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Summary - ALL Knowledge Clips - Marketing strategy (E_MKT_MSTRAT)
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Marke&ng Strategy – Knowledge ClipsWEEK 2
The Playing Field
• What do you need to do to elicit where you want to compete?
o Find the relevant market and segment it.
• What is the relevant market? Who determines the relevant market?
o The relevant market: the arena in which you compete with your SBU (SBU
rather than company or product)
o Who decides on this? The customer and the company. Customer decides
(subjec&ve) subs&tutability. & The company decides where to cut it of about
who to include and who not.
• Against whom does Amazon compete?
o Wide market (retail/webservice/cloud services/MicrosoP) Amazon is not 1 SBU
– competes with a lot of different types of markets.
o It depends do they online compete to online retailers or also offline? Probably
both. Depends on how narrow or wide they define their market.
• What is the point of market segmenta&on?
o If customer needs were homogenous than we would not need segmenta&on (if
everybody had the same needs) but the market is heterogenous (customers
have different needs and wants) so companies need to fulfill different needs.
Summary of video
(1) The Playing Field I
Study goals
- Learn what a company’s playing field or relevant market is.
- Understand that the relevant market does not fall from the sky, but needs to be
chosen.
- Learn how to segment the relevant market to find a suitable target group.
Overview of strategic marke&ng decisions
1. Where do you compete (where is your relevant market)
2. What do you compete on (what do you have that compe&tors don’t have).
3. The rules of the game regarding where to compete and the behavior of the players.
This is the core of marke&ng strategy.
,The Playing Field:
Structure strategic analysis into 2 steps:
1. Defini&on of the relevant market and market segmenta&on.
2. Division of this market into several segments
a. If necessary, of course: but mostly it is because markets are heterogeneous and
a one-size-fits all solu&on oPen does not get you far.
è APer that you have the two different dimensions of market segmenta&on.
Pick what you are good at
The thing is that the two decisions. Where am I going to compete? And what am I going to
compete on? Are not independent of each other. The ques&on about your arena. The playing
field is informed by what you do. The playing field is formed by what you do. Would you
choose to compete in a discipline, you know you don’t stand a chance in?
Example:
Gold medal winner in decathlon. Choose this sport, and not jumping/discuss. He was good at
different disciplines but not really in those. So he would probably not have earned a gold
medal in one of these sports (others would just have been beter). So he chose to compete in
the field of decathlon and became the best in this market.
è Sports can teach business. Because there are different disciplines like there are different
markets in business, and what you offer may poten&ally fit several of these markets. But
you have to choose to a certain degree at least where you want to compete.
è General take away: The market you compete on is not set in stone. You have a choice, and
you should choose your playing field wisely. How?
Where to compete?
Mister spex -> had to find the right market.
,How to define your relevant market
Railway: though they were monopoly - they had no compe&tors. But it showed that all
transporta&on services might be compe&tors: If you can’t take the train you go by car.
è A narrow relevant market could make you neglect compe&tors.
Sony: Wide market: Defined their business as the ‘happiness business’ instead of ‘electronics
business’. Therefore, compe&ng with all things that make people happy.
Same for Neflix now adays: Neflix does not see itself only compe&ng to amazon but its ceo
has stated that free TV, gaming, sleep are all compe&tors that Neflix is up against -> they see
this as their relevant market.
Why is this important?
Because depending on how narrow or wide, you define your relevant market, you need to
track compe&&on, react to developments, target poten&al customers and so on. So all of
these ac&ons, and in fact, your strategic posi&oning in the market, depends on this decision.
So which way of looking at it is right? Narrow or Wide? How should you think about your
relevant market?
Example: 911 Porsche
Where does it compete? Against all luxury sports cars?
- Expensive sports car -> so will compete with expensive sports cars.
- But if we just look at the price and quality level, we could also think that it might not
be only sportscars that compete, but also other luxury cars in the same price category.
- What about cars in general? The 911 gets you from a to b, but so does a train, bike or
plane -> means of transporta&on.
- Is the price the relevant dimension to determine compe&&on? If this were so, maybe
the 911 competes against other luxury goods like watches, yachts.
So are these the compe&tors of 911? Are they part of its relevant market? What is the playing
field:
This ques&on is not as easily answered as in sports, as sports has different disciplines that are
clearly defined. The right answer for defining the relevant market depends on 2 things:
1. Subs&tutability between products
a. In case of the 911, subs&tutability between the Porsche and all other products.
-> out of the firms hands, it depends on what the customers deem
subs&tutable.
2. Where you as the company make the cut, that defines whether a product or service is
s&ll part of your relevant market based on the subs&tutability of your offering. ->
important decision -> because determines who you view as close compe&tors.
, Explana&on:
1. Subjec&ve subs&tutability between products:
a. Do you buy a 911, or do you buy product X? -> Everything you trade off for the
Porsche is what is subs&tutable.
b. It’s a subjec&ve decision -> very different for each consumer. And totally
defined by the customers (no influence of company)
How to measure subs&tutability?
- Ask consumers to look at product features and price ranges, talking to experts or
calcula&ng cross price elas&ci&es -> try to get a measure of subs&tutability between
offerings.
o For example: People looking to buy a 911, are looking for a lightweight fast
sportscar, not a tank. So that can be part of your relevant market.
2. Where do you make the cut?
- What par&es do you view as compe&tors?
a. Do you view the luxury goods as compe&tors? Or do you view all transporta&on
methods as compe&tors?
b. This decision is really important because, you need to watch your compe&tors.
How they act, how they behave.
- This is a strategic marke&ng decision, because whoever you consider as part of your
relevant market, you need to watch your compe&tors closely and measure up against
them.
So how narrow or wide you define your relevant market, has severe consequences:
- Every company can make their own decision about where to make the cut.
Key takeaway:
The relevant market is defined by two aspects, the subjec&ve subs&tutability between
products which is determined by the poten&al customers. And the decision where to cut off,
which is determined by the company itself.
Approaches to define the relevant market:
Subs&tu&on gap:
- Try to find out which companies can together increase prices a likle bit without an
influence on demand for their products.
o If demand changes then customers obviously have alterna&ve and go buy
something else aPer price increase at these companies. If this is not the case,
consumers seem to only find these companies product subs&tutable and have
no alterna&ve.
Demand Based Approaches all circle around the idea of subs&tutability and measuring it
from the consumers perspec&ve. What products fulfill the same needs for customers -> this is
what they find subs&tutable.
Supply Based Approaches offer another perspec&ve. They try to objec&fy the measurement
by trying to find similari&es and products or company’s relevant market. If a certain product
has similar features/produc&on process/materials as yours, they might be part of the same
relevant market.
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