How it shud be done?
Based on- a)Key differentiating factors?
b)How to deal with competitors?
An effort should be made to critically analyse the various factors affecting positioning.
Generic Strategies:-
By Michael Porter (The Guru of Defining/Designing Mktg Strategy)
5 Force Model
Five forces determining segment structural attractiveness:-
Porter's five forces is a framework for the industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven down to zero.
Three of Porter's five forces refer to competition from external sources. The remainder are internal threats.
Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally, requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average.
Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers.
This five forces analysis, is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies.
Porter developed his Five Forces analysis in reaction to the then-popular SWOT analysis, which he found rigorous and ad hoc.
Porters fives forces model is an excellent model to use to analyse a particular environment of an industry. So for example, if we were entering the PC industry, we would use porters model to help us find out about:
1) Competitive Rivalry
2) Power of suppliers
3) Power of buyers
4) Threats of substitutes
5) Threat of new entrants.
The above five main factors are key factors that influence industry performance, hence it is common sense and practical to find out about these factors before you enter the industry. Lets look at them below.
Competitive rivalry
Segment Rivalry- The competitors will try to convince the target audience through mktg mix,brand positioning,dealer networks etc.Dealing with the competitors includes study of questions like: Who are your rivals? Define your competitors??
Competition is the thing that can move the entire base of customers.
A starting point to analysing the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry will likely to be high. If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high. Generally competitive rivalry will be high if:
• There is little differentiation between the products sold between customers.
• Competitors are approximately the same size of each other.
• If the competitors all have similar strategies.
• It is costly to leave the industry hence they fight to just stay in ( exit barriers).
Eg:ISB Vs IIM case.
-Micromax Vs Nokia.
-Maggi Vs Top Ramen.
-Starbucks Vs CCD.
-NTT docomo one of the most successful mobile in Japan.
Docomo entering India through a collaboration with TATA(using 1 paisa/sec plan).
If the leaders in their respective business(in India) like IIM,Nokia,Maggi,CCD respond to the new entrants ultimately the Goodwill of the new entrant increases.
Filmy Example:-In Dulhe Raja movie Govinda runs a dhaba just opposite to a 5 star hotel owned by Kadar Khan.
Power of suppliers
Suppliers are also essential for the success of an organisation. Raw materials are needed to complete the finish product of the organisation. Suppliers do have power. This power comes from:
• If they are the only supplier or one of few suppliers who supply that particular raw material.
• If it costly for the organisation to move from one supplier to another (known also as switching cost)
• If there is no other substitute for their product.
Eg:Automobile-Bajaj Scooter of past Vs Bike manufacturers of recent market like Honda,TVS,M&M.
Electronics- Suppliers of electronic goods like Chroma,VSP,Next.
Power of buyers
Buyers or customers can exert influence and control over an industry in certain circumstances. This happens when:
• There is little differentiation over the product and substitutes can be found easily.
• Customers are sensitive to price.
• Switching to another product is not costly.
Eg:Real estate sector before recession and after it.
Changes in the Real Estate scenario of Kharghar to be observed after the news of Navi Mumbai International Airport.
Bias Mkt: Customer is the king in bias mkt although CRM practices are not much developed and lot of improvement is expected.
Indian mkts are not customer driven, there are at times issues regarding legal aspects,consumption etc.
Buyer power can be seen in services provided by McD-Free coke for 1 min delay.
Domino's-Free delivery if delayed than 30 mins.
Threat of substitutes
Are there alternative products that customers can purchase over your product that offer the same benefit for the same or less price? The threat of substitute is high when:
• Price of that substitute product falls.
• It is easy for consumers to switch from one substitute product to another.
• Buyers are willing to substitute.
Eg: GSM Vs CDMA, LCD Vs LED.
Bulky TV's, monitors being replaced by sleek design.
Pager Vs Mobile,VCR Vs CD players, Xerox m/c Vs All in 1 OneStopSoln.
Threat of new entrant
The threat of a new organisation entering the industry is high when it is easy for an organisation to enter the industry i.e. entry barriers are low.
An organisation will look at how loyal customers are to existing products, how quickly they can achieve economy of scales, would they have access to suppliers, would government legislation prevent them or encourage them to enter the industry.
Eg:Walmart,Starbucks to enter in Indian mkt.
Walmart has only cash n carry ie wholesale mkt yet they can be a big player in their core business.
Generic Strategies to counter the 5 forces:
Strategy can be formulated on 3 levels like
1)Corporate level 2) Business unit level 3) Functional or Departmental level
The Business unit level is the primary context of industry rivalry.Michael Porter identified 3 generic strategies(Cost leadership,differentiation and focus)that can be implemented at the business unit level to create competitive advantage.The proper generic strategy will position the firm to leverage its strength and defend against the adverse effects of 5 forces.
Entering into 2011:- This would be the most challenging decade for service providers as mkt will grow n mature and hence Changing with the Change is important.
"Change is the only Constant"
