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STUDY GUIDE FOR MODULE NO. 3

Competitor Analysis
MODULE OVERVIEW

Competitor analysis is a critical part of a firm’s activities. It is an assessment of the strengths and
weaknesses of current and potential competitors, which may encompass firms not only in their own
sectors but also in other sectors. Directly or indirectly, competitor analysis is a driver of a firm’s
strategy and impacts on how firms act or react in their sectors. Gluck, Kaufman and Walleck (2000)
showed that competitor analysis is one of two components that give a firm a strong market
understanding. This drives the formulation of a strategy and it applies whether a firm formulates a
strategy through strategic thinking, formal strategic planning, or opportunistic strategic decision
making. Competitor analysis, together with an understanding of major environmental trends, is a
key input in strategy formulation and should be developed properly.

MODULE LEARNING OBJECTIVES

At the end of this module, you should have:

1. Explain the main aspects and limitations of Competitor Analysis

2. Assesses Competitors Objectives and Competitors Current Strategies
3. Identify the differential advantage analysis
4. Explain the Customer Analysis Purpose
5. Discuss the Customer Segmentation
6. Illustrate the Criteria for Customer Segmentation

LEARNING CONTENTS (Competitor Analysis)

Competitor analysis in marketing is an assessment of the strengths and weaknesses of

current
and potential competitors. This analysis provides both an offensive and defensive strategic
context through which to identify opportunities and threats. Competitor profiling combines all
of the relevant sources of competitor analysis into one framework in the support of efficient and
effective strategy formulation, implementation, monitoring and adjustment. Given that competitor
analysis is an essential component of corporate strategy, it is argued that most firms do not conduct
this type of analysis systematically enough. Instead, many enterprises operate on what is called
“informal impressions, conjectures, and intuition gained through the tidbits of information
about competitors every manager continually receives.” As a result, traditional environmental
scanning places many firms at risk of dangerous competitive blind spots due to a lack of robust
competitor analysis.

Sources of Information

The sources of competitor information can be neatly grouped into three categories:

1. Recorded data
2. Observable data
3. Opportunistic data

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Recorded Data
This is easily available in published form either internally or externally. Good examples include
competitor annual reports and product brochures.

Observable Data
This has to be actively sought and often assembled from several sources. A good example is
competitor pricing.

Opportunistic Data
To get hold of this kind of data requires a lot of planning and organization. Much of it is
“anecdotal”, coming from discussions with suppliers, customers and, perhaps, previous
management of competitors.

Possible sources of competitor data using Davidson’s categorization are mentioned in the
following table:

To gather the information about your competition that you need for the competitive analysis.

You need to know:

1. What markets or market segments your competitors serve;

2. What benefits your competition offers;
3. Why customers buy from them;
4. And as much as possible about their products and/or services, pricing, and promotion.

There are good sources of information existing already in order to do a good competitor analysis.
Possibly up to approximately 90% of the information needed for a proper competitor analysis
and related assessment and decisions already exists in the public domain. The information can
be organized across a number of different groupings.

Some examples of these are shown below:

1. Company reports: annual reports, regulatory filings (e.g. financials), investor presentations,
patent applications
2. Company advertisements: TV and print advertisements, sales literature, company website,
product literature
3. Company news: press releases, general news articles
4. External reports: equity/analyst reports (for public companies), ratings agencies reports
(for credit-rated companies), industry associations, government publications

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5. External, but common, network: buyers and suppliers, third-party affiliates, industry
experts.

LEARNING ACTIVITY 1

Task: Answer the question

Before launching a new product in the market, what is the responsibility of organization?

LEARNING CONTENTS (Main Aspects of Competitor Analysis)

The key objectives in competitor analysis are to advance a greater understanding of what
competitors have in place in terms of resources and capabilities, what they plan to do in
businesses, and how the competitors may react to various situations in reaction to what the firm
does. Michael Porter has defined a competitor analysis framework that focused on four key
aspects (Porter, 1980 cited in netmba.com): competitor’s objectives, competitor’s assumptions,
competitor’s strategy, and competitor’s resources and capabilities. These four aspects of
competitor analysis are the areas critical for a firm to understand and they should pursue this
knowledge not only for current competitors but also for other potential competitors in the business.

There are other competitor analysis frameworks that firms can utilize.

Example: International competitor analysis framework presented by Garsombke (1989)

but the foundations follow Porter’s framework with additional components relating to the
understanding of the “international” marketplace.

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Others focus on specific components and thus become a subset of the framework. For example,
Slater and Narver (1994) looked at this through the value to customers and identified three
components in the analysis: customer orientation, competitor focus and cross-functional
coordination.

Rather than compare various competitor analysis frameworks, the focus from hereon is Porter’s
framework (see Figure 3.1) for competitor analysis.

This framework is broken into two parts.

The competitor’s objectives and assumptions drive the competitor while the competitor’s
strategy and resources and capabilities define what the competitor is doing or is capable of
doing.

Together, these four aspects define a competitor response profile which gives the firm an
understanding of what action competitor may take. Taking this analysis across a firm’s key
competitors will give the firm a vantage point on where the sector is heading, and provides the firm
with a basis for developing their strategy and actions. The key facets of competitor analysis
and the resulting competitor response profile are defined further below.

LEARNING CONTENTS (Competitor’s Objectives and Assumptions)

In competitor analysis there are two key factors to note in building knowledge of a competitor’s
objectives. The first factor is to know the actual objectives of a competitor. This could range from
building market share in a specific market or overall business, entering a new market or even
just maintaining profitability. This should also look at not only current competitors but also

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potential competitors.

Example: We can look at is Apple which recently launched its iPhone product. Knowing
the innovation in Apple, one could sense that the eventual goal of Apple would be to have a
product that combines the iPhone capabilities and the iPod features, or have an iPhone with
other capabilities such as a global positioning system. With the recent success of Apple in
various markets, there would be no doubt that Apple would be able to achieve this.

Some of the questions to ask for the competitor’s strategic objectives are:
1. What are the short-term and long-term objectives?
2. What are the financial objectives?
3. Where is the competitor investing?

Competitor’s Assumptions

Another key aspect in competitor analysis is an understanding of competitors’ assumptions

about the overall market (trends in the market, products, and consumers).

Example: Competitors could define their actions based on what their assumptions are
on the growth of the market.
Federal Express is a good example to highlight. When FedEx considered overnight delivery,
they assumed that demand would reach high levels and that it would change the mail-and package
delivery industry. FedEx turned out to be correct and this changed the industry with other
competitors following suit to offer the same service. In this example, FedEx made a strong
assumption on the industry behavior and was able to establish a presence in overnight delivery
quickly.

Some questions to address for this aspect include:

1. What is the competitor’s viewpoint on the market and development?
2. Who are the key consumers or clients who the competitor feels will be most profitable?

LEARNING CONTENTS (Competitor’s Strategy)

A third aspect in competitor analysis is the understanding of a competitor’s strategy. In most

cases, this strategy will be defined and stated, particularly for public firms. In other cases, it may
not be openly stated what competitors’ strategies are but these can be understood by utilizing a
number of sources available to firms from analyzing a competitor’s behavior in certain situations
to discussing with industry experts to get their viewpoints.

Example

1. Southwest Airlines, which pursued a “no-frills (economy), point-to-point service and which
turned out to be a highly innovative, industry-changing and value-creating strategy”.

This example indicates the value of having an understanding of competitors’ strategies

and their focus.

A number of questions that need to be addressed are:

1. What are the strategy and plans of competitors in their key markets?
2. Which markets and products will the competitor focus on?

LEARNING CONTENTS (Competitor’s Resources and Capabilities)

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Finally, a competitor analysis should also include an understanding of a competitor’s resources and
capabilities as these would give a firm an idea of how a competitor can achieve its strategy and
objectives, and also give a firm a timeline for when it would expect competitors to pursue certain
activities. For this aspect, a large part of information can be gleaned from press articles and news.

Examples:

1. The increase in orders of the Airbus A380, the largest commercial aircraft in the world, by
Dubai-based Emirates Airlines from the current 55 to double the number. This indicates
several thoughts: (1) Emirates Airlines has large funding capability, and (2) Emirates
Airlines will be expanding its international business and presence once these aircraft are
received.

2. Lanier Business Products. A leading manufacturer of dictating machines, the firm leveraged its
marketing strength to successfully expand into another product, word processors, which they
sourced from another firm (Bales et al., 2000). This shows how important it is to understand a
competitor’s resources and capabilities, and their strengths.

Several questions that can be raised in this respect are:

1. What is the level of resources available to the competitor for their investments?
2. What are the areas of strength for the competitor?

LEARNING CONTENTS (Limitations of Customer Analysis)

The limitations of competitor analysis are linked to the information gathered from various sources
and the interpretation of the information. Likewise, with the exclusion of a few information sources
(e.g. patent applications, forecast financial statements), most of the other printed information shows
historical information and may not necessarily give a good indication of a competitor going forward.
This is particularly the case if there are a lot of structural changes happening in a sector and all
players are expected to have dynamic strategies to capture their market.

Assessing Competitor’s Objectives

The company has to make efforts understand what drives each competitor’s behavior. Normal
microeconomic assumption is that every firm attempts to maximize their profits. However, in
actual practice, companies differ in the weights they put on short-term versus long-term. Hence,
each firm pursues a mix of objectives, current profitability, market share growth, cash flow,
technological leadership, service leadership, etc. with different weights attached to them.
A critical step in a competitor analysis is to assess what the current objectives are for the major
competitor products. An assessment of current objectives provides valuable information
concerning the intended aggressiveness of the competitors in the market in the future. It also
provides a context for assessing the capabilities of competitors, i.e., does firm marketing brand
A have the resources to successfully pursue such an objective?
When discussing objectives, it is important to define them precisely for many different types of
objectives exist. In the context of marketing planning, three basic business objectives can be
identified.

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1. Growth Objective: A growth objective usually implies increasing unit sales or market
share, with profit conditions being secondary.

2. Hold Objective: The hold objective could also be termed a consolidation objective. A hold
scenario might be logical for a brand that is losing market share in that a reasonable first
step in reversing its fortunes is to stop the slide. (to fight back: lower prices,
greater marketing efforts, and innovation)

3. Harvest Objective: Finally, a harvest objective, also referred to as milking, describes a

situation in which profit is dominant relative to market share. At the corporate level,
return on investment or other, more aggregate statistics becomes more relevant. (harvest
strategy involves reducing spending on an established product in order to maximize profits)

Competitor’s Current Strategies

Resourceful competitors revise their strategy through time. Companies have to monitor the
strategies of companies that fall in their strategic group more closely.
A group of firms following the same strategy in a given target market is called a strategic group.
A company needs to identify the strategic grouping in which it competes. It has to monitor
efforts of even potential new entrants into this strategic group. Also, it has to monitor efforts of
companies in adjoining strategic groups.

The two elements of a strategy are the segments it appeals to and the core strategy.

For industrial products, both can be easily determined by examining three sources of information:
product sales literature, the company’s own sales force, and trade advertising. The former provides
information about the core strategy because brochures usually detail the point of difference the
competitor wants to emphasize. Even if the sales literature does not present a product features
chart, it should indicate the brand’s major strengths. Physical brochures are not often needed
today; most industrial firms website provides a wealth of technical and positioning information
that help to determine the core strategy. A firm’s own sales force can provide some data concerning
targeted companies or industries, much of it resulting from informal contacts, trade show
discussions, and the like.
Finally, differential advantage being touted. One can determine the differential advantage directly
from the ad copy and the target segments at least partially by the location (publication) in which the
ad appears.
For consumer goods or other products targeted toward a large audience, simply tracking
competition’s ads, either yourself or by using one of the services provides most of the necessary
information. Television ads can be examined for their messages and for the programs in which they
they appear. TV advertising is quite useful for determining the core strategy because the nature
of the medium prohibits communicating all but the most important message. Similarly, print
advertising can provide equivalent information, but with greater elaboration of the core strategy.

Example:

Consider the copy for a print as in Forbes for Rolex watches, shown in Figure 3.2. From data
obtained from Mediamark Research’s Magazine Total Audiences Report, Spring 2003, we know
that 73.8 percent of the readers are 18 to 49 years old, 38.8 percent have household income over
$75,000, and 83.3 percent either attended or graduated from college. It is probably not a surprise
that readers are businesspeople with high incomes. Looking at the copy itself, the ad copy says
nothing about the physical characteristics if the watch, only the people who wear them: people in
leadership positions.

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Information about implementing current strategies is also easily found. Pricing information can be
obtained from basic market observation: Distributors, salespeople, customers, advertising agencies,
or even firm’s own employees acting as customers on their own behalf can be the sources of pricing
data. Promotion, distribution, and product information can be obtained from similar sources. In other
words, as in determining competitors’ objectives, it takes market sensitivity rather than sophisticated
management information systems to assess much of the competitive activity.

Both customer and stakeholders get special mailing and information that make strategy assessment
easier. Furthermore, personal use of competitors products often gives one a feeling for them that
does not come through even the best-prepared research. Thus, policies that forbid or discourage
the use of competitive products are usually foolish.

LEARNING ACTIVITY 2

Your task is to explain the

relationship between an organization
and customers.

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Differential Advantage Analysis

Several frameworks have been proposed to indicate what information to collect about
competitors. A useful way to examine competitor capabilities is to divide the necessary
information into five categories that include the competitor abilities to conceive and design, to
produce, to market, to finance, and to manage. You might need information from both the
corporate parent which is important in determining the amount of money that could support a
specific product.

Examples of Competitor Information to Collect:

Ability to Conceive and Design

This category measures the quality of competitors new product development efforts. Clearly a
firm with the ability to develop new products is a serious long-term threat in a product category.
The use of such procedures as total quality management or six sigma generally improves product
design capabilities. (Six sigma- a set of management techniques intended to improve
business processes by greatly reducing the probability that an error or defect will occur.
"the company has long used Six Sigma to analyze its manufacturing processes")

(a) Technical Resources

Concepts, Patents and copyrights, Technological sophistication, Technical integration

(b) Human Resources

Key people and skills, Use of external technical groups

(c) R&D Funding

Total, Percentage of sales, Consistency over time, Internally generated, Government
supplied

(d) Technological Strategy

Specialization, Competence, Source of capability, Timing: initiate versus imitate

(e) Management processes

TQM, (a system of management based on the principle that every staff member must
be committed to maintaining high standards of work in every aspect of a company's
operations), House of Quality

Ability to Produce

This category concerns the production capabilities of the firm. For a service firm, it is the ability
to deliver the service. A firm operating at capacity to produce a product is not as much of a threat
to increase sales or share in the short run as is a firm that has slack capacity, assuming a
substantial period of time is required to bring new capacity online. Product quality issues are
important here.

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Ability to Produce

(a) Physical Resources

Capacity, Plant (Size, Location, Age) Equipment (Automation, Maintenance, Flexibility)
Processes (Uniqueness, Flexibility)

(b) Human Resources

Key people and skills, Workforce (Skill mix, Union)

(c) Suppliers
Capacity, Quality, Commitment

Ability to Market

How aggressive, inventive and so on are the firms in marketing their products? Do they have
assess to distribution channels? A competitor could have strong product development capabilities
and slack capacity but be ineffective at marketing.

(a) Sales force (Skills, Type, Location) The division of a business that's responsible for selling
products or services.

(b) Distribution Network (Skills, Type) ( It is an intermediate point to get products from the
manufacturer to the end customer, either directly or through a retail network.)

(c) Service and Sales Policies (are formulated to help companies generate direction to best
serve customers)

(d) Advertising (Skills, Type)

(e) Human Resources (Key people and skills, Turnover)

(f) Funding (Total, Consistency over time, Percentage, Reward system)

Ability to Finance

Limited financial resources hamper effective competition.

(a) Long-term (Debt/equity ratio, Cost of debt)

(b) Short-term (Cash or equivalent, Line of credit, Cost of debt)
(c) Liquidity (how quickly a business can convert its assets into cash.)
(d) Cash flow (Days of receivables, Inventory turnover, Accounting practices
(e) Human Resources (Key people and skills, Turnover)
(f) Systems (Budgeting, Forecasting, Controlling)

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Example: When Procter and Gamble announced in 2001 that it was selling its Jif peanut butter and
Folgers coffee brands, competitors took notice. While financial ratios are key pieces of information,
how the competitor allocates its resources among products is also critical.

Ability to Manage

In the mid-1980s, Procter and Gamble replaced the manager of its U.S. coffee business with the
coffee general manager from the United Kingdom. This new manager has a reputation for
developing new products in a 15-month period.

(a) Key people (Objectives and priorities, Values, Reward systems)

(b) Decision making (Location, Type, Speed)
(c) Planning (Type, Emphasis, Time span)
(d) Staffing (Longevity and turnover, Experience, Replacement policies)
(e) Organization (Centralization, Functions, Use of staff)

LEARNING CONTENTS (Customer Analysis Purpose)

)

Customer analysis is an activity that is or should be performed by organizations. The Customer

Analysis section of the business plan assesses the customer segments that the company serves. In
it, the company must:

1. Identify its target customers

2. Convey the needs of these customers
3. Show how its products and services satisfy these needs.

LEARNING ACTIVITY 3

Your task is to explain why most of the organizations give more emphasis on segmentation of
customer with their needs? Discuss.

LEARNING CONTENTS (Customer Segmentation)

)

Customer segmentation is the practice of dividing a customer base into groups of individuals
that are similar in specific ways relevant to marketing, such as age, gender, interests, spending
habits, and so on. Using segmentation allows companies to target groups effectively, and allocate
marketing resources to best effect.

Customer segmentation procedures include: deciding what data will be collected and how it
will be gathered; collecting data and integrating data from various sources; developing methods
of data analysis for segmentation; establishing effective communication among relevant business
units (such as marketing and customer service) about the segmentation; and implementing
applications to effectively deal with the data and respond to the information it provides.

Customer segmentation means analyzing our customers and identifying groups of individuals
with similar requirements, preferences or competencies. This helps us to tailor our services to
ensure that we are inclusive and meet the requirements of all of our customers. Understanding
more about our customers helps us to design and deliver appropriate clusters of services in

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ways that are most convenient for different groups. It can also help us to deliver services in more
effective and efficient ways.

Example: We will be able to target our marketing and communications activities more
effectively.

Customer segmentation and associated provision of service will be driven through the council’s
work on equalities. One of the aims of the Corporate Equality Plan is:

“We are committed to addressing disadvantage and discrimination to ensure that all communities
are able to access our services and employment opportunities and be involved in what we do.”
We can easily identify certain segments of customers who may have specific requirements, and
these can then be sub-divided into further segments.

Customer segments could include:

1. Different age groups – e.g. children, 16-24 year olds, elderly, etc.
2. Gender
3. People with a disability
4. People from black or minority ethnic backgrounds
5. People with children
6. People who do not speak English
7. People with basic skills requirements
8. Community groups
9. Businesses

Criteria for Customer Segmentation

The criteria of customer segmentation depend on the market segmentation. Markets are such a
heterogeneous place that unless we get to understand each part of it we remain ignorant of the
market. There are people buying Mercedes cars and in the market, people are also buying low cost
bicycles as a means of transportation. Marketers of Mercedes communicate with the rich elitist class
to sell their product. These people reside in certain section of the town; visit one club or the other
and read a few business magazines like Business India, Business Today and India Today. The
cycle buyers go to cinema halls for low cost entertainment. Cycle sellers can show film advertising
clips and slides to communicate to the segment. Both elite class and lower class persons would get
the right message without too much clutter and in a language understood by them. Therefore,
market segmentation helps both, namely the buyers and sellers.

Market segmentation is done on the following lines:

1. Geographic factors
2. Demographic factors
3. Psychological factors
4. Socio-cultural factors
5. Use related
6. Benefit segment
7. Combination of some of the abovementioned factors.

Geographic Segment

Geographic segment is for the region like south northwest and east of the country. Each region
has its own peculiarities in customer needs and therefore consumer behavior too is different
for each. In each region there are Metro large areas, large cities and smaller towns, besides

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villages. Urban, semi-urban and rural divide provides a market segment.

Demographic Segment

Demographic segment is by age, sex, marital status, income, education and occupation. Age
segment is important as with growing population of senior citizens and a large teenage group,
product needs for these segments are increasing. Health care products and vacation time products
are needed for elder citizens. Teens need coffee bars, discos and video game parlors.

Income separates people in their buying pattern and product groups. Marketers can decide to
cater to one income group or the other, make products needed by them and then advertise in the
media those that are most seen and read. Low cost readymade garments for low-income segment
can be advertised best on radio and local language press. Likewise, Rolex watches for the rich
segment can be advertised in business magazines and TV channels such as Star Plus.

Male and female customers have some specific products for each, like shaving creams for men
and lipstick for women. With age the use of cosmetics change for women and marketers can
make use of this change by offering products of their need. Young girls need cosmetics to enjoy
mutual attraction with boys and for flirtation. Married women use cosmetics to keep their
husbands happy and senior ladies use them to feel young.

Psychological/Psychographic Segment

People’s needs like shelter, food, safety, affection and self-actualization makes for different
segments. These are the hierarchy of needs as per Maslow. The person who is self-actualized will
have graphics given below demonstrating that he has different needs than others.

Psychological/Psychographic segment divides customers around their mindsets. People need

ego boosting and certain products like fashion garments, designer watches and accessories
make them feel good when they can have their head in cloud nine. People can be motivated to
buy a car just because they have been selected to test drive it. Today’s business executive is
extremely busy and his/her involvement in buying daily need products is low. The target
customer therefore is the buyer and not the user, may be the servant or some retired member of
the family. The involvement increases with the value of purchase or some personal preference.
Please buy only Godrej shaving cream for me is a way in which the involvement manifests
itself.

Socio-cultural Segmentation

Family: When they start life, the young persons may be unmarried. They need household
goods, like cleaning equipment washing machines, cooking equipment and TV set. Married
couples initially need to go on a honeymoon and later according to their status and income,
their needs keep adding to include car, house and soon baby foods, diapers. Once the children
grow then music system, books, games and sports equipment are needed. As the children start
their own life, the aging parents may require health product and medicines.

Society: Social groups originate from parity in income, occupation and education. Lots of
purchases especially of consumer durables are made because the neighbor has purchased it.
“Keeping up with the Jones” is the phrase used to describe this tendency of copying and is quite
common in the social segment. Advertising based on targeting one social group becomes easy
as the group members speak the same language, understand the same subtleties, the same comic
situations and have the same attitudes and beliefs.

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Cultural and sub-cultural segmentation: Our country boasts of unity in diversity. Cultural
differences are quite pronounced as we travel from north to south and east to west. In the north
for instance, when guests are visiting, offering them anything which is three in number is
considered inauspicious, while in the south, it is the done thing. Traditional women keep their
heads covered in the north on auspicious occasions and in the south they have their heads
uncovered.

Segmentation on the basis of usage

Imagine a person who buys a cell-phone and uses it only to see the number calling him and then
goes to the nearest land phone to call back. Another guy uses cell-phone the whole day, making
STD and ISD calls to his foreign clients and collaborators. Or, a person stays in a five star hotel
only for one day in a year, eats out and just pays for the room rent of about ` 6000, as against the
person who stays at least for a week in a month, throws parties, uses the hotel facilities and his
yearly bill exceeds ` 1,000,000. While it is understood that the customer is king, we can now see
that some customers are emperors, others are kings, some are princes and yet others are just
buyers. That is why to lure big buyers firms have special treats for them, including the frequent
flyer program of many airlines, room upgrades of big hotel users.

Usage situation segment: Situational usage is prevalent for greeting cards, flower and gift items
that are given on occasions like Christmas, Deepavali and Eid. Card maker’s gift suppliers focus
their advertising effort towards customers.

Benefit Segment

People are looking for benefits all the time, like the calorie conscious person who wants tasty
food with low calories and insurance people who sell insurance promising life long benefits. In
fact the entire marketing is based on making customers aware of the benefits the firm’s products
provide as value for money and which are unique.

Segmentation of customer also depends on the following:

1. Customer attitude
2. Customer needs and degree of self-sufficiency
3. Different degree of value added
4. Customer behavior and their buying practices.

Customer Attitude

In simple terms attitude refers to what a person feels or believes about something. Additionally,
attitude may be reflected in how an individual acts based on his or her beliefs. Once formed,
attitudes can be very difficult to change. Thus, if a consumer has a negative attitude toward a
particular issue it will take considerable effort to change what they believe to be true.

Example: Attitude, is an enduring organization of motivational, emotional, perceptual

and cognitive processes with respect to some aspect of our environment. Consumer form attitude
towards a brand on the basis of their beliefs about the brand. For example, consumers of Sony
products might have the belief that the products offered by Sony are durable; this will influence
those customers to buy any products due to this attitude towards the brand.

Marketing Implications

Marketers facing consumers who have a negative attitude toward their product must work to

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Module No. 1
identify the key issues shaping a consumer’s attitude then adjust marketing decisions (e.g.,
advertising) in an effort to change the attitude. For companies competing against strong rivals
to whom loyal consumers exhibit a positive attitude, an important strategy is to work to see
why consumers feel positive toward the competitor and then try to meet or beat the competitor
on these issues. Alternatively, a company can try to locate customers who feel negatively toward
the competitor and then increase awareness among this group.

Customer Needs
Customer needs are the expectations of the product buyers. There are several needs of customers
in this open market and it is also seen that its very difficult to measure the exact needs and
demands from customers.

Well, somebody had mentioned that it is not possible to understand the customer’s behavior.
To some extent we have to agree on this because the expectations are the subset of many factors
(Environment, competition, nature, attitude etc.) which keeps on changing and nobody in this
world can define 100% correctly.

Here we broadly categorize the customer expectations/needs into:

1. General Needs: General needs are the needs which are related to the product which is being
purchased and used. Let us take the example of Automobiles. If customer has purchased a
car from a showroom, then his general (technical) needs would be good service, New
Products display at dealerships, Workshop to be equipped with all latest tools and machines,
no repeat failures, etc.

2. Emotional Needs: Emotional needs can be defined as needs which are related to customer
inner feelings and are non-technical in nature. Nowadays, emotional needs are considered
as more important than General needs. Some of the examples related to car customer can
be good customer waiting room, Free tea and snacks arrangement, Some lockers to be
provided to keep his belongings, etc.

When a particular goal or need cannot be fulfilled, a substitute goal emerges. Similarly, after
fulfillment a new goal or need arises. In any case needs can never be fully satisfied. When a
person becomes Vice President of a firm, he changes his goal to becoming the President. Product
updates and newer technologies help the firms to use this urge as a spring board for launching
innovative products.

Once the basic needs are fulfilled, people want to achieve higher goals. After getting a good
house to live, people would like to be community leaders.

As the saying goes, “Nothing succeeds like success.” Success gives an extra fillip to people for
going to a higher level of goals. Failure, on the other hand make people redefine their goals, by
either lowering the standard or taking a different road altogether. Goal substitution occurs on
non-attainment of goal. If you cannot buy a Honda City car, buy a Maruti 800. Some people go
into a dream world which is devoid of reality.

Non-achievement causes people to go into depression, which can result in behavioral changes
like sulking and going into a shell, anger or rationalization of failure, which is bad as it makes
a person complacent and frustrated.

“It is for sure that if we provide such amenities to our customers, we can reach to a

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Module No. 1
level of customers satisfaction. These needs are now become the basics for the sellers
(service providers), however if the sellers are doing over and above the customer
expectations then it is called customer delight.”

Customer Behavior and their Buying Practices

Consumer behavior refers to the mental and emotional process and the observable behavior of
consumers during searching, purchasing and post consumption of a product or service.
Consumer behavior involves study of how people buy, what they buy, when they buy and why
they buy. It blends the elements from psychology, sociology, socio-psychology, anthropology
and economics. It also tries to assess the influence on the consumer from groups such as family,
friends, reference groups and society in general.

Buyer behavior has two aspects: the final purchase activity visible to any observer and the
detailed or short decision process that may involve the interplay of a number of complex
variables not visible to anyone.

Factors Affecting Consumer Buying Behavior

Consumer buying behavior is influenced by the major three factors:

1. Social Factors: Social factors refer to forces that other people exert and which affect
consumers’ purchase behavior. These social factors can include culture and subculture,
roles and family, social class and reference groups.

Example: By taking into consideration Reference group, these can influence/affect the
consumer buying behavior. Reference group refers to a group with whom an individual identifies
herself/himself and the extent to which that person assumes many values, attitudes or behavior
of group members. Reference groups can be family, school or college, work group, club
membership, citizenship, etc.

Reference groups serve as one of the primary agents of consumer socialization and learning
and can be influential enough to induce not only socially acceptable consumer behavior
but also socially unacceptable and even personal destructive behavior.

Example: If fresher student joins a college/university, he/she will meet different people
and form a group, in that group there can be behavior patterns of values, for example, style of
clothing, handsets which most of group member prefer or even destructive behavior such as
excessive consumption of alcohol, use of harmful and addictive drugs, etc. So, according to how
an individual references him/herself to that particular reference group, this will influence and
change his/her buying behavior

2. Psychological Factors: These are internal to an individual and generate forces within that
influence her/his purchase behavior. The major forces include motives, perception,
learning, attitude and personality.

3. Personal Factors: These include those aspects that are unique to a person and influence
purchase behavior. These factors include demographic factors, life-style, and situational
factors.

Example: Life-style is an indicator of how people live and express themselves on the
basis of their activities, interests, and opinions. Life-style dimension provide a broader view of

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people about how they spend their time the importance of things in their surroundings and
their beliefs on broad issues associated with life and living and themselves. This is influenced by
demographic factors and personality.

Example: A CEO or Manager is likely to buy more formal clothes, ties and shoes or
PDAs and less informal clothes like jeans as compared to a Mechanic or Civil engineer.
So according to their life-style and profession, the buying behavior of people differ from one
another.

Possibly the most challenging concept in marketing deals with understanding why buyers do
what they do (or don’t do). But such knowledge is critical for marketers since having a strong
understanding of buyer behavior will help shed light on what is important to the customer and
also suggest the important influences on customer decision-making. Using this information,
marketers can create marketing programs that they believe will be of interest to customers.

As you might guess, factors affecting how customers make decisions are extremely complex.
Buyer behavior is deeply rooted in psychology with dashes of sociology thrown in just to make
things more interesting. Since every person in the world is different, it is impossible to have
simple rules that explain how buying decisions are made. But those who have spent many years
analyzing customer activity have presented us with useful “guidelines” in how someone decides
whether or not to make a purchase.

LEARNING ACTIVITY 4

1. Competitor analysis is helpful or harmful for organization. Explain.

2. Segmentation of customer by geographic segment is more successful or by the behavior
of customer?
3. Why sub-cultural segmentation is necessary? Comment.
4. Discuss Porter’s framework of competitor analysis.
5. List some limitations of competitor’s analysis with example.
6. Why any organization access competitor’s current strategy?
7. What do you mean by customer segmentation?
8. How does consumer behavior affect the market strategy?

LEARNING ACTIVITY 5

Short Case Study Life‘s Good for LG

LG Electronics India’s market share dropped in January 2005 — for the first time since the company
was set up in 1997. But Managing Director Kwang-Ro Kim isn’t worried. “The dealers must have
met their targets in December itself, so they took it easy in January,” he explains. Were it any other
company, the managing director’s insouciance would appear to border on foolhardiness. But this is
LG, a company that can afford to take it easy. Even after the blip in sales in January — LG’s market
share in refrigerators fell fractionally from 28.6 per cent the previous month to 28.1 per cent — the
Korean consumer electronics brand is still the preferred white goods brand in India — across
categories and sub-categories. Whether it is refrigerators, air-conditioners, washing machines or
color televisions — LG’s dominance over the white goods market is complete.
In volume term LG No. 2 player Refrigerators 27.22 - 1.2 (Whirlpool) Color TVs 25.5 - 15.1
(Samsung) Microwave ovens 41.4 - 19.7 (Samsung) Washing machines 34.0 - 13.8 (Whirlpool)
That’s pretty decent going for a company whose first experience in the Indian market was nothing
short of disastrous. In its earlier avatar, the Korean company came to India as Lucky Goldstar.

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This was in the early 1990s, and the rules at the time didn’t permit foreign companies to start
independent ventures. So Lucky Goldstar took on not one, but two joint venture partners. The first
partnership ended acrimoniously while the second one never got off the ground. In 1997, the
Foreign Investment Promotion Board finally gave the Korean company permission to set up its own
factory to make washing machines and refrigerators. Rechristened LG Electronics, the new
company — a 100 per cent subsidiary of the Korean ‘chaebol — swung into action and set up a
state-of-the-art manufacturing facility at Greater Noida, Uttar Pradesh. There’s been no looking back
since then. In October 2004, LG set up a second manufacturing facility at Ranjangaon, near Pune,
which makes white goods as well as cellular phones — the first GSM handset manufacturing facility
in India. Another facility, exclusively for GSM handsets, is being set up and will start operations in
August. Turnover is also on the upswing: starting from ` 150 crore in 1997, LG registered a turnover
of ` 6,500 crore last year and is targeting ` 9,000 crore in 2005. So, what went right? Perhaps the
most important step was to leave behind the baggage of the past. As Lucky Goldstar, the
company’s biggest fault was that it did precisely what other white goods brands of the 1990s were
doing: some half-hearted advertising and pushing the products only when the consumer entered the
store. Activities that “pulled” potential buyers into showrooms were conspicuous by their absence.
Once it got the permission to operate as a wholly owned subsidiary, though, all that changed. Within
just five months, LG products were available across the country compared to the average two years
competitors took for a nationwide launch. An advertising blitzkrieg followed. And the momentum
hasn’t let up since. LG is one of the most aggressive advertisers in the white goods industry,
spending close to 5 per cent of its revenue on marketing activities — that’s ` 130 crore last year.
A close tie up with cricket ensured the brand building exercise would score well on consumer recall
— apart from signing on leading Indian cricketers, LG also launched a cricket game on one of its
television models. Points of sales promotions were also extensively advertised to ensure customers
were tempted to visit the stores. Importantly, for LG, a nationwide launch meant just that. A
penetrative distribution strategy ensured that products were available even in smaller towns and
cities, breaking the chain of urban dependency that plagues most white goods manufacturers.
More than 65 per cent of last year’s ` 6,500 crore revenue came from non-urban sources; up from
under 60 per cent the previous year. And what was the industry average? It was between twenty-
five to 30 per cent. Add the fact that the rural markets accounted for a remarkable 30 per cent of
total sales and it’s clear that LG’s strategy is working. “We push rural marketing,” agrees Kim. How
does it do that? LG reaches into the hinterland through a pyramidal sales structure. Branch offices
in larger cities set up Central Area Offices (CAOs) in smaller towns; these in turn reach out to even
smaller towns and villages through Remote Area Offices (RAOs) — at last count, the company had
51 branch offices, 87 CAOs and 78 RAOs. Each RAO has servicing, marketing and sales teams at
its disposal and an individual budget for marketing activities in its territory. The executive in charge
has independent decision-making powers — he can decide the tenor and scale of brand promotions
in his area, without having to cross check every little detail from the head office. Technology, too, is
being used to the hilt to ease their jobs. The RAOs and CAOs are all electronically connected
through a V-SAT and Intranet network. And where earlier decisions about putting up large
hoardings could be approved only after a visit from the head office, LG has provided all its branch
managers digital cameras — now they just click images of suitable locations and get them approved
electronically. For customers, though, the direct approach is preferred. The advantage of an
extended distribution network is that marketing executives can keep a finger on the pulse of the
market. Promotions and finance schemes are designed to suit the needs of local customers. In a
small town in Uttar Pradesh, for instance, last year LG offered select households a free 15-day trial
of a 50-inch flat screen television during the cricket season. The TV set costs close to ` 1 lakh, but
several families took the bait and considered buying the TV — at which point the showroom staff
offered them carefully planned finance schemes. Of course, it’s not just the finance schemes that
are tailor-made. LG has been careful right from the start to offer customers a “value-plus”
proposition. Explains KSA Technopak Principal Harminder Sahni, “LG has always taken the stand
that ‘We’re selling the AC, not the remote. The remote comes as part of the package.” “Which is
why, he adds, the company does not qualify as a “budget” models company.” “LG does not sell no-
frills products; it gives you all the bells and whistles,” Sahni says. LG recognized the need to do that

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early on. Kim — who’s been with LG India since 1997 — points to a basic characteristic of Indian
consumers: “They are very price sensitive. They want the best quality at reasonable prices.”
Accordingly, LG introduced its economy range in the country, which Kim predicted would be “easily
accepted”. The company was ready to do battle on two flanks: it offered modern, features-packed
products, at the same time keeping its margins wafer-thin. Even competitors accept the merit of the
tactic. “LG has been a price warrior while retaining its brand equity,” points out Ajay Kapila, vice
president, sales and marketing, Electrolux India. “Our success is the result of hard work and
commitment. There’s no miracle involved,” says Kim. The hard work was on the features, which
were carefully chosen — and adapted — to appeal to Indian audiences. For instance, Kim points
out that consumers in southwest India prefer big sound and big bass outputs. Accordingly, LG India
created Ballad, a flat screen television model that sells only in the subcontinent and comes
equipped with 2,000 watts speakers. Similarly, refrigerators in India have smaller freezers and big
vegetable compartments —
Indians prefer fresh food and a significant proportion are vegetarian. Colors, too, are chosen
keeping market preferences in mind. White refrigerators, for instance, don ’t sell well in Kolkata and
Punjab — while the sea air in Bengal corrodes the paint, the masalas used in Punjabi cooking
discolor the fridge. So, LG offers a range of bright colors in these markets. The cricket game in TV
sets wasn’t the only “go local” innovation: LG also offered on-screen displays in five languages and
large capacity semi-automatic washing machines that would suit Indian families. The research for
these adaptations and innovations is done in-house. LG invests significantly in local R&D — last
year the company spent over ` 100 crore on research. “We want to be independent of Korea,” states
Kim. It’s working towards that: already 70 per cent of its product line is produced locally, with the
rest imported from China, Korea and Taiwan. In refrigerators, 95 per cent of the components are
localized. All of which also help keep prices down. But that was in the past. “Economy” and “value-
for-money” are no longer going to be the cornerstones of LG’s India strategy. In the next five years,
says Kim, the company will concentrate on building itself as a premium brand, targeting 10 per cent
of its earnings from super-premium products. That includes products like the Whisen range of wall-
mounted air-conditioners (` 50,000 and above), Dios refrigerators (` 65,000 and above) and X-
canvas plasma TVs (` 1 lakh and above). LG has already set up 75 exclusive showrooms for these
products, which were launched earlier this year, with more in the pipeline. This year it will spend
upward of ` 20 crore promoting the super-premium sub-brands. “High-end products need high-end
outlays,” smiles Kim. Perhaps, but industry analysts have their doubts whether exclusive
showrooms for such big-ticket items will bring in the bucks. “When it comes to consumer durables,
people prefer comparison shopping. I will be surprised if the stores make money,” comments
KSA’s Sahni. Meanwhile, there’s the imminent departure of the man who built up LG India to its
present height. Kim, who was last year promoted as head of LG South West Asia, is likely to move
up within the parent organization sometime soon. “I am preparing to leave,” he admits. Will that
make a difference to LG’s growth curve? Kim doesn’t think so. “The system is working, so things will
continue as they are,” he says. That thought finds an echo in Sahni, who points out “Kim may be
leading from the front, but LG couldn’t have achieved what it has without a strong team.” The
challenge now will be to integrate the new incumbent’s working style with the existing culture of the
organization — and work on the new marketing strategy. If LG meets that head on, then, like its
tagline says, Life’s Good.
Questions:
1. Study the case and identify significant issues.
2. Conduct a SWOT analysis of LG.
3. What marketing strategies did LG adopt to be so successful in India?
Submission of requirements: 03/02/2021 thru Professors’ E-mail Account: gsamson_ms@psu.edu.ph

SUMMARY
Competitor analysis is an important part of a firm’s development of its strategy.

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 Its importance lies in the understanding of competitors, their strategy, and resources and
capabilities.
 More specifically, competitor analysis also allows a firm to assess its own firm versus
competitors and plan for what competitors’ actions may be as a reaction to actions the firm
may take.
 A competitor analysis provides a firm with the knowledge to leverage its strengths and
address its weaknesses and, conversely, take advantage of weaknesses of competitors and
counter their strengths.
 Finally, competitor analysis also gives a firm a better understanding not only of the
competitors but also their overall sector and where the emerging opportunities may be.
 Consumer buying decision process is the processes undertaken by consumer in regard to
a potential market transaction before, during and after the purchase of a product or service.
 Customer segmentation is the practice of dividing a customer base into groups of individuals
that are similar in specific ways relevant to marketing, such as age, gender, interests,
spending habits, and so on.

REFERENCES

Aswin Pranam, Product Management Essentials. Springer Science+Business Media New York, 233
Spring Street, 6th Floor, New York, NY 10013.2018

C. Todd Lombardo , Bruce McCarthy , Evan Ryan , and Michael Connors, Product Roadmaps
Relaunched. O’Reilly Media, Inc. 2017

Aaker, David A. and Kevin Lane Keller, “Customer Evaluations of Brand

Extensions,” Journal of Marketing, Jain 1990, pp. 27-41.

Aaker, David A., “Brand Extensions: The Good, the Bad, the Ugly,” Sloan
Management Review, Summer 1990, p. 42.

Court, David C., Mark G. Leiter and Mark A. Loach, “Brand Leverage,” The
McKinsey Quarterly, No.-2, 1999, pp. 101-109.

Harsh V. Verma, Brand Management, Excel Books, New Delhi.

Kapferer, Noel-Jean, Strategic Brand Management, N Y, Free Press, 1992, p. 125.

Kapferer, Strategic Brand Management, Kogan Page, New Delhi.

Kevin Lane Killer, Strategic Brand Management, Pearson, New Delhi.

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