

environment, and converting this informationinto marketing objectives and strategies for the

product

Second, the product manager must get the

organisation to support the marketingprogramme envisaged. This would involve

coordination with other areas of the firm.


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DIFFERENCES BETWEEN GENERAL

MARKETING (STRATEGIC) AND PRODUCT

MANAGEMENT

Product Managers are concerned with a single

product or product line and are not concerned on

day-to-day basis the overall business division in

which they operate

Nature of decision-making: largely tactical (e.g howmuch should I spend on advertising, how to react)

etc

Time horizon. Product Managers face pressure on to

attain market share, profit targets in the short runFormulation of product strategy and development of

new products in recent years in specific product

categories


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COMPETITION AND PRODUCT

STRATEGY

In business primary and basic objective is to survive

To survive one must compete; hence product strategy

is fundamental to a firms competitiveness

Competition is the process by which invisible hand

of the market seeks to solve the basic economic

problem of maximizing satisfaction from the

consumption of scarce resources

Management of scarcity is the greatest challenge

facing humanityAttempt to solve through organizational innovation,

social innovation, technological innovation


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WHAT LINKS COMPETITIVENESS,

MARKETING AND PRODUCT STRATEGY?

Concept of marketing is concerned with mutually satisfying

exchange relationships- the idea that two parties can enter

freely into an exchange of objects and services of commercial

value in a manner that enables value for both of them

The sole end and purpose of production is consumption

( Adam Smith 1776)Decisions on production, quantity, what, where, how etc based

on consumer demand. Hencecustomer orientation, market

drivenare concepts that are part of modern business and seen

as essential for success

Emergence of global competition in the last 20 years or so, incontrast to the (earlier)concept of comparative advantage

Nations based their production decisions on the creation of

goods and services where they enjoyed a natural advantage over

other potential producers and then engaged in international

exchange to the mutual benefit of exporter and importer


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MICHAEL PORTERS VIEWSMichael Porter challenges this idea and according to himprosperity is created, not inherited and depends on the capacity

of a countrys industry to innovate

Factors most important to competitive advantage and in most

industries are not inherited but created within a nation, through

processes that differ widely across nations and industriesFirms create competitive advantage by perceiving or discovering

new and better ways to compete in an industry and bringing

them to market which is ultimately an act of innovation....

Innovationis broadly to include both improvements in

technology and better methods of doing things. It can manifest

in product changes, process changes, new approaches to

marketing, new forms of distribution, new forms of scope

What marketing managers refer to as NPPD (New

Product and Process Development). In other words the

entire gamut of Product Management


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BAKER (2006) STUDY

Innovation occurs when firms identify a new market opportunity

or a segment neglected by those serving the market as they

understand it (e.g Japanese success in global auto business)

Innovation involves overcoming the inertia of established

approach to doing things. Hence often precipitated by outsider

Innovation represents an improved way of serving an existing andknown need. Thus vast majority of innovations are substitute

products which offer a more satisfying way of meeting consumer

need

Innovation will displace existing products or ideas if they offer

enhanced satisfactionCondition ofcompetitive success is: ones own product is

atleast equivalent to that of competitors... ultimate goal of

competition is usually seen as having a better product

than ones own competitors


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ROGERS VIEWS

Better indicates combination of objective and

subjective factors Rogers (1962) definition of

relative advantage.

Prevailing preference is to resist change

In the real world one can improve ones position

by encouraging and accepting change. This

implies that enterprises must continuously

develop new products.

Otherwise the competitive advantage would be

eroded by other firms which seek new and

improved ways of satisfying the customer needs


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CHANGES IN 1970S AND TWO

SEMINAL RESEARCH STUDIES

Growth of NIC in 1970s

Two seminal publications

Managing our way to economic decline (Hayes and

Abernathy, HBR, 1980)

In search of excellence by Peters and Waterman 1982

(Limitations;

General statements

Too much focus on organizational dimensions

Focus on specific industry

Studies at different points of time and different

environments

Focus mainly on successful companies)


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BAKERS STUDY (1989)

Rigorous design, five set of factors to explain business performance:

environmental change, strategic factors, organisational factors,marketing factors, managerial factors

Covered growth, mature and declining industries

Distinction between above and below average companies: long term

approach, specific strategic objectives, linking strategic plans closely

with market changes anda continuous commitment to new

product developmentare activities apparent in more successfulcompanies

continuous commitment to new product development present

irrespective of whether the companies were in sunrise or sunset

industries

Therefore product strategy (and innovation) lie at the

heart of overall competitiveness

14 of43 excellentfirms identified by Peter and Waterman werein the decline in 1992

U K Committee of Science and Technology The introduction of new or

improved products which meets the needs of the customer, quickly,

reliably and at a competitive price, gives an edge over its competitors


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BUSINESS FINDS PRODUCT

SOLUTIONS DESPITE PREDICTIONS

Club of Rome study (1967) and its predictions.

Solutions that business found:

Tapping of North sea oil and in Arctic

More economical use of oil through product andprocess innovation

Alternative sources of energy


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PRODUCT PHENOMENON

Bruce Henderson (HBR 1989) in The Origin of Strategy

states No two species can co-exist that make their

living in an identical way . Differentiate to survive

Phenomenon cannot find a way and goes into decline

Adjusts to barrier and establishes an equilibrium(extended maturity)

Finds a way forward and initiates a new growth phase

Managing product decline is an important component

of product managementProduct diversification has been consequently called

upon successfully by many executives to meet the

challenges of the changing industrial environment

(Thomas Staudt , HBR 1954)


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WHY COMPANIES DIVERSIFY THEIR PRODUCT

RANGE?

Survival

Stability

Productive Utilization of resources

Adaptation to changing consumer needsGrowth

43 specific factors that stimulate companies to

diversify its product lines

Diversification appears most likely to besuccessful when it capitalizes on unique know-

how .........human capabilities


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PRODUCT JUGGERNAUTS

when the shouting is over one factor is clear,

what differentiates perennially great

companies from others is the products they sell

( Deschamps and Ranganath Nayak, 1993)

Five basic strategies for competing though productsCompeting throughproduct proliferation(Honda

vs Yamaha)

Competing throughvalue(Toyota, IKEA etc)

Competing throughdesign(Mac)Competing thoughinnovation(3M, Marico,

Samsung)

Competing throughservice(Maruti, Ashok Leyland)

PREREQUISITESFOR


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PREREQUISITES FOR

BREAKTHROUGH (PRODUCT)

INNOVATIONS

Top management commitment of where and how

to innovate and the capability to communicate

and mobilize people to make it happen

A strong technological culture

A clear sense of the customer (though a

combination of market research and intuition)

and the ability to translate product concepts into

attractive saleable products

An ability to combine mutually reinforcing

innovations


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PROCESS OF INNOVATION

(ROTHWELL, 1992)

Five stages

1950s to 60s: Basic science ---Design and engineering

Manufacturing--Marketing-Sales

1960 to 70s: Market need, ---development ---manufacturingsales

1970s to 1980s: consolidation and rationalization, pursuit of scale

and experience, focus on cost control, emphasis on success and

failure factors

1980s to 1990s: strategic networking, time to market, integration

of product and manufacturing strategy, regulatory responses

Fifth generation: strategic elements: Time based strategy (faster,

more efficient product development) development of focus onquality and non-price factors, emphasis on corporate flexibility

and responsiveness, customer focus at the forefront of strategy,

strategic integration with primary suppliers, strategies' for

horizontal technological collaboration, IT integration, quality

control


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PRODUCT A FEW DIMENSIONS

Product is the object of exchange process

For exchange to occur must have demand for the

object in question and inclined to exchange other

objects of value

Product classification into three categories

(copeland, 1923)

PRODUCTCLASSIFICATIONSAND


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PRODUCT CLASSIFICATIONS AND

MARKETING STRATEGY (WINZAR

1992)

Marketers have often attempted to use product

classification schemes to provide a cookery book for

marketing strategy .product classifications are

shown to be contingent upon marketing mix

elements and assumptions about consumer response.Leads to specific problems:

Ex post definitions and circular logic no hint about

how to classify products

Fuzzy sets product classification of the sameproduct differs across consumers and sometimes

the same consumer at different times

Generalizability of the classification in all physical,

market and social contexts


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BOOZ, ALLEN AND HAMILTON (1982)

The point- it is the perception of novelty that

determines how prospective buyers will view

them. Booz, Allen and Hamilton identified six

kinds of new products:

New to the world

New product lines

Additions to existing product lines

Improvements and revisions to existing productsRepositioning

Cost reductions


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OBJECTIVE AND SUBJECTIVE

CRITERIA

Most consumer buying behaviour models

recognise objective and subjective factors,

objective factors are measurable

For consumers to prefer one substitute product

over another , it is essential to discriminate

between similar products using criteria-

sometimes called performance factors

These include technical, non price and price

factors (as in Baker 2000)


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ARE SERVICES DIFFERENT

Three schools of thought

products and services are two sides of the same

coin

Products and services are different and hence

require different marketing approach

Basic principles apply to both, but distinctive

nature of services call for extended marketing mix

Intangibility and inseparability

While it is possible to describe the nature and

performance of physical product using objective

criteria it is difficult in the case of services


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JOHN AND STOREY (1998)

In services customer interactions are the very

essence

In products it may not be that essential

Repositioning as product augmentationdevelopment

Product development focuses on modifying core

benefits while product augmentation involves

amending the interaction with the customer


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CONTD.

Services are ideas and experiences: how are potential

users evaluating them?

Make some dimensions tangible, similarly in the case of

products intangible dimensions help consumers

distinguish the sameBuyers are concerned with both tangible and intangible

benefits- satisfaction is a combination of both

Shostack (1982) came up with the conceptualization of a

continuum of product dominant and service dominant

entitiesServices require consumer involvement

Distinction between product and services would be useful

only if the extended marketing mix is developed

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