Competitive Analysis Vademecum
A report of class speech, debate, home
readings and personal thoughts
By Carlo R. M. A. Santagiustina Master in Science
with the assistance of Professor Andrea Stocchetti
1
Preface
“If we want to explain a phenomenon like the decline of IBM, we seem to oscillate
between two modes of explanation. The first is to presume that if something is
going wrong, somebody did something wrong –and the appropriate remedy is to
find out who it was and get rid of him-. Thus, the "cause" is at the level of individual
action. The second mode is to find some "law" operating at the aggregate, market-
level, like: it's inevitable that well-established, successful firms, locked into the
behaviours that led them to success, will eventually succumb to changing
competitive conditions for which these behaviours are inappropriate. Neither of
these interpretative modes searches for cause in the relation between the structure
of interactions at the individual level and emergent patterns at the aggregate level”
(D. A. Lane, 1994). In this report, we will try to explain why and how competitive
analysis gives us the possibility to understand, and therefore to reconcile, the two
viewpoints previously mentioned by D.A. Lane (1994). This can be done through
an investigation on the competing conducts in the employee-to-market
intermediate levels of action, interaction and decision; which range from a single
product’s management strategies –often decided at the divisional level- to the
corporate mission and value system decided by the CEO and board of directors of
a holding company. Hence, we will describe a set of techniques and tools that will
support us in the analysis of competition, to identify the features (means) of
competiveness and to elaborate competing strategies coherent to the competitive
situation taken into account. The above mentioned conjointly determine present
and upcoming successes or failures of competing business agents at each
strategic level of analysis.
2
SummaryPage Section Title
1 Pre. Preface
2 Sum. Summary
4 How. How to read this report
5 1st Part The process of competing
6 Intro. An introductive “puzzle” on competition
7 I. The concept of Competition
8 a. Agents
8 b. Objectives
9 c. Context
9 d. Strategies
9 e. Interactions and relationships
10 II. Competition in Markets
11 a. Agents
12 b. Objectives
13 c. Context
14 d. Strategies
15 e. Interactions and relationships
16 III. Two divergent views of market competition
16 a. Perfect competition
17 b. Factual competition
3
Page Section Title
19 2nd Part Competitive Analysis vade-mecum
20 I. Outlining a Competitive Analysis
21 a. Step One: Choosing the scale and perspective of analysis
25 Focus 1 Defining the competitive context with the Abell Model
26 b. Step Two: Gathering and interpreting information
28 Focus 2 The Kano Questionnaire
30 c. Step Three: From analysis to strategy
32 Focus 3 Five Forces to identify the structure of inter-firm competition and shape the business strategy
39 Focus 4 Quality Function Deployment
43 II. When values become competitive dimensions
43 a. CSR and the benefits for being sustainable
45 b. Towards a possible integration of values in products and firms?
46 Focus 5 Means-Ends Chain
49 Ref. References
52 App. Appendix: Task’s Time Table
4
How to read this report:
Textboxes in this report (with hypertext links):
Topic precedence/preference symbols:
Precedence (time spent): time needed for reading, thinking and writing about the topic measured through “Task timer” application for “Google Chrome” browser;
Preference: preference/interest for the topic;
\Precedence Preference
Introduced (-5 hours)
Argufied (5-10 hours)
Developed (+10 hours)
Less
Somewhat
Most
Web pages,
Web articles,
Other online resources;
Case-studies;
Examples,
(Flash considerations)
Definitions;
Explanations;
(Useful related to argument Web Resources)
(Insights)
(Focus on reality) (Standalone/related
quotations)
Thoughts, Suggestions, brief ideas
“Quotation”
Author
5
First Part:
The process of competing
An excursus on the notion of competition: from natural
phenomenon to socio-cultural performance
6
An introductive “puzzle” on competition:
“A is some natural number [1 to +infinity];
B is some natural number less than A.
Competition arises when A people want what only B people can have.”
“Competition is what drives us to become the best we can be; to try to become better at something than everyone before us. This is what drives people to discover new things, and build the most sophisticated things possible.”
“Life is competition, so, shouldn't there
be a philosophy about it?”
What we call competition is first a natural phenomenon, an instinct of living beings, which refers
to an innate impulse to overcome the problem of allocation of scarce resources and possibilities
through the contrast and comparison of abilities. The performance of “competing” is triggered by
environmental stimuli that give rise to incompatible desires and needs. Competition is therefore a
contest, a demonstration of one's fitness to the environment and power over it. As for other
natural phenomenon (for example natural selection), men tried to conceptualize competition and
assign socio-cultural and ethical functions and roles to it. These competition “philosophies” either
stimulate or restrain men’s competitive nature. In such a way competition has become more than
a natural phenomenon; it is also a rationalised and therefore intentional socio-cultural
performance. Since in this paper we will try to analyse both the phenomenon and the socio-
cultural concept of competition, it is worthwhile to see how people nowadays debate the very
notion of competition. Therefore, here follow nine interpretations of competition from a web forum
(Online Philosophy Club), which summarizes the widespread socio-cultural opinions and ideas on
the subject:
“Competition only leads to inflated self-worth. It is a
flaw in design. There is no answer in competition
itself, but only to succeed. It's a mindless desire, with no logic.” … “to be the best", explain
being the best. What does that even mean?
“Some simply enjoy the act of competing - testing
themselves against the skills of others. Those who seek to better themselves need competition to sharpen their skills but also to
assess them against the skills of others. 'Healthy' competition is a
fine thing”
“I believe that not all competition is good.
However, competition is the best way for the human race to
advance, and it keeps people happy,
occupied and satisfied, and seems
like a worthwhile thing to have.” “Competition can be subtle
(which the majority is), or it can be obvious (sports, business, school, courtship). The former is the more tangible manifestations, which makes competition appealing. The latter is hidden within everything you do.”
We compete all of the time 100%, whether we like it or not. Living is competition; our reason for blindly competing is to "be" and “be happy”. We find any
reason that can drives us to happiness, no matter how superficial.
“Typing this sentence
efficiently is a competition with
my brain to advance/
maintain my coherence”
7
I. The concept of Competition
Tivation to wi
In nature, competition exists because of the incompatibility between paths and situations that
different agents undertake for reaching their objectives. Competition takes place when an agent
undertakes an action -to approach or achieve an objective- that can undermine the possibility of
other agents to approach or achieve their own objectives (Deutsch M., 1949); consequently, in
competition if one or more players will reach their target/goals, one or more other players will
not; so, the most desired situation (preferred outcome) will be impossible to be obtained by all
agents at the same time. “Research has sometimes used rivalry as simply a synonym for
competition; by contrast, we treat it as a distinct construct. We conceptualize rivalry as a
subjective competitive relationship that an actor has with another actor that entails increased
psychological involvement and perceived stakes of competition for the focal actor, independent of
the objective characteristics of the situation. [….] rivalry exists when an actor places greater
significance on the outcomes of competition against certain opponents as compared to others, as
a direct result of his or her competitive relationships with these opponents […] this conception of
rivalry captures the extent to which competition is relational” (Kilduff G. J. et al., 2010).
The following scheme summarizes the main implications of what has been formerly alleged
about the psychology of competition and rivalry:
An etymologic definition of “To Compete” (verb) from:
“1610s, " to enter or be put in rivalry with," from Middle French compéter "be in rivalry with" (14c.), or directly from Late Latin competere "strive in common," in classical Latin "to come
together, agree, to be qualified," later, "strive together," from com- "together" (see com-) + petere "to strive, seek, fall upon, rush at, attack" (see petition (n.)). Rare 17c., revived from late 18c. in sense "to strive (alongside another) for the attainment of something" and regarded early 19c. in Britain
as a Scottish or American word. Market sense is from 1840s (perhaps a back-formation from competition); athletics sense attested by 1857.”
Source: From figure 1 page 947 in Kilduff G. J. et al., 2010
8
Competiton
AGENTS OBJECTIVES STRATEGIES CONTEXT INTERACTION
Agents try to achieve their objectives by reasoning with bounded rationality -as defined by
Simon H. A. in his decision making studies- to interpret information, evaluate alternative
plans (paths of choices) and then perform the one considered the best for reaching the
predetermined objective. The rationality of agents is considered bounded because of: limited
computation capacity; limited ability to evaluate possible consequences of alternative
behaviors (and give objective probability values to events); asymmetric/imperfect information
and transaction/decision costs. Agents are generally separated in two categories:
• Players: are agents directly competing for an objective or award;
• Non-players: are agents not directly competing for an objective or award but affecting
competition result. Those actors can be functional or dysfunctional to the reaching of
objectives by players;
b. Objectives
Core theme of this report
Objectives are planned and desired states of existence that an agent wants to obtain. When
an agent has multiple objectives, those can be ordered (or weighted) by hierarchies or
priorities, with pre-conditions. Some objectives can be incompatible, other can be shared,
but even in the latter situation Nash equilibriums are not always first bests for agents. The
following of mutually dysfunctional goals therefore denotes the capacity of prioritizing and
pondering different objectives.
Behaviors can be:
Dysfunctional Functional
Objectives can be:
Same COMPETITION PARTNERSHIP
Different OBSTRUCTION COOPERATION
a. Agents
9
d. Strategies
c. Context and boundaries
e. Interactions and relationships
Interactions and relationships among agents are normally structured according to some
behavioral codes and tacit rules, which can be either imposed by one of them or codetermined
by the dynamics of interaction between agents. Those structures of interaction govern – as
restrictions, controls and instructions- the means by which agents’ actions and decisions
can/should influence others players’ decisions and strategies. Players’ possibilities are both
empowered and confined by their contacts, clusters and networks. Accordingly, interaction rules
determine the way in which agents react to other’s decisions in order to prevent or facilitate
them in reaching their objectives. The most significant interaction rules are therefore the ones
which have a direct impact on others potential effectiveness and possibilities of succeeding in
their missions;
Strategies are implementable sets of planned and non-random actions, instrumental for the
achievement of one’s objectives. A Strategy, to be so called, must be more effective (in a
competitive performance sense) than uncontrolled or totally random behaviors, for the reaching
of predetermined goals or paths towards goals. Strategies are often at “sens unique” (path
dependent decisions), they are never walk-back situations, because their results are time
sensible and time has a unique sense of deployment. Timing in implementing a strategy, defines
the overall outcome of the strategy, because time passing changes the competitive environment
by leading to new development all actions and situations. Hence, strategies that change the
context can prevent, obstruct or delay other players’ decisions and actions;
The context is an amalgamation of constraints, opportunities and boundaries that shape the
competitive environment. A agent’s environment is made of elements that influence competitors’
actions and outcomes; like obstacles, moderators, facilitators, and more others. The same
element can affect different players’ efficiency and effectiveness in dissimilar ways.
Furthermore, since all elements of an environment are generally interdependent, they act as
combined parts of a single system. Therefore, any element in the context can significantly alter
the specific effects of other elements. As a result, the effect of a single isolated element is
usually different from the effect of this same element as part of a specific context. Accordingly,
all action that changes the context can subsequently change the other elements’ effects, and
adjust players’ strategic positioning and possibilities to reach their objectives;
10
II. Competition in Markets
Firms are alike leaving beings constituted by individuals, artifacts, knowledge and most of all
organization. The ultimate, but not unique, objective of firms is to maximize their present and
forthcoming profits; this is the basis of inter-firm competition within markets. Rivalry is a
powerful force that pushes firms to continuously renovate themselves. Firms compete by giving
to consumers goods and services increasingly capable of responding to their needs and desires,
both rational and impulsive. The strategies to succeed in such a mission are the most diverse.
In general, the intensity of a competition between firms “determines the degree to which
investment inflows drive returns to the free market level, hence the ability of firms in the
industry to sustain above average returns” (Porter M. E., 1980). The more a group of
goods/services, used to meet a given need or fulfill a given desire is homogenous; the better is
the substitutability between those goods for customers, and the greater is the intensity of the
competition between the firms producing those goods/services. As a result, the more
competition is intensive, the more the competing firms must undertake a great effort to fit the
needs and requirements of consumers better than their competitors. Therefore, firms try to give
themselves the most effective and efficient organization of functional elements to their scopes,
to maximize their share of sales and profits, at the detriment of their competitors. Firm’s
characterizing resources, which are functional to competition, can generally be subdivided in
five categories:
• Financial capital: cash and deposit money, lines of credit, financial assets and liquid
investments;
• Material capital: real estate, plants, facilities, machinery, et.;
• Immaterial capital: brands, patents, internal organization, codified corporate knowledge,
technology and other intellectual property rights;
• Social capital: reputation, status and trust relationships within the social network of
the firm and its employees;
• Human capital: ability of attracting, employing, retaining and giving value to manual
and cognitive abilities or knowledge of employees.
“First, competition is a matter of relations, not [only] player attributes.
Second, competition is a relation emergent, not observed.
Third, competition is a process not just a result.
Fourth, imperfect competition is a matter of freedom, not just power.”
(Burt R., 1995)
11
a. Agents
Market Competiton AGENTS:
Organizations customers,
suppliers, final clients
OBJECTIVES: Objective management
techniques
STRATEGIES: level and unit
dimension
CONTEXT: legal, institutional, political, economical,
cultural, social, technological and
demographic
INTERACTION: business network,
relationshps, centrality,
reputation and social capital
Once we have chosen a focal business organization, for which we want to study the competitive
situation (generally a private firm, but could also be a publicly own company or an individual
company), which shall be our first player. We can find which agents are parts of this context,
both with the role of players or non, by:
• looking to agents in the supply chain, like suppliers, customers and their respective
prospects;
• looking to market participants or influencers, like business rivals(players)/partners,
regulators, etc.;
• looking to other stakeholders, like the community, government, investors, etc.;
Consumers pay an important role in most of the competitions, because they oftenly are the
ultimate judges of a product’s performance, we can classify them in the following categories:
• Clients and prospects: agents who have done business with you, and/or who will
probably do so in the future;
• Anti-clients: agents who will not engage in transactions with you, who will actively
reject to your engage themselves in any way with your organization and will incite
others to do the same (they have an obstruction role );
• Ex-clients: agents who have been clients, but no longer engage in transactions with the
business;
Source: From Tom Graves Web-blog, “NOTES
12
b. ObjectivesFirms are complex multi-agent organizations that generally pursue at the same time multiple
objectives; some of these can be complementary, but a large majority of them will be mutually
dysfunctional. This means that resources invested in reaching a goal will be deprived from the
pursuit of other goals. A consequence of this is the creation of tradeoffs and path-dependency
(old decision affect the viable options for the future). In addition to maximizing actual and
forthcoming profit, a firm generally pursues other common or particular goals (brand
leadership, employment stability, dissemination of corporate values and vision, sustainability,
CSR, other) conveyed to it by its stakeholders: owners/shareholders, managers, clients,
employees, public institutions. In several situations resources and effort be must be invested in
activities whose outcome is uncertain or variable, to deal with those situations managers have
to model the uncertain situation/event with specific technical instruments, like Bayesian
networks and decision graphs (Namwongse P. & Limpiyakorn Y.,2011). In addition, managers
use objective management techniques to prioritize the firm’s objectives, and subsequently
choose how allocate the scarce resources of the firm to accomplish the chosen objectives as
efficiently as possible. Objective management techniques generally include:
It is the process of organizing,
employees’ tasks and prioritize/
optimize them as functions of time.
Criteria of optimization can be single or multiple:
urgency, importance, profit, opportunity,
feasibility and other.
Further concept explanation by:
www.mckinsey.com/insights/organization/making_time_management_the_organiz
ations_priority
It is the process of determining and
monitoring the state of progress of a
planned strategy, to verify its coherence
and compliance with prearranged conduit
and schedule. Feasibility checks
are accomplished to determine if a strategy is still practicable and
worth of pursuing for the fulfillment of an
objective, before spending additional
resources on it.
Further concept explanation by:
en.wikibooks.org/wiki/Business_Strategy/The_Three_Proces
ses_of_Strategy
It is the process of defining and
formalizing the roadmap towards
the fulfilment of the objectives. Through the construction and implementation of a project plan/path for the realization of pre-
requisites and the overcoming of
obstacles/impediments.
Further concept explanation by:
www.pmhut.com/category/time-
management/project-milestones
It is the process of identification and removal of habits
and ways of thinking that can hinder creativity,
undermine cooperation and any other psychological attitude that can
demoralize employees and
damage the business working
environment.
Further concept explanation by:
www.mckinsey.com/insights/organization/the_irrational_side_of_change_manage
ment
Time Management
Consistency, suitability, feasibility , acceptability
checks
Definition and adjustment of
milestones and paths
Dissolution of personal or collective
blocks to change and success
13
Market
Industry
Business Area
Segment
Product
Defining the context and boundaries for an analysis:
When we talk about competition, we must decide our level of analysis (see scheme on the
right). Since competition takes place at different levels, for each
one we can identify a distinct context made of elements,
agents, interactions, objectives and strategies; whose specificity
will shape and confine the particular competitive
situation/arena taken into account.
c. Context
The context is the ensemble of the environmental elements and forces, which jointly determine
the rules and payoffs of a competition. The legal, institutional, political, economical, cultural,
social, technological and demographic systems in which businesses are embedded, set up the
lively arena in which any competition takes place. Legal, institutional, political, economical,
cultural, social, technological and demographic trends are powerful and often relentless forces,
which persistently influence and inspire the actions and decisions of agents that therein live
and operate, both at the local and global level. Trade standards, intellectual property rights
protection, business regulation, public policies and investments, administrative and registry
offices’ efficiency, tax and tariff regime, contract enforcement, trade union power, labor law,
official corruption, consumers’ culture and education, labor force training, productivity and
vision of life jointly shape the mechanisms and boundaries of competition and the horizon of
possibilities of competitors. Market power dynamics are also affected by these surrounding
environmental forces.
There are several which can be used to analyze and model the context (competitive
environment), Here follows a brief description of two, which I consider particularly interesting
because complementary in their approach and perspectives:
• PESTLE: audit of an organization’s environmental influences (for detail see: CIDP,
“PESTLE analysis”)
• AGIL: structural functionalist sociological analysis of the environment (for details see:
Parsons T., 1970);
14
d. Strategies As Beard D. W. & Dess G. G. (1981) pointed out, “strategic decision making is a crucial part of the process by which organizations adapt to their environments” according to the aforementioned authors, business policy should always be distinct in three levels of organizational strategy:
•Concerned with questions about what businesses to compete in. It is defined interms of variationi n the deployment of a firm's resources among the portfoliosof industries within which all business firms compete.
The corporate-level (inter-industry) strategy
•Concerned with questions of how to compete within a particular business. It isdefined in terms of variation in firm characteristics relevant to competitivesuccess or failure within a given industry.
The business-level (intra-industry) strategy
•The first is concerned with questions of how to achieve better results comparedto the other divisions and how to compete with substitute products/lines ofother firms; while the latter is concerned with questions of how to increase thecompetitiveness of the firm through the improvement of the performance of aparticular business function.
The functional/divisional level (intra-industry and intra-business) strategy
In addition to the organizational strategy dimension, we have a hierarchical unit dimension (that determines the impact/action scale of a strategy) the latter can be subdivided into four kinds of units:
“The choice of bounding a problem to a particular strategic level or unit of analysis is critically important. But if problems are not bounded, they remain intractable. “The process of identifying and bounding a problem is intimately connected with the generation of alternative decision choices [and paths] to be considered. When we assume that the alternative decision strategies are prespecified, we seriously misrepresent the art of formal [strategic] analysis. In practice the process is iterative. The analyst might bound his problem one way only to find out that he’s in an impossible morass, so he backs up and redefines his problem area [and its unit impact/action dimension] by bounding it differently and generating new restricted alternatives”(Keeney R. L.,1993). Each strategic level and unit affects, in a distinct manner, the business’s possibility of generating profit, achieving specific objectives and increasing the competitive performance.
Directly linked
environment
Organization as a whole
Management Decision makers
Indirectly linked environment
15
Embeddedness is a central characteristic of business networks whereby social relations
strongly influence firms’ activity and strategy, as well as their outcomes, by facilitating or
disrupting cooperation, competition, synergies, trade and other viable multi-agent initiatives,
either between firms or between a firm and its environment (Uzzi B., 1996). Embeddedness
occurs because “the competitive arena has a social structure: players trusting certain others,
obligated to support certain others, dependent on exchange with certain others, and so on. […]
The rate of return [on business investments] is keyed to the social structure of the competitive
arena. […] Each player has a network of contacts in the arena. Something about the structure
of the player's network and the location of the player's contacts in the social structure of the
arena provides a competitive advantage in getting higher rates of return on investment”. As a
result the “social structure renders competition imperfect by creating entrepreneurial
opportunities for certain players and not for others”. This is the so called social capital of a
firm, which is “a thing owned jointly by the parties to a relationship. No one player has
exclusive ownership rights to social capital. If you or your partner in a relationship withdraws,
the connection, with whatever social capital it contained, dissolves.” (R. Burt, 1995). The
relational influence/power of a firm over its environment is a combination of:
1. Centrality: that is a measure of the interaction activity and capability of an organization
(node), it grows together with the quantity of relations (links) and the centrality of directly
linked interlocutors (neighbors).
2. Reputation: capability of being distinguished and thus preventively recognizable by other
organizations within the network and environment, that gives to the organization the
opportunity to create and maintain personalized interactions and relations with other
organizations.
In business, we generally distinguish between three broad forms of competitive
relations/interactions between firms:
i. Direct competition – between firms which produce services/goods which perform the
same function and therefore directly compete against each other (high multimarket
contact values).
ii. Indirect competition – between firms which produce services/goods which are close
substitutes for one another (average multimarket contact values).
iii. Budget competition - between firms which produce services/goods that compete for a
common share of a group of customer’s budget (low/nil multimarket contact values).
e. Interactions and relationships
16
III. Two divergent views of market competition
homogeneus products
atomism of players
no entry or exit
barriers
perfect information
and no transaction
costs
costant returns to
scale
In the mainstream neoclassical microeconomic perfect competition theory, to be Pareto-efficient,
market agents (firms and consumers) should have perfectly symmetric information. Firms
should produce homogenous goods, should have no barriers to entry/exit, no transaction costs
and constant returns to scale. In the long-run, all markets should be in perfect equilibrium
(unitary prices equal to average unitary costs) and consequently all firms should make zero
profits. Firms, for which the unitary costs are above the price level, should be immediately
knocked out of market. As a result, the selection of the better performing firms should be
almost instantaneous. Since all firms have the same technology, information and costs
structure, choices (production problems) have a unique ex-ante optimal choice (more efficient
solution), obvious to all agents.
Therefore, the neoclassical microeconomic theory represents a market system where firms have
no incentive to develop and adopt alternative strategies, because there is a clear and common
one best strategy for all competing firms, time and space are irrelevant variables. In such a
system, where firms have no reason to formulate distinctive competitive strategies, there is no
discretional space for firms to improve their capabilities, creativity, skills and expertise. As a
result, in the Neoclassic “Perfect Competition” theory, the commonly recognized “raison d’être”
of market competition -that is to use the profit reward as an incentive to encourage and
stimulate the growth of those firms which are able to efficiently develop and implement
improvements and innovations that increase the ability of their products to satisfy human
needs and desires- is totally absent. For that reason, the idea of “Perfect Competition” is
actually the antonym of factual competition between firms.
Additionally, according to the perfect market theory, agents should behave as the so-called
“Chicago Men”. The aforementioned has perfectly congruent inter-temporal rational preferences
Characteristics of markets in Neoclassical perfect competition theory
a. Perfect competition
17
differentiated products
distinctiveness of players
entry or exit
barriers
imperfect information
and transaction
costs
variable returns to
scale
Characteristics of markets in industrial economics and management studies
However, Simon’s impossibility theorem about perfect rationality in choices, demonstrates that,
even if all the other neoclassical assumptions were true, imperfect information in markets is a
sufficient condition to make such a theory misrepresentative, and unsuitable to understand
the functioning of market competition. In real markets there are hidden (that necessitate an
effort/cost to be understood or revealed) or unobservable or invaluable alternatives, which limit
and distort the choosing capability of individuals and organizations, limiting the overall
productive and allocative efficiency of the market system. Besides this, and beyond any repair,
the limitedness of computational capacity, the asymmetric access to information, the
inhomogeneous distribution of knowledge and interpretive skills, can make agents and firms
behave inefficiently or ineffectively even when rationally performing or taking logically
consistent decisions.
Since human agents behave far less mechanistically than the all-seeing and simple-minded
Chicago Man; agents’ true needs, desires and behaviours are much less straightforwardly
predictable and easily satisfiable by firms, in respect to what is said in “perfect competition”
theory. Unlike neoclassical economists, who believe that an invisible hand (directed by the
perfect competition axioms) is sufficient to shape a perfectly efficient and effective market;
Industrial economists and other theorists of the organization and management of firms try to
recognize and model the great sophistication of the functioning mechanisms of the business
world. Those lasts generally acknowledge that, despite the limitedness in the agents’ capacity
to predict others’ behaviours, it is not a good idea to relegate to the role of exogenous factor the
decisional mechanisms, the internal organization and structure of interactions of those
different agents that operate in markets.
and perfect (instantaneous, unbiased, free access) information on goods qualities and relative
prices in all moments; the constraints and possibilities of these agents are determined by their
utility functions and endowments. As a result, one’s desire to maximize its own one-
dimensional ordinal utility is its sole incentive to consume and therefore work.
b. Factual competition
18
In market competition, “social capital is as important as competition is imperfect and
investment capital is abundant. Under perfect competition, social capital is a constant in the
production equation. There is a single rate of return because capital moves freely from low-yield
to high-yield investments until rates of return are homogeneous across alternative investments.
When competition is imperfect, capital is less mobile and plays a more complex role in the
production equation. There are financial, social, and legal impediments to moving cash between
investments. There are impediments to reallocating human capital, both in terms of changing
the people to whom you have a commitment and in terms of replacing them with new people.
Rate of return depends on the relations in which capital is invested. Social capital is a critical
variable. This is all the more true when financial and human capital are abundant -which in
essence reduces the investment term in the production equation to an unproblematic
constant.” (R. Burt, 1995)
In view of that, in Competitive Analysis, when we want to identify the degree of rivalry between
firms operating in the same market/sector/segment, we can start by identifying which, in a
specific case, are the breaches in the assumptions of “perfect competition” theory. By doing so,
we can evaluate how, each competing firm, plans and implements strategies to leverage in its
favour the concrete breaches and holes of the theoretical economic utopia that is “perfect
competition”. Accordingly, market “imperfections” allow firms to differentiate their identity,
relations, capabilities and competing schemes; to create or maintain a strategic advantage in
respect to other competing organizations. These strategic advantages, determine the
possibilities of a firm to attain the preferred outcomes and achieve its objectives, in this
ceaseless struggle between organizations for survival, profit and leadership, that we call market
competition.
19
Part Two:
Competitive Analysis vade-mecum
Procedures, techniques and instruments for assessing the
positioning and performance of competing firms and products
20
I. Outlining a Competitive Analysis
A competitive analysis is an investigation on a market competition. It examines by what means
market organizations, mainly firms, try to improve their performance and achieve their
objectives by shaping their strategies to take advantage of all of the potentially exploitable
forces, assets and mechanisms at work in their business environment; to find and secure a
long-term economic success and leading position for their business activities and products.
According to this approach, firms define and execute their strategies:
Competitive analysis:
definition from:
“Identifying your competitors and evaluating their strategies to determine their strengths and weaknesses
relative to those of your own product or service”
definition from:
“Assessment of the strengths and weaknesses of current and potential competitors. This analysis
provides both an offensive and defensive strategic context to identify opportunities and threats. Profiling
coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient
and effective strategy formulation, implementation, monitoring and adjustment.”
• To improve their fitness to their
environment;
• To reap competitive advantages
of/from other competitors;
• To influence competitors’
economic results, limit their
possibilities or influence their
strategies payoffs;
• To remodel their organization,
structure and redefine their
objectives, as an autopoietic
complex system;
• To reshape and reorganize the
boundaries, interactions and
content of their business
context.
As we will see later on, market organizations try to steer and the competitive forces around
them to take advantage of environmental trends. Consequently, it is considered inopportune for
a firm to stabilize and standardize to much its decisional mechanisms and reactions to others’
strategies, because these would become easily foreseeable and imitable by rivals. As a result
competing firms act as inventive organizations, which ceaselessly redesign their organization
and recombine their decisional instruments and strategies, to win a business contest that goes
far beyond the simple share out of consumers’ earnings.
21
a. Step One: Choosing the scale and perspectiveof analysis
The first next step of a competitive analysis is the choice of the strategic perspective that will be
used to identify and classify the current and potential competitors of a corporate/firm/product.
To do so, in general firms use either an industry perspective or a marketing perspective:
• The industry perspective identifies competitors as organizations that are
producing/selling the same product or service.
• The marketing perspective identifies competitors as services/products with the ability to
satisfy a common need of a common group of customers.
In Industrial Economics, the key issues are the “determinants of the behavior, scale, scope, and
organization of business” (Schmalensee R., 1988), which are studied to evaluate the intensity of
a competition in a specific market area i.e. industry. In view of that, firms are subdivided in
groups by business activity, each of which is recognized by a set of characteristics of its
competitive structure (see next page):
Accordingly, competitive market systems are heterarchies, which, for the previously mentioned
reasons, are almost impossible to be knowingly governed in the long run by a centralized entity.
Since these business environments and their constituents and features are continuously
reorganized and redefined via the incessant repositioning and engagements of its ever-evolving
“habitants”, firms’ behaviors are very difficult to be precisely foreseen. In view of that, the core
idea of Competitive Analysis is to develop and implement a set of managerial tools and models
able to identify firms’ and markets’ dynamics and recognize the agents’ strategies.
Consequently competitive analysis is as fundamental activity for the characterization of any
competitive business reality, and for the understanding of its functioning:
1) To recognize a competition / competitive situation;2) To identify and delineate the agents, objectives, strategies, context and boundaries,
influencing a specific firms’ competitive situation;3) To evaluate the strengths, weaknesses opportunities and threats of/for a product, firm
or corporate vis-a-vis its competitors;4) To rationally interpret and explain the basic elements of a competitive situation and in
some cases forecast the possible outcomes of such situations or measure the effect ofalternative strategies;
By examining the business environment with competitive analysis tools and models firms can
improve their understanding of the outcomes of their strategies, and therefore try to use this
knowledge to perform better; for instance:
• By developing/reinforcing identified distinctive competitive advantages;• By developing/reinforcing entry barriers/obstacles for potential competitors, in order to
prevent them from incoming a market/industry/business area/segment/product;• By seizing opportunities and exploiting competitors’ weaknesses to gain market shares
or to entry a new market/industry/business area/segment/product;
22
Concentration: Differentiation: Innovation trajectories: Vertical/horizontal
integration:
Concentration is defined by the distribution of
production within an industry (industrial concentration) or a
market (market concentration). It
indicates the distribution of
production shares or income among
competing firms.
“Perfect market” implies the lowest possible level of
concentration, while monopoly implies the highest possible level
of concentration.
Further concept explanation by:
www.econlib.org/library/Enc/IndustrialConce
ntration.html
Differentiation occurs when in a market
consumers perceive as differentiated (with different
values) products with the same
function/purpose, this difference can be
technical or sensorial.
Consumers consequently
evaluate the value of such goods with a multi-dimensional perspective, their
preferences for some attributes/characteri
stics mustn’t necessarily be
justifiable.
Further concept explanation by:
http://www.economicswebinstitute.org/glossary/product.htm
Innovation trajectory are defined by an
industry’s scientific and technological trends, clusters of
micro-improvements and the momentum of the technological heuristics, intended
as the set of paradigms used in a determined field to
solve the most significant problems
recently encountered.
Further concept explanation by:
www.thinkbigmagazine.com/wealth/216-
innovation-trajectory-understand-make-informed-decisions
A firm’s upstream (suppliers) and
downstream (buyers) control/ownership in
a supply chain define vertical
integration. The variety of outputs
produced by single firm, which
controls/owns different production
units/divisions at the same stage of the production process defines horizontal
integration.
Further concept explanation by:
www.economist.com/node/13396061
Those characteristics can be measured to outline the intensity of a competition in an industry,
as if it was a homogenous set of interdependent economic organizations. As a result, industries
are regarded as stable and circumscribable market sub-systems, “clusters” of similarly
organized and structured competing firms.
Another approach to identify competitors is to define a strategic group, which is a collection of
firms in the same industry/business-area/segment who follow similar strategies at the
business or product level. Within a single industry/business-area/segment, we can find few or
several strategic groups depending on which and how many strategic factors at a time we
consider important to discriminate between firms. Commonly, we can recognize strategic
groups by using the following strategic dimensions: Price; Quality (perceived, technical,
production process/ISO certification, other); Level of integration (vertical and horizontal);
Geographic scope; Market share; Size (number of employees, assets value); Consumer basin;
etc.;
23
The core idea of Competitive Analysis is to shift from the Industrial Economics paradigm of
explanation, based on the “industry” considered as almost stable and standardized set of
competing firms, to a new perspective, that looks to firms’ innovation dynamics and inter-
industry/segment/business/product distinctive capabilities of firms as fundamental
apparatuses for the characterization and understanding of any actual and prospective
competitive reality.
The reason of this shift in the perspective of analysis is due to the fact that, in recent years,
more and more firms and corporates differentiate their business by entering new
markets/industries/business areas in which they can exploit synergies with the original
business activity and technologies. Therefore, we can expect growing competition between
market organizations that have a common technological infrastructure or possess
overlapping/similar sets of critical competitive factors -that can range from technical know-
how, to customer's perception of the brand-, rather than between firms that produce similar
outputs using similar inputs and processes. Recently, a corporate like Disney has in such a
way exploited its brand attractiveness, its TV entertainment technology and its “oiled” logistic
structure to launch itself in the Sport TV business with ESPN. Another suggestive example of
this kind of “diversification”, based on capabilities, comes from the overcrowded and
hypercompetitive auto industry, in which Audi has used its latest motor technology and sporty
design abilities to conceive and produce high-end sporty bicycles, with lightweight electric
engines that can make them run up to 80 km/h (for details click here).
As a result, the very concept of market and industry competition is no more based only on
common outputs and inputs and similarities in the production processes, but also on the
likenesses in the critical competitive factors of firms and products; that we call capabilities.
Accordingly with what said previously, two corporates like Apple and Disney can be considered
in competition:
Globalizedorganizational and logistic structure
Cool and “high quality” brand image
Strong ICT innovation
and creativity
In this case, brand image is not an entry barrier but a differentiation facilitator
24
We can thus define a competition not only at the product or firm level, but also at corporate
level. In this case, the key elements of competition are corporate distinctive capabilities. These
lasts are compound groups of codependent competitive factors, which are generally molded as
specific and often unique combinations of resources, abstract knowledge, know-how,
organizational configurations and customers’ feelings for a corporate. Generally, when we look
at the joint effect of those unique combinations of competitive factors, we can see that they offer
unique benefits and inter-industry synergies to the corporates that possess them. For this
reason, corporates who possess overlapping capabilities and related technologies are a threat to
each-other, because they can easily enter one-another’s business areas, becoming dangerous
competitors even if at the moment they don’t seem to operate in same markets/areas.
Therefore, when a corporate/firm/division wants to understand its competitive arena, there are
three main questions to answer:
1. Which are the market agents who have the same target, mission or strategy?
2. Which are the critical (most relevant/unique) competitive factors for those market
agents?
3. Who, besides the market agents already identified in 1), has similar or substitute
factors?
The answer to those three questions is clearly a reduction of reality, which demonstrates that
this kind of approach to competition can overlook to competitive capabilities and overshadow
strategic interactions between players; structural, organizational and process advantages and
synergies. Moreover, when answering those three questions we should always keep in mind
that a firm’s current competitors, are not always the most important threat to a firm’s survival,
the key potential competitors, it is thus important to understand who can become a competitor
and which are its entry barriers, even if at the present state the firm doesn’t operate in the
same market or segment of the market.
The inter-firm similarity (across cases) and development/evolution similarity (across time) of
crucial competitive factors (product attributes, production organization, knowledge and skills)
or capabilities, -which are unique and evolving combinations of competitive factors-, make
competitive analysis a case and time dependent study. Fortunately the instruments for doing
such analysis –that we will soon introduce–can be used with little need of adaptation to the
particular case study.
25
Focus 1: Defining the competitive context with the Abell Model
As previously said, finding the boundaries of a competition and identifying the context can be
very problematic since we have an almost infinite number of possible business variables to take
into account. The Abell model (Abell D. F. & Hammond J. S.,1979) provides us an intuitive
simplification by considering only three different dimensions. Given that the basic goal of every
firm is selling its products, Abell model start the definition of a firm’s market by assessing the
benefits that customers are looking for and that the product is looking forward to satisfy. The
other two variables that are taken into account are the group of customers that the firm’s
targeting and the technology/competences used to produce the goods/services. Combining
these three aspects of competition gives us a better understanding of the boundaries of a firm’s
business and its market, that can be represented on a graph:
Group of costumers (which segment of the market is being satisfied?)
Costumers’ needs/requirements fulfilment (what is being satisfied?)
Competences/Technology used (how is the customer being satisfied?)
Consequently the Abell model considers only currently competing
products, the ones that are here and known (time is not a dimension of
the model). It focuses on the intersection of homogeneities or proximity
in one of the three described dimensions as the cause and defining
element of the competition between products.
This model gives us an intersection point that defines the product’s
business arena, the nearer are the other competing products to the
three aforementioned characteristics of the considered product the
most the competition in intense between them. The limits of this three
dimension analysis are the firm’s needs variable, that is a to broad
dimension variable to efficiently define a product/firm in its
environment.
A step further:
“Using the Abell model for
choosing how to expand the
business”
http://www.cnaexporter.it/percorso-
2d.php
Those three variables
dimensions can be both
quantitative and
qualitative. Since the
competitive
environment is time and
space dependent, to be
correctly used the
model’s data need to be
updated at each
environmental change.
26
We can obtain feedback and information:
b. Step Two: Gathering and interpretinginformation
In a system, you cannot control something unless you have a feedback, and that means
measurement of the outcomes of actions. Therefore, one of the most important skills needed to
undertake a competitive analysis is the capability of collecting useful data about the competitive
environment. The flip side of the aforementioned statement, is the false promise that with
feedback you can control anything. Even if business intelligence (BI) systems seem to be the
arch embodiment of this cybernetic principle, it is clear that there are non-trivial costs,
technical hitches and limitations of all processes of gathering and interpreting data. Moreover,
as the Nobel prized Canneman and Tuersky observed: even if the data used to build a
competitive analysis can be unbiased, the information issued from data can never be
independent from the subject that interprets it. As a result, it is the interpreter, which provides
meaning and use to the data. Therefore, data is always biased by the experience, knowledge
and interpretative structure of the actors, which attribute significance to it, and this is the
reason why the competitiveness of firms depends more on the interpretation ability of the
aforementioned actors, than on the amount of data about the competitive environment to which
they have access through their BI systems.
There are a variety of methods and instruments that firms can use to gather information and
obtain feedback. The methods and instrument one chooses and the ways they are used depend
greatly on what the type of feedback one desires to obtain and for which kind of analysis or
From Employees
Competitors
Customers
Other Sources of Market Research Information/data
Using Surveys and
questionnaires (by telephone, mail, e-mail, online, in-home, mall or
street intercept)
Comment Cards, focus groups and interviews
Other documentation (financial statements,
reports, brochures, catalogs, web-pages,
advetising)
On Costumers' opinions, needs, satifaction and
complaints
Best Practices
Technical carachteristics of
competitors' products
Competitors' ressources
27
Moreover, as Burt (1995) outlines, the value any information and the potential benefits it can
generate, depend on the following three characteristics, which describe the relationship
between the information and its environment (i.e. networks, agents, situations):
• Access: Since players are unevenly connected with one another, information does not
spread uniformly across the competitive arena. Accordingly, access refers to receiving a
valuable piece of information and knowing who can use it and how.
• Timing: early warning and access gives the opportunity to first act on the information,
reinterpreting or distorting it; and then investing it back into the network by
passing/selling it to whom could benefit from it, or to whom would conceivably act
(directly or collaterally) in favour of the firm after receiving the information;
• Referrals: The firm’s network of employees and relating agents directs, filters,
concentrates, and legitimates incoming information; and outgoing information
about/from the firm. Given the limit to the volume of information that men and
machines can process, the firm’s network becomes also a significant screening device. It
is an army of people processing information who can call attention to key events;
keeping the firm up to date on developing opportunities, and warning it of imminent
threats and adversities;
28
Focus 2: The Kano Questionnaire The Kano Model (Berger C. et al., 1993) is a customer
satisfaction questionnaire developed in the 80s. With this
questionnaire, Professor Kano challenged the conventional
belief that customer satisfaction increases only by improving
every attribute of a product or service. Accordingly, the
questionnaire classifies product features and attributes
according to their significance for the customers. When the
fulfillment of product requirements does not imply
automatically a high level of customer satisfaction, the Kano
model questionnaire is a very useful instrument to
discriminate in categories the different features/attributes of a
product, on the basis of their relative importance and weight
on the customers’ satisfaction.
In the Kano questionnaire we distinguish product features/attributes in five categories:
• Must-be (M) attributes: are taken for granted features, which are expected inasmuch
they are considered essential attributes, which are always required by customers. They
cause dissatisfaction if they aren’t available. It is unlikely that they are going to tell the
company about them when asked about quality attributes.
• Attractive (A) attributes: provide satisfaction when achieved, but do not cause
dissatisfaction when they are not fulfilled. These attributes are a plus, and therefore they
are often unexpected and unspoken by customers; as a result they give a more than
proportional (exponential) satisfaction if achieved by the product. They have the inverse
effect of basic attributes.
• One-dimensional performance (P) attributes: provide satisfaction (dissatisfaction) if
achieved (missing), the degree to which they contribute to customer’s judgment of the
product depends on their number and quality;
• Indifferent/irrelevant (I) attributes: These attributes refer to aspects that are neither
desired nor unwanted; accordingly, they do not result in either customer satisfaction or
dissatisfaction. Therefore if costly those attributes should be ignored /not considered in
the design of the product.
• One-dimensional reverse (R) attributes: provide dissatisfaction (satisfaction) if achieved
(missing). They have the inverse effect of performance attributes.
• Double-edged (D) attributes: These attributes can provide either satisfaction or
dissatisfaction depending on the specific character/needs/desires of a particular
customer.
A step further:
“How to use the Kano Model for research
direction and product innovation”
http://www.ijest.info/docs/IJEST10-02-12-089.pdf
29
Customer delighted
Performance attributes
Reverse attributes
Attractive attributes
Expectations exceeded
Must-be attributes
Expectations not fulfilled
Customer dissatisfied
Irrelevant attributes
The more the satisfaction function is steep for a given attribute, the more the fulfillment and
exceeding of expectations has to be considered important for the overall competitiveness of the
product and fitness to customers’ requirements. The Kano survey evaluates the importance of
each attribute of the product by asking to the costumer to answer a dual (one functional, one
dysfunctional) multiple choice question, for each conceivable attribute “F(X)” of the product,
due to the presence of the feature “X” on the product, the question is the following:
• How do you feel if the product performs/possesses the attribute “F(X)”?
• How do you feel if the product doesn’t perform/possess the attribute “F(X)”?
List of possible answers: 1. I like it that way; 2. It must be that way; 3. I am neutral; 4. I can live
with it that way; 5. I dislike it that whay)
The answers to the Kano questionnaire are then interpreted through a matrix which categorizes
each attribute according to the answer to the two previously mentioned questions:
Costumer Requirements Dysfunctional question answer
1)Like 2)Must be 3)Neutral 4)Live with 5)Dislike
Functional question answer
1)Like Double-Ed. Attractive Attractive Attractive Performance
2)Must be Reverse Irrelevant Irrelevant Irrelevant Must-be
3)Neutral Reverse Irrelevant Irrelevant Irrelevant Must-be
4)Live with Reverse Irrelevant Irrelevant Irrelevant Must-be
5)Dislike Reverse Reverse Reverse Reverse Double-Ed.
Source: from Kano’s model of
customer satisfaction in
Berger et al. (1993);
30
c.Step Three: From analysis to strategy
A second step may well consist in classifying competitors according to critical competitive
dimensions/capabilities in which they are particularly strong or weak compared to others. In
the following example, we will briefly compare Microsoft’s operating systems’ key capabilities
(strengths) respect to Apple’s and IBM’s ones, to explain the main reasons behind Microsoft’s
leadership in the personal computers’ OS Market.
Microsoft
If Microsoft reigned as leader in the OS market with DOS and Windows for the last 20 years; it
is because, the aforementioned has been able to establish its dominance in this industry
thanks to its marketing and research skills; as well as its superior ability to develop and
maintain key strategic partnerships with a large majority of the hardware vendors that
produce personal computers. This has allowed Windows to become the operating environment,
maybe not of choice, but of necessity for the majority of personal computers in the world.
Microsoft’s primary competitors, Apple and IBM, both have more stable and light operating
systems with a great deal of promotion to accompany them. However, both suffer the same
weaknesses that Microsoft has been able to exploit: Apple's operating system for its Macintosh
line of computers, while superior in many ways (design, reactivity, functioning intuitiveness) to
DOS and Windows, is limited to the Macintosh personal computers. In addition, it does not run
many of the popular applications and games that are readily available to DOS and Windows.
To an extent, IBM's OS/2 operating system suffers for the same problem; even if it will run on
all of the personal computers DOS and Windows can run on, the number of programs
produced for IBM’s OS/2 in its native environment is very limited.
Once we have identified the competition and gathered sufficient information on the business
environment, we can have a first outlook of the potential intensiveness of the competition by
assessing some macro-characteristics on the previously identified competitive situation:
Number of players: the higher i the number of players, the more intensive is generally the competiiton
Concentration: the lower is the concentration rate, the more intensive is generally the competition. Normally when we talk about concentration we talk about the distribution of shares in the market, shares of the market are often quantified by the shares of sales (see Herfindell e E. Lorentz)
Growth rate: the lower is the sales growth rate, the more intensive is generally the competition
31
“An organization’s capacity to improve existing skills and learn new ones is
the most defensible competitive
advantage of all.”
C. K. Prahalad
The aforementioned strengths and weakness analysis can be integrated with an opportunities
and threat analysis in what we call a SWOT analysis (for details see: Harvard Business School,
2005). “By listing favourable and unfavourable internal and external issues in the four
quadrants of a SWOT analysis grid, planners can better understand how strengths can be
leveraged to realize new opportunities and understand how weaknesses can slow progress or
magnify organizational threats. [In addition] it is possible to postulate ways to overcome threats
and weaknesses” (Helms M. M., 2010). Accordingly, by doing a SWOT analysis for each of the
competing firms which are object of study we can recognize the differences in the competing
perspectives of the different players in competition; and understand the relative threat,
influence and power that each competitor exerts or could exert on others (relationship which is
generally asymmetric). Since there is a causal relation between competitors’
strengths/weaknesses and the presence/absence of key skills, assets or capabilities needed to
compete in a specific market. An analysis of strong performers in a group of competitors
should reveal us the foundations behind a successful record of business accomplishments.
This kind of analysis, in conjunction with an examination of unsuccessful companies and the
reasons behind their failures, should provide us good understanding of which are the critical
factors for success required in a given competition. As a result, such analysis reveals to be a
useful basis for choosing with whom you should or shouldn’t create a benchmark (for
benchmarking techniques see: Boxwell R. J., 1994).
In the following pages we will introduce the Five Forces model by
Porter, which can give us an comprehensive overview of the main
competitive forces at work in the competitive environment of a
firm.
Here follow a set of competitive analysis tools that for reasons of
brevity have been omitted in this report, which that can result
complementary to the business level competitive analysis tools
that we will describe in this report.
Balanced Scorecard
“Balanced Scorecard Basics”
http://www.balancedscorecard.org/bscresources/aboutthebalancedscorecard/tabid/55/
default.aspx
SWOT Analysis
“SWOT analysis method and
examples, with free SWOT template”
http://www.businessballs.com/swotanalysisf
reetemplate.htm
SOSTAC Model
“What Is The SOSTAC Model Of
Marketing?”
http://corporateskills.co.uk/?p=315
Ansoff matrix
“The Ansoff Matrix - Understanding
the risks of different options”
http://www.timeanalyzer.com/lib/ansoff.ht
m
32
Focus 3: Five Forces to identify the structure of inter-firm competition and shape the business
strategy
In his articles Porter (1980, 2008) illustrates by what means the “industry structure has a strong
influence in defining the rules of the competitive game as well as the strategies potentially
available to a company” (M.E. Porter, 1980). To do so he identifies five major forces that jointly
shape the competitive environment of a firm. According to the author, those forces should be
carefully considered and evaluated when designing and planning a competitive strategy;
because strategies pay-offs are determined or at least biased by those forces.
1. Rivalry among existing firms;
2. Threat of new entrants;
3. Threat of substitute products;
4. Bargaining power of suppliers;
5. Bargaining power of buyers;
As we can see from the scheme above, for each of the five forces identified by Porter we have a
category of agents affecting directly (competitors in the industry) or indirectly (suppliers, buyers,
substitutes and potential entrants) the competitive arena of a firm, and its economic
performance. To undertake a structural analysis of company’s competitive position, and
recognize the way in which the five forces are affecting its business performance and strategies,
we need to identify the collection of factors that jointly determine the intensity of each of the
aforementioned forces. Some of these factors are common to all or many firms, but, their
specific weight and relevance changes from industry to industry, segment to segment, firm to
firm and product to product. Thus, the importance of each of these factors that affect the
intensity of competition is case specific/dependent; and, is influenced by a firm’s objectives,
strategies, relations with other agents in its environment, constraints, opportunities and
boundaries of the context in which it operates. Therefore, the weaknesses and strengths that
emerge from any structural analysis of the five forces change from case to case. Nevertheless,
for each competitive force we can recognize some general factors that commonly affect
(positively or negatively) the intensity of the competitive forces to which a firm is subject (see
next page):
The "industry"
Potential entrants
Buyers
Sobstitutes
Suppliers
33
Intensity of r ivalry among existing
-High fix costs/exit barriers; -Intense marketing battles/retaliations
between competitors; -Several competing firms of similar
size/ with balanced resources; -Chronic overcapacity; -Slow industry growth;
-Small differentiation of products/firms;
-Low fix costs/exit barriers; -“Polite” or “gentleman” competitors;
- Few competing firms of dissimilar size/ with unbalanced resources;
-Fast industry growth; -Strong differentiation of products/firms;
Concreteness of threat of new entrants
-Permissive regulation of patents, licenses and “open-source” technology;
-Small capital requirements; -Small minimum efficient scale (MES);
-Open/unsecured distribution channels;
-Perception of new technological possibilities.
-Extensive regulation of patents, licenses and proprietary product technology;
- Experience/scale economies; -Large MES;
-Vigorous retaliations to entrants; -Joint costs and switching cost;
-Brand identification and customer loyalty;
Concreteness of threat of substitutes
- Existence of function/use substitutes; - Attractive price/performance tradeoff
of substitute products; -Government regulations, subsidies and
standards; -Small switching costs for buyers;
-Effectiveness of collective industry action; - No substitute product for the
usage/function; -Trend analysis ability;
- High switching costs for buyers and distributors;
Bargaining power of buyers
-Large purchase volumes relative to seller’s sales;
-Buyer has information about market conditions and supplier’s costs of
production; -Backward integration threat.
-Tapered integration;
-Small purchase volumes relative to seller’s sales;
- High switching costs for the buyer; -High impact of supplier’s product on the
quality of buyer’s products. -Forward integration threat;
Bargaining power of suppliers
-Large purchase volumes relative to seller’s sales;
-Buyer has information about market conditions and supplier’s costs of
production; -Backward integration threat.
-Tapered integration;
-Small purchase volumes relative to seller’s sales;
- High switching costs for the buyer; -High impact of supplier’s product on
the quality of buyer’s products. -Forward integration threat;
34
Generally, the more the five forces are intense for a given
firm/industry, the more the potential profitability is narrow and
subject to uncertainty. Still, “the point of industry analysis is not to
declare the industry attractive or unattractive but to understand the
underpinnings of competition and the root causes of profitability.
[Therefore, if possible] analysts should look at industry structure
quantitatively, rather than be satisfied with lists of qualitative factors.
… [Moreover,] while a myriad of factors can affect industry profitability
in the short run—including the weather and the business cycle—
industry structure, manifested in the competitive forces, sets industry
profitability in the medium and long run. … [Consequently, a] good
industry analysis looks rigorously at the structural underpinnings of
profitability… [and] distinguishes temporary or cyclical changes from
structural changes” (Porter M. E., 2008).
Porter’s Five Forces
“Assessing the Balance of Power
in a Business Situation”
http://www.mindtools.com/pages/article/newTMC_08.
htm
Yet, analysing mathematically the factors influencing each of the forces necessitates very
detailed quantitative or qualitative information and the ability to perform a multicriteria
analysis for each force. Therefore, in many “Five Forces” competitive analysis, as in the
following example of Porter’s Five Forces Analysis of Coca-Cola (personal review of the example
from: Valuation Academy) we only define and briefly describe the main factors constituting
each of the forces, to recognize their overall intensity/pressure. In view of that, we will be here
concerned only with the relative positioning of Coca-Cola in the soft drink bevarege industry
and appraise the forces to which it is subject.
Coca- ColaRivalry among existing firms:
In the soft drink beverage industry the level of rivalry is relatively moderate. The main reason for this is the small number of major global players controlling the beverage market. The leaders are Coca-Cola and PepsiCo.
• Brand loyalty is a determinant of the rivalry between competitors. In the end theconsumers chooses the product, so the rivalry comes in the form of advertising andmarketing strategies to gain market value.
• Products in the industry are easily differentiated (brand logo, casing colours, bottleshape, flavours). This differentiation lowers the level of rivalry because all majorcompanies try to develop unique products with high consumer appraisals and fidelity.
• The ability for end-consumers to control the market greatly boosts rivalry betweencompetitors. For the reason that stores stock their shelves with the most popularproducts, competitors are always fighting for their product to be the most visible andeasiest to recognize.
• Expansion opportunities are moderate. The best way to gain market shares in thebeverage industry is to enter into a market segment that is not already occupied bystrong competitors.
35
Threat of new entrants:
The level of new entrants is measured by multiple factors including: brand loyalty, advertising ability, access of distribution channels, and supplier availability. These factors create a high threat for new entrants in the soft drink beverage industry.
• Customer and brand loyalty make it very problematic for new competitors to enter intothe beverage industry. Coca-Cola is the most famous beverage brand throughout theworld, which has been made possible through endless advertising and marketingcampaigns.
• Advertising and marketing are a key component for a new company to gain recognitionfrom consumers. However, both these components require large amounts of funding toproduce broad scale marketing campaigns that will gain the recognition needed tocompete with industry leaders, such as Coca-Cola.
• Access to distributing channels is an important factor when entering into a new market.It can be tiresome for new entrants to find retailers that will carry their product beforethey are established. Shelf space will rarely be made for products that cannot prove theyhave consumers to regularly buy their product.
• Coca-Cola and other industry leaders have strict bottling contracts in all of their salesareas. These contracts block the bottling company from doing business with companiesproducing a similar product. One of the only alternatives for the new company is to dothe bottling themselves, which requires high amounts of capital.
Threat of substitute products:
In the beverage industry there are many substitutes for each category of soft drink. This allows the consumer to help shape what the retailers put on the shelves. Examples of substitute products to Coca-Cola are Pepsi products, , tea, coffee, energy drinks, beer, wine, etc. The substitute products create a moderate threat in the industry.
• Marketing and advertising have a major impact on the substitute products. If the consumersdo not know about a particular product, then retailers do not want to stock that product.
• The switching cost for retailers is low, so retailers can easily switch to more appreciatedproducts. This can create an advantage for the retailer from a cost standpoint and for theproducers of the substitute product.
• Throughout the beverage industry, competing product lines of products have very similarprices. Consequently differentiation practices are very important to maintain fidelizedconsumers, which otherwise would experience substitute product. This can give substituteproducts the opportunity to use promotional influences to gain consumers’ favor.
Bargaining power of buyers:
Buyers, especially retailers, are the key to success of the soft drink beverage producers. Buyers include fast foods, fountain vending, convenience stores, and super markets. The bargaining power of the buyers ranges from low to moderate (depending on the relative size of the buyer).
• Fast food chains have the highest bargaining power, because they buy in bulk. This methodof purchasing provides least profit for unit for Coca-Cola due to small mark-up margins.
• Vending machines provide a straight line approach from getting the product directly into thehands of the consumer. There is literally no bargaining power for the buyer.
• Convenience stores, bars, shops and local wholesalers have low bargaining power and payhigh unitary prices for the products since they are buying small quantities.
• Super markets have low bargaining power. The contractual power they possess originatesfrom the size of orders and shelf space exposure/placement decisions.
36
Bargaining power of suppliers:
The bargaining power of the suppliers, in the soft drink beverage industry, is very low because the ingredients used to create these beverages are readily available.
• The basic ingredients (sugar, water, caffeine, caramel, coca extract, glycerine)used to make Coca-Cola products are coomon and easily found. This ease ofaccess gives a huge advantage to Coca-Cola because the company can setprices with the suppliers. Switching costs are very low, so drink manufacturerscan easily change their suppliers.
• The industry utilizes large quantities of raw materials, accordingly thesuppliers must remain in good standing with the buyers.
As alleged previously, since industries structure evolves over time, industries and markets
should be considered and therefore analyzed as dynamic open systems. This has to be done in
order to identify long-lasting trends, predict forthcoming transformations and anticipate and
prepare to compete in upcoming competitive scenarios. Accordingly, once the structural factors
affecting each of the forces have been detected, measured, weighted, examined in their trends
and causally related one another with systemic approach; analysts and managers can develop
new competitive strategies, designed specifically to:
• Increase the present and upcoming market/profit shares of the firm;
• Reduce or redistribute the present and upcoming share of profits/revenue of
competitors/buyers/sellers/substitutes;
• Improve the posture (ability/facility to react to others strategies) of the firm within in its
competitive arena;
• Improve the positioning (concrete strategic advantage over competitors) of the firm
within in its competitive arena;
• Limit the threat of substitutes;
• Other;
By using the information about the five forces gathered in porter’s analysis, firms can take
consequently benefit of this informative advantage while designing their strategies.
Thus, firms who undertake the difficult task of examining each competitive force and
forecasting their intensity and causes will be able to create a meticulous and all-inclusive
representation of their business environment, which can be used to shape the industry itself,
and thereby overcome the profit potential limits due to the competitive structure of the industry
in which a firm operates. As a result, firms capable of finding a distinctive position in their
context by understanding, “coping-with” and governing the competitive forces identified by
Porter’s model will most likely reveal to be successful in designing effective strategies and
realizing their objectives. “In reshaping structure, a company wants its competitors to follow so
that the entire industry will be transformed. A firm can [in such a way] lead its industry toward
new ways of competing that alter the forces for the better” (Porter M. E., 2008).
37
TECHNICALS
Durabil i ty; Warranty;
Water resistance;
FUNCTIONALS
Ease of use; Safety;
Originali ty; Novelty;
EMOTIONALS
Artistic quality; Design;
Sentiment and memory revival;
PERSONALS
Color; Flavor; Size; Materials;
VARIABILITY ABOUT THE OPINIONS AND PREFERENCES FOR A CHARACTERISTIC/FEATURE OF A PRODUCT
HOMOGENEUS DIFFERENTIATED
MEASURABILITY AND DISTINGUISHABILITY
OF A CHARACTERISTIC/
FEATURES OF A PRODUCT
DIFFICULT/ SUBJECIVE
EASY/ SHARED CRITERIA
When analysing a competition at the product level the previously mentioned tools are no
longer useful, because their approach is too broad and doesn’t considerate the importance of
consumers in the process value/quality recognition. As Rossi F. (2013) clearly outlines in his
Competitiveness Assessment report: “the most simple way to find out which product is the
more effective for customers is to find out which of the products gets sold the most. Even if
simple, this method doesn’t give us any information on how to improve the competitiveness of
our products, because it focuses only on the outcomes of competition and not on its means.
To better understand what determines competitiveness we have to understand that products
are sets of features [attributes] and consequently proceed to analyze these characteristics of
products separately or in bundles. […] Indeed not all of these characteristics are easily
measurable and sometimes their perception may vary from customer to customer”.
Consequently to perceive these subjective / objective perceptual differences in the process of
assessment and recognition of consumer’s preferences we should classify attributes
according to two strategic dimensions for product’s competitiveness assessment:
1. The Variability in preferences;
2. Measurability and distinguishability of preferences;
38
For each of the four categories of characteristics/features of products, previously
differentiated in the Measurability/Variability matrix, we should choose the specific
competitive analysis technique/tool that fits the best to the characteristics taken into
account. If the product is complex, it possesses several characteristics belonging to different
categories. Then, to be properly examined the product could require the use of several
techniques. Otherwise, the use of a single technique, the most suitable to the characteristics,
is generally sufficient. We have already presented the Kano Model, and we will soon introduce
two other instrument (Means-End Chain, Quality Function Deployment) to analyse the
competiveness of products. Each one is particularly appropriate to understand the
competing dynamics of a particular kind of product; the following matrix summarizes this
relationship:
TECHNICALS:
Technical Comparison
FUNCTIONALS:
Kano Model
EMOTIONALS:
Means-End
PERSONALS:
Quality Function
Deployment
VARIABILITY ABOUT THE OPINIONS AND PREFERENCES FOR A CHARACTERISTIC/FEATURE OF A PRODUCT
HOMOGENEUS DIFFERENTIATED
MEASURABILITY AND
DISTINGUISHABILITY OF A
CHARACTERISTIC/ FEATURES OF A
PRODUCT
DIFFICULT/ SUBJECIVE
EASY/ SHARED CRITERIA
39
Focus 4: Quality Function Deployment
“Quality in a product or service is not what the supplier puts
in. It is what the customer gets out and is willing to pay for. A product is not quality because it is hard to make and costs a
lot of money, as manufacturers typically believe. This is
incompetence. Customers pay only for what is of use to them and gives them value. Nothing
else constitutes quality.”
Drucker P.
The key assumption of the Quality Function
Deployment model is that product quality is a
multidimensional concept dependent on customers’
experiences. As a result, we can talk about quality
products and compare them only if we can
understand how specific (valuable/measurable)
engineering characteristic of products are satisfying
customers’ needs. This because, technical and
conceptual engineering aspects are visible in a
unique form for the customers: the usage experience
form. The usage of products by customers is
therefore the only mean by which qualities of
products express themselves and can consequently
be evaluated by customers and thus implemented by
firms. The viewpoint of this model is that “products should be designed to reflect customers’ desires
and tastes – so marketing people, design engineers, and manufacturing staff must work closely
together from the time a product is first conceived” (Hauser J.R. & Clausing D., 1988).
Companies should therefore be able to learn from customers experiences, and sum–up the
latters to help engineers in developing and improving products, by answering to the customers’
needs and problems, which emerge from the usage involvement. In concrete, the QFD is a
conceptual map that illustrates the links between technical characteristics and customers’
usage experiences. For that reason, the patterns in evidence on the house’s grid are a powerful
mean to engineers, managers and marketing people with different problems to evaluate the
design priorities and develop a coherent marketing strategy for the product.
If there was no formalized instrument of coordination between the managerial functions, those
functions would remain disconnected, and the end result would be a set of isolated and
discouraged business functions incapable of identifying their particular role and
responsibilities in the development and improvement of a product; moreover if there is no
communication and coordination between business functions, there can be no common
idea/view on the factors that determine the overall perceived quality of a product.
As Hauser J.R. and Clausing D. (1988) summarize, the “QFD focuses and coordinates skills
within an organization, first to design then to manufacture and market goods that customers
want to purchase and will continue to purchase.” The QFD model is nowadays used in
countless businesses, ranging from clothing industry to electronics, construction equipment
and automobile companies. Firms such as Ford, General Motors and Toyota started applying
it to their products in the late 80’s.
40
To build a QFD we need information on consumer’s attributes or requirements (CAs). Those
CAs are expressions customers use to describe products and product characteristics. Those
attributes can be categorized, by separating them in general to specific groups or bundles;
generally we have at least three levels of CAs.
This grouping process can be done either “directly from a customers’ response” or “by
consensus” (Hauser J. R. & Clausing D., 1988) on the specific consumer attribute. It is
important to understand that customers and users aren’t the same thing, customers are a
category of people that contains users but is larger the this last, customers could even be
regulators, retailers, members of the scientific community, vendors, social medias, and others.
Thanks to sophisticated marketing techniques companies can measure, track, and compare
customers’ perceptions of products with great accuracy, and use this information to “compete
on quality” with other firms products. Accordingly, CAs can generally be defined by interviews
of customers and surveys:
a) By looking what people says on forums and social networks about the product in
general terms or about their personal use experiences;
b) By placing a product in a “open to public area” and listening what people say about it
or looking how people interact with, or react to the characteristics of the product;
c) By looking what is said about the product in specialized reviews and other medias.
Even if generally CAs are of easy interpretation for product designers and product planners, in
some case the inference from specific customer opinions to technical qualities and engineering
characteristics can be misleading simply for misunderstandings due to the customers’ specific
use and meaning of language who can strongly diverge from one social group to another. Two
persons that answer with the same words to a specific question of the interview, or in a survey,
could thus have very different opinions and levels of appreciation (preference) for the
concerned attribute of the product.
For example: the noisiness of the engine of a motorbike
that two different customers could have both signaled by
the expression: “Impossible to not be noted with such a
powerful noise from the engine” could for one be a quality
(let’s say a twenty years old fellow that would use it to
show off in front of his college) and for the other a defect
(let’s say a thirty-five years old married women, who likes
powerful motorcycles but knows that his husband would
never let her take such a noisy bike that would attract the
glance of all men passing nearby).
QFD in practice:
“QFD and Voice of Customer Analysis: QFD Examples and
Case Studies by Glenn Mazur”
http://www.mazur.net/publishe.htm
41
To avoid language misunderstandings it can thus be useful to have in surveys, beside the CA
phrase spaces, two other indicators:
1. The first, for the personal appreciation of the described attribute, better if in a
numerical min-max scale where the min and the max are respectively the best
and the worst seen by the customer in the same segment of the market for that
particular attribute. It could even be functional for the future improvement of the
product to have listed the min-attribute and the max-attribute products
indicated by the customers, in such a way product developers can know which
product attributes are taken has current market references by customers.
2. The second, for the relative (to other CAs) importance, or priority given to each
attribute. This indicator is important because when developing a product there is
always a trade-off between the payback (in terms of customer appreciation) of the
different attributes. Weighting the attribute importance is the easiest way to
understand where the efforts have can generate most important marginal
benefits for the competiveness of the product. “Weightings are displayed in the
house next to each CA- usually in terms of percentages, a complete list totaling
100%” (Hauser J.R. & Clausing D., 1988)
In addition, if surveys make emerge the fact that “various customer segments evaluate products
differently product planning team should get assessments for each segment”. (Hauser J.R. &
Clausing D., 1988) Once obtained the customer’s attributes and relative importance values, we
can employ the QFD process to align different teams’ members and management, increasing
transparency and coherence at/between each step of the product development process, before
moving forward. In such a way QFD coordinates the product development process by linking:
1. Consumer attributes to technical (engineering) characteristics;
2. Technical characteristics to components characteristics;
3. Components characteristics to process and test planning characteristics;
4. Process and test planning characteristics to production characteristics;
The house of the QFD is a large relationship matrix that ties the characteristics of one phase
(column at the left) of the product development process to the successive (raw on the top),
"hows" of one stage become the "whats" of the next, until all phases are connected in a cyclic
development process. On the top of the matrix we have the characteristics’ interaction triangle,
which highlights trade-offs (positive or negative) between characteristics, some will leverage
(positive correlation) one-another others will be in conflict (negative correlation) with each-
other. Beneath the relationship matrix we have the target and gap analysis area, which is used
to track deviations from the desired performance values of characteristics, and to analyze the
technical difficulty of a particular solution. At the right of the matrix we compare the
characteristics of the firms’ products to the competitors’ ones, in such a way we can have a
multidimensional measure of the competitive performance of a product respect to others.
42
Source: cake from XR Training and Consultancy , “QFD - Quality Function Deployment”;
Schematic summary of QFD houses and product development/improvement processes
Hows
Whats
Performance comparaison
43
II. When values become a competitivedimensions
In the last two decade, we have seen the emergence of a new socio-cultural actorhood
dimension for firms, which was accompanied by the diffusion of environmentally sustainable
and socially responsible practices in private business organizations. The diffusion of corporate
social values in the business arena is a forthcoming consequence of worldwide circulation and
common acceptance of the Globalization-era principles of sustainability, corporate social
responsibility (CSR) and corporate citizenship (CC). These new ideals led to the formalization of
new business models (called social and sustainable entrepreneurship), which, if widely
adopted, could produce in their environment a much more significant re-evolution than the - however important- organizational one that will take place in the competing structure and
modus-operandi of single firms.
a. CSR and the benefits for being sustainable
As the United Nations Global Compact
Office (2011) highlights, “business interests
are increasingly overlapping with societal
objectives, and there is a growing need for
collaboration between the private sector
and other stakeholders such as
governments, the United Nations system,
civil society, local communities, among
others. It is increasingly clear that the
private sector does not engage in
partnerships only to manage risks
associated with negative externalities, but
to better capitalize on opportunities.
Through engaging local and global actors in
partnerships, companies can acquire a
better understanding of the nature of their
operations, such as expanding the license
to operate, improving access to markets
and increasing operational efficiencies”.
World class
corporate image
Market leadership,
world brand
Innovation, challenging environment
Shareholder value
Turnover, cashflow, profit, ROE, etc.
Source: «The Maslow hierarchy of managers ‘’values and needs Fig. 1 pp. 37 in Stocchetti A. (2012)
44
Source: http://upload.wikimedia.org/wikipedia/commons/6/67/CSR_framework_-_value1.jpg
“Attention to CSR as an element in corporate strategy led to examining CSR activities through
the lens of the resource-based-view (RBV) of the firm. The RBV, […] presumes that firms are
bundles of heterogeneous resources and capabilities that are imperfectly mobile across firms.
Accordingly, the imperfect mobility of heterogeneous resources can result in competitive
advantages for firms that have superior resources or capabilities. [As a result] CSR activities
and attributes may be used in a differentiation strategy. Applying the RBV to CSR naturally
leads to the question of whether firms can use CSR to achieve a sustainable competitive
advantage. […] A firm engaging in a CSR-based strategy could sustain an abnormal return if it
could prevent competitors from imitating its strategy. This is consistent with the VRIS
formulation of the RBV, which posits that sustainable competitive advantage requires that
resources be valuable (V), rare (R), inimitable (I) and non-substitutable (S). [Since] In
competitive markets it is unlikely that a firm can prevent competitors from imitating a CSR-
based strategy, so competitive advantage based on CSR activities/attributes will be short lived.
However, this also means that competing firms may be forced to imitate CSR activities to gain
competitive parity. This raises the question of whether such competition-meeting activities
should be considered “responsible” rather than simply strategic.” (McWilliams A., Siegel D.,
Wright P. M., 2006)
45
b. Towards a possible integration of values inproducts and firms?
Markets Erode Moral Values?
Researchers from the Universities of Bamberg and Bonn present causal evidence on how
markets affect moral values. Many people express objections against child labor,
exploitation of the workforce or meat production involving cruelty against animals. At the
same time, however, people ignore their own moral standards when acting as market
participants, searching for the cheapest electronics, fashion or food. Thus, markets
reduce moral concerns. This is the main result of an experiment conducted by economists
from the Universities of Bonn and Bamberg. […] both economists, have shown in an
experiment that markets erode moral concerns. In comparison to non-market decisions,
moral standards are significantly lower if people participate in markets.
"Our results show that market participants violate their own moral standards," says Prof.
Falk. In a number of different experiments, several hundred subjects were confronted
with the moral decision between receiving a monetary amount and killing a mouse versus
saving the life of a mouse and foregoing the monetary amount. "It is important to
understand what role markets and other institutions play in moral decision making. This
is a question economists have to deal with. To study immoral outcomes, we studied
whether people are willing to harm a third party in exchange to receiving money. Harming
others in an intentional and unjustified way is typically considered unethical. […] A
significantly higher number of subjects were willing to accept the killing of a mouse in
market conditions. In markets with many buyers and sellers, subjects may justify their
behavior by stressing that their impact on outcomes is negligible. "This logic is a general
characteristic of markets," says Prof. Falk. Excuses or justifications appeal to the saying,
"If I don't buy or sell now someone else will "
The following excerpt from the University of Bonn suggests us that the problem of integrating
moral and social values in market and business decisions should be considered not only under
the perspective of firms (and their CSR policies); but probably, much more under the
prospective of consumers and their willingness to pay a surplus for the respect/diffusion of
their values and beliefs. the Means-End chain theory helps us to understand more from this
point of view.
46
Focus 5: Means-End Chain Theory
• In accordance with some social or cultural values: those
goods can confirm and strengthen the "apparent belief" in a
value of an individual, and therefore support its belonging to a
culture or social group which claims to share and support
that value;
• In conflict with some social or cultural values: those goods
can deny and weaken the "apparent belief" in a value of an
individual, and therefore deny its access to those cultures or
social groups which claim to share and support that value;
Furthermore, since many ethnical and cultural groups have, or at least pretend to have, the
same basis of values; it is possible that this common basis of values is also determining their
consumption decisions, and therefore influencing the concrete expression of their customs and
habits through the purchase of analogous bundles of goods and services. Besides this, since
one of the reasons of existence of values, is to be socially expected in people with the same
customs and habits, the abovementioned argument could also be true the other way round:
people consuming similar/common bundles of goods could involuntarily generate innovative
modes and progressively shared new customs and habits; those lasts could be culturally
interpreted as the emergence of a new combination of values, associated to a new culture. As
alleged before, apparent values are immaterial characteristic and identity “masks” acquired
through the purchase and exhibition of some goods. Those identity “masks” can also be
incoherent or conflicting with one’s true personal beliefs and values. Accordingly, in several
cases, it is possible to see individuals buying and using goods with conflicting values, generally
in different moments of their lives. This can happen either because people artlessly change
their values, or because the outcome of the exhibition of a value -through the purchase and
use of a good- are situation dependent; and consequently the exhibition of the same value can
reveal to be useful in one situation and harmful in another. Since it is the situation that
:determines the outcomes of exhibiting a value, values are both, human’s means and ends.
Beliefs:
something that a person is convinced that is true;
Values:
abstract aims and ends desirable in our existence and society;
Men’s choices are unquestionably driven by social and cultural factors: “Socially similar people,
even in the pursuit of independent interests, spend time in the same places. Relationships
emerge. Socially similar people have more shared interests. Relationships are maintained.
Further, we are sufficiently egocentric to find people with similar tastes attractive. Whatever
the etiology for strong relations between socially similar people, it is to be expected that the
resources and opinions of any one individual will be correlated with the resources and opinions
of his or her close contacts.” (R. Burt, 1995) As a result, countless market goods and services
were invented for the purpose of satisfying those socio-cultural identity and relational needs of
individuals. Accordingly, goods and services can be:
47
To do so, we must start by considering
consumers choices as a cognitive
processes, in which concrete or abstract
product attributes are linked to expected
social, psychological or functional
consequences; which produce an effect
on one’s value code; which in turn can
transform the attributes associated to
other products and the expected
consequences of attributes.
The means-end theory has the objective to systematically link consumer preference for some
attributes of products/services and purchase/use situations to social and psychological
consequences of consumption. The relation between the two is circular and is mediated by the
individual’s values and beliefs system.
Consumers are generally not aware of this cognitive process. On the other hand, since the comprehension of consumer decision-making processes is one of the more relevant aspects of
marketing research from the scientific as well as the operative standpoint, firms are
increasingly aware of it. Firm’s knowledge on decision-making processes can then be used to
segment consumers on the basis of common attribute identification process, common desired
consequences of consumption and common final or instrumental values.
From the Means-End perspective “it is assumed that the values are culturally absorbed in
order to create and use conditions of morality and competence, to create social interaction and
to support the rationalization of beliefs, attitudes and behaviors. Once internalized the values
become - whether consciously or not - a pattern of criteria which guides action and develops
and sustains attitudes towards objects and situations. It is in this respect that this can be
understood as a synthesis between what would be a sociological vision and a psychological one.
Even if the values "dwell" within people, they are forged socially. Therefore, values are as
central to the lives of individuals as to society as a whole. In fact, values can be classified into
two categories: personal (individual) and social (institutional, cultural, organizational). For
example, the attribution made about someone being a helpful person can also fit into
organizations. Nonetheless, they are like two sides of the same coin, each socially shared.
Whereas the former are presented as cognitive representations of institutional objectives, the
latter show themselves to be cognitive representations of personal needs and the means to
fulfill them. In other words, social values are shared beliefs that characterize a group of people
and define the acceptable normal behavior to a society or group; personal values on the other
hand, define the acceptable normal behavior of an individual” (de Souza Leão A .L. M., Benício
de Mello S. C., 2007).
Consequences
Values
Attributes
48
Values
Preferences for modes of conduct or end-states of
existence.
Products
Technical, functional and emotional sets of attributes
Attribute categorizing process:
represent the way in which consumers segment their environments into meaningful groups by creating
equivalences among non-identical stimuli. Grouping is determined by the object's
properties, but the choice of properties to be focused on is influenced by values
Situations
Attitude towards the surrounding individuals
and environment
Product Knowledge
Consumer Knowledge
At each level we build and implication
matrix ladder which
represents the number of times each
element leads to another, of the successive
level
A hierarchical value map chains
the data aggregated in the
implication matrixes.
Interviews to consumers are used to rebuild
the mental categorization
process
Once the hierarchical value map is built, the existing paths from the
base to the top are considered as
representative chains of perceptual orientation.
49
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•
Slides:
• Stocchetti A. (2013) “Competitive Analysis”:- slides first 2 weeks: http://static.unive.it/isa/file/download/elementId/10231315;- slides 3rd week: http://static.unive.it/isa/file/download/elementId/10239123;- slides 4th week: http://static.unive.it/isa/file/download/elementId/10252102;- slides 4th week b: http://static.unive.it/isa/file/download/elementId/10252103;- slides 5th week: http://static.unive.it/isa/file/download/elementId/10258863;
Books:
• Abell D. F. & Hammond J. S. (1979), “Defining business and making the bridge to otherstrategic decisions”, Ch. 8 [p389-407] in “Strategic Market Planning: Problems andanalytical approaches”, Prentice-Hall;
• Boxwell R. J. (1994), “Benchmarking for Competitive Advantage”, McGraw-HillProfessional Publishing;
• Parsons, T. (1970), “The Social System”, Routledge & Kegan Paul Ltd;• Keeney R. L. (1993), “Decisions with Multiple Objectives: Preferences and Value Trade-
Offs”, Cambridge University Press;
Reports:
• Rossi F. (2013), “An Analysis of the Notions and Tools for the Study of the CompetitiveEnvironment”, Class Report;
• Ruozhou R. (2012), “Competitive analysis, final report”, Class Report;
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Websites:
• CIDP, “PESTLE analysis”,<http://www.cipd.co.uk/hr-resources/factsheets/pestle-analysis.aspx>;
• CNA Exporter, “Definizione di business e del segmento da espandere”,<http://www.cnaexporter.it/percorso-2d.php>;
• Library of Economics and Liberty, “Industrial Concentration”,<www.econlib.org/library/Enc/IndustrialConcentration.html>;
• Economics Web Institute, “Product differentiation”,<www.economicswebinstitute.org/glossary/product.htm>;
• Mind Tools, “Porter’s five forces”,<http://www.mindtools.com/pages/article/newTMC_08.htm>
• Online Etymology Dictionary, “Etymologic definition of competition”,<http://etymonline.com/?term=compete>;
• Online Philosophy Club, “The philosophy of competition”,<http://onlinephilosophyclub.com/forums/viewtopic.php?f=1&t=6680>;
• PM HUT, “Project Milestones”, <http://www.pmhut.com/category/time-management/project-milestones>;
• The Economist, “Vertical integration”,<www.economist.com/node/13396061>;• Think BIG, “Innovation Trajectory”, <www.thinkbigmagazine.com/wealth/216-
innovation-trajectory-understand-make-informed-decisions>;• Tom Graves Web-blog, “NOTES – actors, agents and extras in the enterprise”,
<http://weblog.tetradian.com/2013/06/10/notes-actors-agents-extras-in-enterprise/>;
• Wikibooks, “Business Strategy The three processes of strategy”,<http://en.wikibooks.org/wiki/Business_Strategy/The_Three_Processes_of_Strategy>;
• XR Training and Consultancy , “QFD - Quality Function Deployment”,<http://www.gtwebpublisher.co.uk/clients/wp/xrconsulting/main/showpage.php?tier1=six%20sigma%20and%20quality%20tools&path=sixsigmaandqualitytools&page=QFD___Quality_Function_Deployment.htm>;
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