Spectrum of Competition and Niche Markets

Shoaib Ul-Haq LUMS

FIGURE 7-1 The Spectrum of Competition

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.

Sources of innovation in mature industries

Reconfiguring the value chain:
- Benetton and Zara in clothing - Southwest & Ryanair in airlines - Dell in PCs - Starbucks in coffee shops - Barnes & Noble in book retailing

Redefining markets and products - Swatch in watches Innovative approaches to

differentiation
- Virgin Atlantic in air travel - Sephora in cosmetics retailing

Who are the strategic innovators?

New entrants

Existing firms on the periphery Firms from adjacent industries

- CNN in news broadcasting - Nucor in the U.S. steel industry -Sun Records in rock n roll music - Apple in consumer electronics

Why not leading incumbents? They are constrained by industry recipes, relationships with existing customers, investments in resources & capabilities linked to past strategies.

Strategy options in declining industries

LEADERSHIP Establish dominant market position -encourage exit of rivals -buy market share through acquisition -acquire capacity -demonstrate commitment -dispel optimism about the industrys future -raise the stakes Identify an attractive segment and dominate it. Maximize cash flow from existing sources Get out while there is still a market for industry assets

NICHE HARVEST DIVEST

Characteristics of a NICHE
Low volume of sales High unit costs Therefore high prices (Highly) Differentiated products Targeted promotion

An ideal niche is
Large enough to be profitable Sufficiently differentiated Small enough to avoid the attention of the big boys. We have the competence to take advantage of the opportunities offered. Can build up goodwill, to keep customers

Advantages
Less direct competition Clear focus Builds up specialist skills/knowledge Cheaper to set up Able to charge premium prices Build up strong brand image/loyalty

Disadvantages
Lack of Economies of Scale Dependent on a small market If successful, will attract competition Small numbers make vulnerable to changes in consumer spending (as does premium pricing)

Description of Consumer Preferences

Consumer Preferences tell us how the consumer would rank any two basket of goods, assuming these allotments were available to the consumer at no cost. baskets or bundles is a collection of goods or services that an individual might consume.

Figure 4.10: Indifference Curves and Consumer Tastes

4-10

Consumer preferences

FIGURE 7-2 Consumer Preference for Cereal Crunchiness

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.

Mapping consumer tastes

FIGURE 7-3 Location of Cereal Brands

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.

Perceptual map - Auto

FIGURE 7-4 Mapping the U.S. Automotive Market

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.

Horizontal and vertical product differentiation

Horizontal product differentiation: two products are differentiated horizontally if, when they are offered at the same price consumers do not agree on which is the preferred product.
Example: pine washing-up liquid and lemon-washing up liquid Soft-drinks, shampoos

Vertical product differentiation: two products are differentiated vertically if, when they are offered at the same price consumers agree on which is the preferred product.
Example: washing-up liquid with and without product moisturizing add-up.

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FIGURE 7A-1 Monopoly Firm

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.

FIGURE 7A-2 Competitive Firm

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.

FIGURE 7A-3 The Market for Cheerios When It Faces No Nearby Competitors

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.

FIGURE 7A-4 Effects of Differentiation on Sales

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.

FIGURE 7A-5 Cheerios Monopoly Charging a Price = p

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.

FIGURE 7A-6 Cheerios Charges Price = p When Its Competitors Charge Price = 0

Saloner, Shepard, Podolny: Strategic Management 2001, John Wiley & Sons, Inc.