Competition and Product Strategy

Slide 1.
Competition and product

strategy
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
Slide 1.2
‘Success in business is success in a market.

Firms go out of business not by closing factories
but by unprofitable marketing. Firms usually enter
a business by creating products (i.e. goods and
services) but stay in business only by creating
and retaining customers at a profit’.
[O’Shaughnessy]
Slide 1.3
The changing business environment

• Accelerating technological change
• Globalisation
• Mergers, acquisitions and strategic alliances
• Demographics
• Deregulation and privatisation
• Changes in business practices – downsizing,
outsourcing, re-engineering etc.
Slide 1.4
• At birth an innovation’s prospects of survival

are slim( many if not most new products fail)
and
• The growth of the innovation is hardly
perceptible.
• If however, the innovation survives infancy
then it is likely to experience a period of rapid
growth until it approaches its full potential.
• As this occurs growth slows down and a
period of maturity sets in.
Slide 1.5
• Inevitably, maturity will move into decline, slowly

at first but then with gathering momentum until
the innovation ‘dies’ or ceases to exist in any
meaningful way.
• We can generalize about the length of each of
the phases.
• E.g fruit flies complete the cycle in 24 hours,
humans in 70-80 years, elephants in 80-100
years.
• The problem here is with predictability that if
innovation is something of new species, not a
clone of existing one, how long each of the
phases will be.
Slide 1.6
Life Cycle Analysis

• The development of stone tools, the discovery
of bronze, and the development of agriculture
were all innovations which led to marked
improvement in the human condition.
• Similarly, task specialization, exchange and the
evolution of markets gave impetus(force) to
the process.
Slide 1.7
Under modern conditions of competition it is

becoming increasingly risky not to innovate.
At the same time it is extremely expensive
and risky to innovate:
• Most product ideas which go into development

never reach the market.
• Many of the products which reach the market fail.
• Successful products have shorter life cycles.
Slide 1.8
BUT…….
Most new products fail!
Slide 1.9
We all agree that innovation

benefits both world and nation.
The question we must answer later
is, will it help the innovator?
[Kenneth Boulding]
Slide 1.10
Research weaknesses:
1. High-growth industries.
2. High-growth companies.
3. Single factor focus.
4. Operational vagueness.
Slide 1.11
Characteristics of a successful business:
• Vision directed with shared values and culture

• Innovative, entrepreneurial
• Flexible, learning
• Customer focused
Source: Wind and West (1991,1993)
Slide 1.12
Three roads to competitive success:
Build a better product at the market price.
Build the same product at a lower price.
Create a monopoly through a customer franchise.
Slide 1.13
In business the ‘survival of the fittest’ is determined

by the forces of competition.
These forces have been summarised by Porter(1979) as:

1. The threat of new entrants
2. The threat of substitution
3. The bargaining power of suppliers
4. The bargaining power of customers
5. Rivalry between current competitors
Analysis of these forces confirms that differentiation

is the key to survival.
Slide 1.14
Slide 1.15
In competing with one another firms have only a limited number of

strategic options available to them. These were identified by Ansoff
(1957) in a Growth Vector Matrix.
Product
Present New
Market New product

Present penetration development
Mission
Market
New development Diversification
Slide 1.16
Slide 1.17
Slide 1.18
Criticisms of PLC
Competitor
Length of
Shape of Curve Reaction is Not
Stages
Predictable
Patterns May
Impact of Use for
Not Apply to All
External Forces Forecasting
Global Markets
Stages Not
Seamlessly
Connected
Slide 1.19
Shape of Curve
• Some product forms do not follow the
traditional PLC curve.
• For instance, clothing may go through regular
up and down cycles as styles are in fashion
then out then in again. Fad products, such as
certain toys, may be popular for a period of
time only to see sales drop dramatically until a
future generation renews interest in the toy.
Slide 1.20
Length of Stages –
• The PLC offers little help in determining how
long each stage will last.
• For example, some products can exist in the
Maturity stage for decades while others may
be there for only a few months.
• Consequently, it may be difficult to determine
when adjustments to the Marketing Plan are
needed to meet the needs of different PLC
stages.
Slide 1.21
Competitor Reaction is Not

Predictable
• As we saw, the PLC suggests that competitor response
occurs in a somewhat consistent pattern.
• For example, the PLC says competitors will not engage in
strong brand-to-brand competition until a product form has
gained a foothold on the market.
• However, competitors do not always conform to theoretical
models. Some will always compete on brand first and leave
it to others to build market interest for the product form.
Arguments can also be made that competitors will respond
differently than what the PLC suggests on such issues as
pricing, number of product options, spending on declining
products, to name a few.
Slide 1.22
Patterns May Not Apply to All Global

Markets
• Marketers who base their strategies on how the PLC
plays out in their home market may be surprised to see
the PLC does not follow the same patterns when they
enter other global markets.
• The reason is that customer behavior may be quite
different within each market.
• For instance, a company may find that while customers
in their home market easily understand how the
company’s new product could save them time in
performing a certain task, customers in a foreign
market may not easily see the connection.
Slide 1.23
Impact of External Forces

• The PLC assumes customers’ decisions are primarily
impacted by the marketing activities of the companies
selling in the market.
• There are many other factors affecting a market, which
are not controlled by marketers.
• Such factors (e.g., social changes, technological
innovation) can lead to changes in market demand at
rates that are much more rapid than would occur if
only an organization’s marketing decisions were being
changed (i.e., if everything was held constant except
for company’s marketing decisions).
Slide 1.24
Use for Forecasting

• The impact of external forces may create challenges in using the
PLC as a forecasting tool.
• For instance, market factors not directly associated with the
marketing activities of market competitors, such as economic
conditions, may have a greater impact on reducing demand than
customers’ interest in the product.
• Consequently, what may be forecast as a decline in the market,
signalling a move to the Maturity stage, may be the result of
declining economic conditions and not a decline in customers’
interest in the product.
• In fact, it is likely demand for the product will recover to growth
levels once economic conditions improve.
• If a marketer follows the strict guidance of the PLC he/she would
conclude that strategies should shift to those of the Maturity stage,
Doing so may be an overreaction that could hurt market position
and profitability.
Slide 1.25
Stages Not Seamlessly Connected

• Some high-tech marketers question whether one
stage of the PLC naturally will follow another
stage.
• In particular, technology consultant Geoffrey
Moore suggests that for high-tech products
targeted to business customers, a noticeable
space or “chasm” occurs between the
Introduction and Growth stages that can only be
overcome by significantly altering marketing
strategy beyond what is suggested by the PLC.

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Slide 1.

Competition and product

‘Success in business is success in a market.

The changing business environment

• At birth an innovation’s prospects of survival

• Inevitably, maturity will move into decline, slowly

Life Cycle Analysis

Under modern conditions of competition it is

• Most product ideas which go into development

Most new products fail!

We all agree that innovation

Characteristics of a successful business:

• Vision directed with shared values and culture

Source: Wind and West (1991,1993)

Three roads to competitive success:

Build a better product at the market price.

Build the same product at a lower price.

Create a monopoly through a customer franchise.

In business the ‘survival of the fittest’ is determined

These forces have been summarised by Porter(1979) as:

Analysis of these forces confirms that differentiation

In competing with one another firms have only a limited number of

Market New product

Competitor Reaction is Not

Patterns May Not Apply to All Global

Impact of External Forces

Use for Forecasting

Stages Not Seamlessly Connected

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