Chapter 3

Approaches to Customer and

Competitor Analysis
 Introduction
Marketing planning is ultimately driven by the
marketing planner’s perception of how and
why customers behave as they do.
• Buyers differ enormously in terms of their
buying dynamics.
• Marketing planner understands in detail the
dynamics of the buying process,
Coming to terms with buyer behaviour

• There are eight questions which underpin any

understanding of buyer behaviour:
1 Who is in the market and what is the extent of
their power with regard to the organization?
2 What do they buy?
3 Why do they buy?
 Cont’d
4 Who is involved in the buying?
5 How do they buy?
6 When do they buy?
7 Where do they buy?
8 What are the customers’ ‘hot’ and ‘cold’
spots?
 Cont’d
• ‘Hot’ spots are those elements of the
marketing offer that the customer sees to be
particularly important and reassuring – and on
which the organization delivers. ‘Cold’ spots
are those elements that alienate the
customer. An example of this might be poor or
inconsistent service.
A stimulus–response model of buyer behaviour
 Cont’d
• The emergence of ‘new consumer’ represents
one of the biggest challenges for marketers.
• The new consumer is typically far more
demanding and far more discriminating than
consumers of the past, as well as being far less
brand loyal and much more willing to
complain.
 The new consumer and the youth market

• Young(er) consumers (particularly aged

between 4 and 19), as compared with other
customer groups, are typically:
Far more media literate
Infinitely more advertising literate
Much more brand literate, brand
sophisticated and brand discriminating
Far more technologically literate.
 Factors influencing consumer behaviour

• cultural
• social
• personal and
• psychological factors
 The significance of culture

• Cultural factors include culture, subculture and social

class.
• The culture of the society
• Culture is a set of symbols and artifacts created by a
society and handed down from generation to generation
as determinants and regulators of human behavior.
Human behaviour is very largely the result of our
socialization, initially within the family and then,
increasingly, within a series of other institutions such as
schools, friendship groups, clubs, and so on
• Culture is the accumulation of shared meanings, rituals,
norms, and traditions. Culture is a society’s personality
 Cont’d
• Subcultures are groups in a culture that
exhibit characteristic behavior patterns
sufficient to distinguish them form other
groups with in the same culture. These include
nationality groups, religious groups, racial
groups and geographical areas, all of which
exhibit degrees of difference in ethnic taste,
cultural preferences, taboos, attitudes and
lifestyle.
 Cont’d
• Social class is a ranking within a society determined
by the members of the society. It can be called as
social stratification Characteristics include:
1 People within a particular social class are more
similar than those from different social classes
2 Social class is determined by a series of variables,
such as occupation, income, education and values,
rather than by a single variable
3 Individuals can move from one social class to
another
 Social factors

• Social factors include reference groups, family,

social role and status.
• Reference groups can be divided into four
types:
1 Primary membership groups, which are
generally informal and to which individuals
belong and within which they interact. These
include family, neighbours, colleagues and
friends.
 Cont’d
2 Secondary membership groups, which tend to be
more formal than primary groups and within which
less interaction typically takes place. Included within
these are trade unions, religious groups and
professional societies.
3 Aspirational groups, to which an individual would
like to belong.
4 Dissociative groups, whose values and behaviour the
individual rejects.
Most directly influenced by reference group behaviour
are cars, drinks, clothing and cigarettes.
 Cont’d
• The marketing planner need to identify the
opinion leaders for each reference group. At
one time it was believed that opinion
leadership was limited primarily to prominent
figures within society, this is no longer seen to
be the case. Rather, it is recognized that an
individual may well be an opinion leader in
certain circumstances, but an opinion
follower in others.
 Family
• This includes both the family of orientation (parents,
brothers and sisters) and the family of procreation (spouse
and children).
• There are three patterns of decision-making within the
family and the sorts of product category. These are:
• 1 Husband-dominant – life insurance, cars and consumer
electronics
• 2 Wife-dominant – washing machines, carpets, kitchenware
and non-living-room furniture
• 3 Equal – living-room furniture, holidays, housing,
furnishings and entertainment.
 Social Roles and Status
• A role consists of activities that a person is expected
to perform according to the persons around him or
her.
• Each role carries the status reflecting the esteem
given to it by society. People often choose products
that show their status in society.
• The obvious implication for the marketing strategist
is to position products and brands in such a way that
they reinforce the messages suited to particular
individuals and groups.
 Personal influences on behaviour

• The third major category of influences upon

behaviour is made up of the buyer’s set of
personal characteristics, including age and
life-cycle stage, occupation, economic
circumstances, lifestyle and personality.
 Psychological influences

• The fourth and final set of influences upon

behaviour consists of the four principal
psychological factors – motivation,
perception, learning, and beliefs and
attitudes. The first of these, motivation, is in
many ways both the most important to
understand and the most complex to analyze.
 The Buying Decision Process

• The marketing strategist is then in a position

to examine the buying process itself. This
involves focusing on three distinct elements:
1 The buying roles within the decision-making unit.
2 The type of buying behavior.
3 The decision process.
 The five buying roles

• The decision of what to buy may involve

several people, and here we can identify five
distinct roles:
1 The initiator, who first suggests buying the
product or service
2 The influencer, whose comments affect the
decision made
 Cont’d
3 The decider, who ultimately makes all or part
of the buying decision
4 The buyer, who physically makes the purchase
5 The user(s), who consume(s) the product or
service.
Different types of buying behaviour
 Understanding the buying decision process

 The buying decision process consists of:

• Recognition of a problem
• The search for information
• Evaluation of the alternative
• The purchase decision
• Post-purchase behaviour
 Cont’d
• 1. Consumer’s recognition of a problem, or a
want. may emerge as the result of an internal
stimulus (hunger or thirst) or an external
stimulus in the form of an advertisement or a
colleague’s comment.
• 2. Search for information, which might be at
the level simply of a heightened awareness or
attention to advertising, or at the deeper level
of extensive information searching.
 Cont’d
In either case, the search process is likely to involve one or
more of four distinct sources:
1 Personal sources, such as family, friends, colleagues and
neighbors
2 Public sources, such as the mass media and consumer
organizations – a typical example would be the
Consumers’ Association’s Magazine
3 Commercial sources, such as advertising, sales staff and
brochures
4 Experimental sources, such as handling or trying the
product.
 Cont’d
• Purchase Evaluation – After consumers
develop an awareness, knowledge and
understanding of the various brands in the
market, this involves moving the product or
brand from the total set available, through to
the consumer’s awareness set and
consideration set to the choice set, from
which the consumer ultimately makes the
buying decision
The move from the consumer’s total set to
the choice set
Factors to be considered in buying
• Besides the cognitive element(rational basis),
the following factors need to be considered:
1 The product’s attributes, such as its price,
performance, quality and styling
2 Their relative importance to the consumer
3 The consumer’s perception of each brand’s
image
4 The consumer’s utility function for each of the
attributes
 Cont’d
Based on consumers’ perceptions, the strategist
can then begin modifying the product offer by:
1 Changing the physical product by adding
features (real repositioning)
2 Changing beliefs about the product by giving
greater emphasis to particular attributes
(psychological repositioning)
3 Changing beliefs about competitors’ products
by comparative advertising and ‘knocking
copy’ (competitive depositioning)
 Cont’d
4 Changing the relative importance of particular
attributes - reassuring consumers about
reliability and service backup, to a range of
additional uses
5 Emphasizing particular product features that
previously have been largely ignored
6 Changing buyers’ expectations.
The move from old to the new consumer
 Cont’d
In many markets, there are now three types of
customer:
• those who are price sensitive and concerned
about costs;
• those who are service sensitive and who focus
upon areas such as quality and delivery; and
• those who are commitment sensitive and look
for long-term relationships.
 Organizational buying behavior
Organizational buyers are those purchasing goods
and services for some tangibly productive and
commercially meaningful purpose.
Organizational buyers operate in:
• 1 Producer markets - are profit-making
businesses that purchase products and services
and use them to make other products. These
include raw materials, components, semi-
finished and finished goods manufacturers.
 Cont’d
• 2 Reseller markets - consist of distributors such as
wholesalers and retailers who buy finished goods for
resale.
• 3 Government markets - comprise national and local
governments seeking to provide the public with
education, water, energy, national defence, road systems
and health care.
• 4 Institutional markets - organizations that seek to
achieve charitable, educational, community or other
non-business goals that make up institutional markets.
They include churches, some hospitals, libraries,
museums, universities and charitable organizations
 Differences Between consumer and
Organizational buying Decisions
 Organizations generally buy goods and
services to satisfy a variety of goals such as
making profits, reducing costs, meeting
employees’ needs, and meeting social and
legal obligations.
 Organizational buying decisions involve a
greater number of people, especially when the
value of the purchase is particularly high.
 Cont’d
 The buyers must adhere to formal purchasing
policies, constraints and requirements.
 The buying instruments, such as requests for
quotations, proposals and purchase
contracts, add another dimension not
typically found in consumer buying.
The three types of buying decision
• The Straight rebuy - the most straightforward and
describes a buying situation where products are
reordered on a largely routine basis. E.g office
stationary
• The modified rebuy – often represents an extension of
the straight rebuy and occurs when the buyer wants to
modify the specification, price or delivery terms.
• The new task – is the most radical of the three, and
provides the marketing strategist with a series of
opportunities and challenges.
 Who is involved in the buying process?

• 1 Users of the product or service, who in many

cases initiate the buying process and help in
defining the purchase specifications
• 2 Influencers, who again help to define the
specification, but who also provide an input to the
process of evaluating the alternatives available
• 3 Deciders, who have the responsibility for
deciding on product requirements and suppliers
 Cont’d
• 4 Approvers, who give the authorization for the
proposals of deciders and buyers
• 5 Buyers, who have the formal authority for
selecting suppliers and negotiating purchase terms
• 6 Gatekeepers, who are able to stop sellers from
reaching individuals in the buying centre –these can
range from purchasing agents through to
receptionists and telephone switchboard operators.
Buying center roles on the basis
of functional units
• 1 Control units, which are responsible for the
policy-making which influences buying and
which imposes certain constraints
• 2 Information units, which provide
information relating to the purchase
• 3 The buying units, which consists of those
with formal responsibility for negotiating the
terms of the contract
 Cont’d
• 4 User units, consisting of anyone in the
organization who will be involved in using the
product or service
• 5 The decision-making unit, which consists of
those in the DMU who will make the decision
• it is only the control, information and decision-
making units that he believes are of any real
importance in influencing buying decisions.
 The principal influences on industrial buyers

• Webster and Wind’s model classifies the

influences on industrial buyers under four
headings:
• environmental,
• organizational,
• interpersonal and
• individual influences. The factors are shown
next page
 Stages in Organizational buying
Robinson et al. (1967) of the Marketing Science Institute identified
eight stages or buy-phases of the industrial buying process.
• problem recognition
• general need description
• product specification
• supplier’s search
• proposal solicitation
• supplier selection
• order-routine specification
• performance review.
The buy-grid model with the Three Types
of Buying situation
The buying risk continuum
Ways of Coping with Buying Risks
• Exchanging technical and other information
with their customers and prospects
• Dealing only with those suppliers with whom
the company has previously had favorable
experiences
• Applying strict (risk-reducing) decision rules
 Cont’d
• Dealing only with suppliers who have a long
established and favorable reputation
• The introduction of penalty clauses relating to,
for example, late delivery
• Multiple sourcing to reduce the degree of
dependence upon a single supplier.
 Other models of organizational buying

• The interaction approach, which places

emphasis upon the nature of the process and
relationships that develop both within and
between buying and selling organizations.
Relationships are often long term and based
on mutual trust rather than any formal
commitment
 Cont’d
• Based on the above model, other researchers
suggest that four elements influence the
patterns of buyer–seller interaction.
• 1 The interaction process
• 2 The participants in this process
• 3 The interaction environment
• 4 The atmosphere created by this interaction.
The interaction model of industrial marketing
and purchasing
The Growth of Relationship Marketing

• A major focal point for a considerable amount

of marketing thinking over the past 15 years
has been the notion of loyalty and how long-
term, cost-effective relationships might be
developed with customers.
• Marketing moves from transactions to
management of long(er)-term relationships
Transaction versus relationship marketing
 Cont’d
• The potential benefits are not just in terms of the higher
returns from repeat sales, but also in terms of the
opportunities for cross-selling, strategic partnerships and
alliances.
• The attractions of a loyal customer base can be seen in terms
of the greater scope for profit from four main areas:
• 1. The price premium that loyal customers are or may be
willing to pay
• 2. Customer referrals
• 3. A reduction in marketing costs
• 4. The value of a greater number of purchases.
 Relationship marketing myopia
Categorizing customers in terms of those who are:
• Relationship seekers– customers who want a close and long-
term relationship with suppliers
• Relationship exploiters– customers who will take every free
service and offer, but will still move their business elsewhere
when they feel like it
• Loyal buyers– those who will give long-term loyalty, but who
do not want a close relationship
• Arm’s-length, transaction buyers– those who avoid close
relationships and move business based on price, technical
specification or innovation
 B. Approaches to Competitors Analysis
As new consumers, a new type of competitor
appears to have emerged along with a different
type of competitive environment. This new
environment is characterized by:
• Generally higher levels and an increasing
intensity of competition
• New and more aggressive competitors who are
emerging with ever greater frequency
• Changing bases of competition as organizations
search ever harder for a competitive edge
 Cont’d
• The wider geographic sources of competition
• More frequent niche attacks
• More frequent and more strategic alliances are
necessary
• A quickening of the pace of innovation
• The need for stronger relationships and alliances
with customers and distributors
• An emphasis upon value-added strategies
• Ever more aggressive price competition
 Cont’d
• The difficulties of achieving long-term
differentiation
• The emergence of a greater number of ‘bad’
competitors (i.e. those not adhering to the
traditional and unspoken rules of competitive
behaviour within their industries).
 Cont’d
Advantages of, detailed competitive analysis:
• Providing an understanding of your competitive
advantage/disadvantage relative to your
competitors’ positions
• Helping in generating insights into competitors’
strategies – past, present and potential
• Giving an informed basis for developing future
strategies to sustain/establish advantages over
your competitors.
 Cont’d
Competitor analysis is not a luxury but a necessity in order to:
 Survive
 Handle slow growth
 Cope with change
 Exploit opportunities
 Uncover key factors
 Reinforce intuition
 Improve the quality of decisions
 Stay competitive
 Avoid surprises.
 Cont’d
In competitor analysis, strategist need to answer
five questions:
1 Against whom are we competing?
2 What strengths and weaknesses do they
possess?
3 What are their objectives?
4 What strategies are they pursuing and how
successful are they?
5 How are they likely to behave and, in particular,
how are they likely to react to offensive moves?
 1. Against whom are we competing?

This demands identifying present competitors

and new entrant. This includes the range of
actual and potential competitors faced by a
company
1. Competition consists only of those companies
offering a similar product or service to the
target market, utilizing a similar technology, and
exhibiting similar degrees of vertical integration.
 Cont’d
• 2 Competition consists of all companies operating
in the same product or service category.
• 3 Competition consists of all companies
manufacturing or supplying products that deliver
the same service
• 4 Competition consists of all companies
competing for the same spending power
• Besides, new entrant should be closely analyzed.
 Cont’d
• Taken together, these comments lead to two
distinct viewpoints of competition: the
industry point of view and the market point
of view.
The industry perspective of competition

• Here, an industry is seen to consist of firms

offering a product or class of products or
services that are close substitutes for one
another; a close substitute in these
circumstances is seen to be a product for
which there is a high cross-elasticity of
demand.
 Cont’d
• Economists have typically categorized an
industry in terms of five types based on the
number of sellers and their relative market
share:
• 1 An absolute monopoly
• 2 differentiated oligopoly
• 3 A pure oligopoly
• 4 Monopolistic competition
• 5 Pure competition,
 The market perspective of competition

• Focus on companies that try to satisfy the

same customer needs or that serve the same
customer groups
• The essence of the market perspective of
competition therefore involves giving full
recognition to the broader range of products
or services that are capable of satisfying
customers’ needs.
2. Identifying and evaluating competitors’
strengths and weaknesses
• The marketing planner should, as a first step,
concentrate upon collecting information under a number
of headings
• Sales
• Market share
• Cost and profit levels, and how they appear to be
changing over time
• Cash flows
• Return on investment
• Investment patterns
 Cont’d
• Production processes
• Levels of capacity utilization
• Organizational culture
• Products and the product portfolio
• Product quality
• The size and pattern of the customer base
• The levels of brand loyalty
• Dealers and distribution channels
 Cont’d
• Marketing and selling capabilities
• Operations and physical distribution
• Financial capabilities
• Management capabilities and attitudes to risk
• Human resources, their capability and flexibility
• Previous patterns of response
• Ownership patterns and, in the case of
divisionalized organizations, the expectations of
corporate management.
 Cont’d
The signs of competitive strength in a company’s
position are likely to be:
• Important core competences
• Strong market share (or a leading market share)
• A pace-setting or distinctive strategy
• Growing customer base and customer loyalty
• Above-average market visibility
• Being in a favorably situated strategic group
 Cont’d
• Concentrating on fastest-growing market segments
• Strongly differentiated products
• Cost advantages
• Above-average profit margins
• Above-average technological and innovational
capability
• A creative, entrepreneurially alert management
• In a position to capitalize on opportunities
 Sources of Information
• The sources of this information will obviously
vary from industry to industry, but will include
most frequently the sales force, trade shows,
industry experts, the trade press,
distributors, suppliers and, perhaps most
importantly, customers. It can also be gained
by conducting primary market research.
 Competitive product portfolios
• In many cases, one of the most useful
methods of gaining an insight into a
competitor’s strengths, weaknesses and
general level of capability is by means of
portfolio analysis.
• The techniques of portfolios analysis
developed by Boston Consulting Group is
shown next page
Boston Consulting Groups Matrix
 Cont’d
• The marketing strategist should not of course
limit competitive analysis just to a series of
marketing factors, but should also focus upon
other areas, including financial and
production measures.
3. Evaluating competitive relationships
and analyzing how organizations compete
Five types of relationship can develop between an
organization and its competitors:
• 1 Conflict, where the firm sets out to destroy,
damage or force the competitor out of the market.
• 2 Competition, where two or more firms are trying
to achieve the same goals and penetrate the same
markets with broadly similar product offers.
• 3 Coexistence, where the various players act
largely independently of others in the market.
 Cont’d
• 4 Cooperation, where one or more firms work
together to achieve interdependent goals.
Typically, this is done on the basis of exchanging
information, licensing arrangements, joint
ventures and through trade associations.
• 5 Collusion, which, although typically illegal, has
as its purpose that of damaging another
organization or, more frequently, ensuring that
profit margins and the status quo are maintained.
 Cont’d
• Given this, any analysis of how firms compete
falls into four parts:
• 1 What is each competitor’s current strategy?
• 2 How are competitors performing?
• 3 What are their strengths and weaknesses?
• 4 What can we expect from each competitor
in the future?
 Cont’d
Other factors that need to be borne in mind include:
• Patterns of investment in plant
• Links with other competitors
• Patterns of advertising expenditure
• Relative cost positions
• Major changes in the senior management
structure, but particularly the appointment of a
new chief executive who might act as an agent for
change.
 4. Identifying competitors’ objectives

• These objectives might typically include cash

flow, technological leadership, market share
growth, service leadership or overall market
leadership. Gaining an insight into this mix of
objectives allows the strategist to arrive at
tentative conclusions regarding how a
competitor will respond to a competitive
thrust.
 Cont’d
• In a general sense, however, company
objectives are influenced by a wide variety of
factors, but particularly the organization’s
size, history, culture and the breadth of the
operating base.
 Cont’d
• The marketing strategist should give explicit
consideration to the relative importance of each
market to a competitor in order to understand
the probable level of commitment that exists.
This level of commitment is influenced by:
• 1 The proportion of company profits that this
market sector generates
• 2 The managerial perceptions of the market’s
growth opportunities
 Cont’d
• 3 The levels of profitability that exist currently
and that are expected to exist in the future
• 4 Any interrelationships between this and any
other product or market sector in which the
organization operates
• 5 Managerial cultures – in some companies, for
example, any threat will be responded to
aggressively almost irrespective of whether it is
cost-effective.
 5. Identifying competitors’ likely response profiles

• The issue of how a competitor is likely to

behave in the future has two components.
Firstly, how is a competitor likely to respond to
the general changes taking place in the
external environment and, in particular, in the
marketplace? Secondly, how is that
competitor likely to respond to specific
competitive moves that we, or indeed any
other company, might make?
 Cont’d
• The four most common competitor’s probable reaction profile
are:
• 1 The relaxed competitor, who either fails to react or reacts
only slowly to competitive moves.
• 2 The tiger competitor, who responds quickly and aggressively
• 3 The selective competitor, who chooses carefully and often
very strategically – how, where and with what level of
aggression they will respond to any competitive move
• 4 The unpredictable competitor, for whom it proves difficult
or impossible to identify in advance how- or, indeed, if – they
will respond to any particular move
Competitor analysis and the development of
strategy
The competitive intelligence system
In establishing such a system, there are five principal steps:
1 Setting up the system, deciding what information is
needed and, very importantly, who will use the outputs
from the system and how
2 Collecting the data
3 Analyzing and evaluating the data
4 Disseminating the conclusions
5 Incorporating these conclusions into the subsequent
strategy and plan, and feeding back the results so that the
information system can be developed further.
 Cont’d
• The mechanics of an effective CIS are in
many ways straightforward and involve
selecting the key competitors to evaluate
• Being absolutely clear about what
information is needed, how it will be
used and by whom.
• Selecting and briefing those responsible
for collecting the information.
 Cont’d
• Allocating the appropriate level of resource to
the collection and evaluation processes.
• Publishing regular tactical and strategic
reports on competition.
• Ensuring that the outputs from the process
are an integral part of the planning and
strategy development processes rather than a
series of reports that are rarely used.