Each member of the resort staff is usually assigned a sports activity, such as tennis, sail- ing, yoga, snorkeling, dance lessons, trapeze, or even being the in-residence comic relief.
This is an unusual feature for a hotel chain, and increases the cost of operation. But the guest–staff relationship enables Club Med to differentiate itself in a competitive market- place and allows it to execute its customer intimacy strategy by tailoring the Club Med experience to its members’ needs on a day- to-day basis. This tailoring of the experience is delivered because one of the key responsi- bilities of the staff is to be friendly and interact with the guests, even joining them for lunch or dinner on occasions. Through this short-term relationship, the staff members get a sense of the needs and preferences of the guests and
Real Marketing
Customer intimacy: Club Med’s deeply customer-focused philosophy is perhaps best summed up by its values—
kindness, responsibility, and multiculturalism.
© foodandmore/123RF
CHAPTER 18 | Creating Competitive Advantage 579
with lower standards. Its current focus is on expansion in China, where Club Med is plan- ning to open five resorts by 2015, and it is also optimistic about expansion in other growing economies such as Brazil and Russia. As a result of such expectations of growth, at the end of 2014, Club Med was the subject of a
bidding war between a Chinese investment consortium and a joint venture between an Italian investor and a U.S. private equity firm.
This takeover battle has valued Club Med at 875 million euros, which goes to demonstrate the value of a well-executed customer inti- macy strategy.
are able to involve them in the activities and events planned for that day.
But all these inclusions and the person- alized attention from the activity-based staff comes at a cost, which means that Club Med needs to charge higher rates than other ho- tels in order to maintain its profit margin. This creates a perception problem with first-time Club Med customers who see the high rates as a sign of “five-star” hotel quality; many re- sorts are, in fact, rated only as three- to four- star resorts. Therefore, it becomes critical to manage the customer’s expectations and to promote its competitive advantage of offer- ing a tailored holiday experience with a preset budget. In order to improve its offering to af- fluent travelers with high expectations, Club Med is in the process of opening more high- quality resorts, while exiting from its villages
Sources: www.clubmed-corporate.com/?cat=219;www.clubmedjobs.com.au/100-jobs-be-discovered/working- village/organisation-our-villages; Nadia Cameron, “Club Med Ramps up Social Channel Investment with Snow Re- sort Crowdsourcing Campaign,” CMO, March 4, 2014, www.cmo.com.au/article/539620/club_med_ramps_up_
social_channel_investment _snow_resort_crowdsourcing_campaign; “Brands Embracing Co-Creativity,” CMO Maga- zine, June 2014, www.fifthquadrant.com.au/fifthquadrant/media/CMOmagazine_June2014.pdf; Adam Thomson,
“Bonomi and KKR in Last-Ditch Club Med Bid,” Financial Times, November 11, 2014, www.ft.com/intl/cms/
s/0/2dd2040c-69c8-11e4-9f65-00144feabdc0.html#axzz3LGP80B9l; and Matthew Parsons, “The Resort That Social Media Built: Two Innovative Travel Campaigns,” TTG Digital, March 28, 2014, www.ttgdigital.com/toolkit/
technology/the-resort-that-social-media-built-two-innovative-travel-campaigns/4690953.article, accessed Novem- ber 2014.
user interface and mouse. The innovative Mac changed the computer industry forever, gained an enthusiastic throng of brand fans, and began a chain of events that would establish Apple as one of the world’s premier product leaders. Apple’s product leadership results from understanding what makes its customer tick, then creating ahead-of-the-curve products that put customers at the front of the crowd.
Many tech companies make products that just occupy space and do work. By contrast, Apple has a genius for sparking consumer imaginations and creat- ing “life-feels-good” products that customers want—
usually before consumers themselves even know what they want. The result has been one Apple-led revolu- tion after another. Groundbreaking Apple products such as the iPod, iTunes, iPhone, and iPad have all created whole new categories where none previously existed. Such product leadership has produced a consumer love affair with Apple. Diehard fans and gadget geeks around the world have long anointed Apple “the keeper of all things cool.” In turn, the con- sumer love affair with Apple has produced stunning sales and profit results over the years.
Some companies successfully pursue more than one value discipline at the same time. For example, FedEx excels at both operational excellence and customer intimacy.
However, such companies are rare; few firms can be the best at more than one of these disciplines. By trying to be good at all value disciplines, a company usually ends up being best at none.
Thus, most excellent companies focus on and excel at a single value discipline, while meeting industry standards on the other two. Such companies design their en- tire value delivery network to single-mindedly support the chosen discipline. For ex- ample, Walmart knows that customer intimacy and product leadership are important.
Product leadership: Apple churns out one cutting-edge product after another, often creating whole new product categories. Apple’s diehard fans have anointed the brand “the keeper of all things cool.”
© Michael Nagle/Liaison/Getty Images
580 PART 4| Extending Marketing
Compared with other discounters, it offers good customer service and an excellent prod- uct assortment. Still, it purposely offers less customer service and less product depth than does Nordstrom or Williams-Sonoma, which pursue customer intimacy. Instead, Walmart focuses obsessively on operational excellence—on reducing costs and streamlin- ing its order-to-delivery process to make it convenient for customers to buy just the right products at the lowest prices.
By the same token, Ritz-Carlton wants to be efficient and employ the latest technolo- gies. But what really sets the luxury hotel chain apart is its customer intimacy. The Ritz- Carlton creates custom-designed experiences to coddle its customers—to fulfill even the unexpressed desires of its very demanding clientele.
Classifying competitive strategies as value disciplines is appealing. It defines marketing strategy in terms of the single-minded pursuit of delivering superior value to customers.
Each value discipline defines a specific way to build lasting customer relationships.
Competitive Positions
Firms competing in a given target market, at any point in time, differ in their objectives and resources. Some firms are large; others are small. Some have many resources; others are strapped for funds. Some are mature and established; others new and fresh. Some strive for rapid market share growth; others for long-term profits. And these firms occupy different competitive positions in the target market.
We now examine competitive strategies based on the roles firms play in the target market—leader, challenger, follower, or nicher. Suppose that an industry contains the firms shown in Figure 18.2. As you can see, 40 percent of the market is in the hands of the market leader, the firm with the largest market share. Another 30 percent is in the hands of market challengers, runner-up firms that are fighting hard to increase their market share. Another 20 percent is in the hands of market followers, other runner-up firms that want to hold their share without rocking the boat. The remaining 10 percent is in the hands of market nichers, firms that serve small segments not being pursued by other firms.
Table 18.1 shows specific marketing strategies that are available to market leaders, challengers, followers, and nichers.13 Remember, however, that these classifications often do not apply to a whole company but only to its position in a specific industry. Large com- panies such as GE, Microsoft, Google, P&G, or Disney might be leaders in some markets and nichers in others. For example, Amazon leads the online retailing market but challenges Apple and Samsung in smartphones and tablets. P&G leads in many segments, such as laundry detergents and shampoo, but it challenges Unilever in hand soaps and Kimberly- Clark in facial tissues. Such companies often use different strategies for different business units or products, depending on the competitive situations of each.
Market Leader Strategies
Most industries contain an acknowledged market leader. The leader has the largest mar- ket share and usually leads the other firms in price changes, new-product introductions, distribution coverage, and promotion spending. The leader may or may not be admired or respected, but other firms concede its dominance. Competitors focus on the leader as a com- pany to challenge, imitate, or avoid. Some of the best-known market leaders are Walmart (retailing), Amazon (online retailing), McDonald’s (fast food), Verizon (wireless), Coca-Cola (beverages), Caterpillar (earth-moving equipment), Nike (athletic footwear and apparel), Facebook (social media), and Google (Internet search).
A leader’s life is not easy. It must maintain a constant watch. Other firms keep challeng- ing its strengths or trying to take advantage of its weaknesses. The market leader can easily miss a turn in the market and plunge into second or third place. A product innovation may Market leader
The firm in an industry with the largest market share.
Market challenger
A runner-up firm that is fighting hard to increase its market share in an industry.
Market follower
A runner-up firm that wants to hold its share in an industry without rocking the boat.
Market nicher
A firm that serves small segments that the other firms in an industry overlook or ignore.
FIGURE | 18.2
Competitive Market Positions and Roles
40% 30% 20% 10%
Market
leader Market
nichers Market
followers Market
challengers Each market position calls for a different competitive strategy. For example,
the market leader wants to expand total demand and protect or expand its share. Market nichers seek market segments that are big enough to be profitable but small enough to be of little interest to major competitors.
CHAPTER 18 | Creating Competitive Advantage 581
come along and hurt the leader (as when Netflix’s direct marketing and video streaming unseated then-market leader Blockbuster or when Apple developed the iPod and iTunes and took the market lead from Sony’s Walkman portable audio devices). The leader might grow arrogant or complacent and misjudge the competition (as when Sears lost its lead to Walmart). Or the leader might look old-fashioned against new and peppier rivals (as when Abercrombie & Fitch lost ground to stylish or lower-cost brands such as H&M, Urban Out- fitters, and American Eagle).
To remain number one, leading firms can take any of three actions. First, they can find ways to expand total demand. Second, they can protect their current market share through good defensive and offensive actions. Third, they can try to expand their market share fur- ther, even if market size remains constant.
Expanding Total Demand
The leading firm normally gains the most when the total market expands. If Americans eat more fast food, McDonald’s stands to gain the most because it holds more than three times the fast-food market share of its nearest competitors, Subway and Burger King. If McDonald’s can convince more Americans that fast food is the best eating-out choice in these economic times, it will benefit more than its competitors.
Market leaders can expand the market by developing new users, new uses, and more usage of its products. They usually can find new users or untapped market segments in many places. For example, traditionally boy-focused LEGOs—Europe’s biggest toymaker—now successfully targets girls:14
Three years ago, 90 percent of LEGOs were purchased for boys. However, the brand’s sales to girls tripled in 2012 with the introduction of LEGO Friends, a girl-specific line featuring five cute little dolls with fetching names and background stories. Based on extensive research into differ- ences between how boys and girls play, the LEGO Friends line features pastel color bricks and construction sets that encourage girls to build ev- erything from Olivia’s House or Emma’s Pet Salon to Andrea’s City Park Café. LEGO Friends has become one of the most successful lines in LEGO history, helping to boost the company’s sales in 2012 by 25 percent and profits by 35 percent, even as other toy companies struggled.
Marketers can also expand markets by discovering and promot- ing new uses for the product. For example, since its founding, Velcro Industries has been finding all kinds of “creative ways to connect this to that.” But its recent “A Million Uses” ad, video, and social media marketing campaign aims to increase product usage by showcasing all the amazing ways that consumers can use Velcro hook-and-loop fasteners in their daily lives—around the home or office, in the gar- den, or for craft and do-it-yourself projects. One ad shows how a gad- get geek uses Velcro One-Wrap ties to organize all those wires behind his desk, while a gardener uses them to hold orchids upright and an outdoorsman uses them to bundle fishing rods. “It’s one wrap with a million uses,” the ad concludes. Velcro’s Facebook, YouTube, and Market Leader
Strategies Market Challenger
Strategies Market Follower
Strategies Market Nicher Strategies Expand total market
Protect market share Expand market share
Full frontal attack Indirect attack
Follow closely Follow at a distance
By customer, market, quality- price, service Multiple niching
Table 18.1 Strategies for Market Leaders, Challengers, Followers, and Nichers
Finding new users: LEGO’s girl-specific LEGO Friends line tripled the brand’s sales to girls within one year and helped boost total company sales by 25 percent.
LEGO and the LEGO logo are trademarks of the LEGO Group of Companies, used here by permission. © 2014 The LEGO Group. All rights reserved.
582 PART 4| Extending Marketing
Pinterest sites are also loaded with imaginative new uses, such as a guide on Pinterest for making Velcro jewelry.15
Finally, market leaders can encourage more usage by convincing people to use the product more often or use more per occasion. For example, Campbell’s urges people to eat soup and other Campbell’s products more often by running ads containing new recipes. At the Campbell’s Kitchen Web site (www.campbellskitchen.com), visitors can search for or exchange recipes, create their own personal recipe box, learn ways to eat healthier, and sign up for a daily or weekly Meal Mail program. At the Campbell’s Facebook and Twitter sites, consumers can join in on Campbell’s Kitchen Community conversations.
Protecting Market Share
While trying to expand total market size, the leading firm also must protect its current business against competitors’ attacks. Walmart must constantly guard against Target and Costco; Caterpillar against Komatsu; Apple’s iPad and iPhone against Samsung; and McDonald’s against Wendy’s and Burger King.
What can the market leader do to protect its position? First, it must prevent or fix weak- nesses that provide opportunities for competitors. It must always fulfill its value prom- ise and work tirelessly to engage valued customers in strong relationships. Its prices must remain consistent with the value that customers see in the brand. The leader should “plug holes” so that competitors do not jump in.
But the best defense is a good offense, and the best response is continuous innovation.
The market leader refuses to be content with the way things are and leads the industry in new products, customer services, distribution effectiveness, promotion, and cost cutting. It keeps increasing its competitive effectiveness and value to customers. And when attacked by challengers, the market leader reacts decisively. For example, in the $2.2 billion alka- line battery market, P&G’s market-leading Duracell brand has been relentless in its offense against challengers such as Energizer.16
The alkaline battery market has been in a bit of a decline in recent years with the growth in smartphones, tablets, MP3 players and other consumer electronics that run on rechargeable batteries.
But thanks to relentless innovation and brand-building, mar- ket leader Duracell is surging while challengers like Energizer have languished. For example, Duracell recently introduced the super-premium Duracell Quantum line, “the best alkaline bat- tery ever built,” with innovative DURALOCK technology that helps preserve power in storage for up to 10 years. The brand also expanded its product mix with the Duracell Powermat wireless charging system for mobile devices.
To defend its market-leading position, P&G backs the brand with aggressive partnership-building and promotion.
For example, it recently muscled Energizer out of Sam’s Club, and it remains the official battery brand of the NFL. Duracell’s
“Trusted Everywhere” marketing campaign builds emotional connections through ads featuring firefighters and other first re- sponders. And the brand has built a substantial digital and social media presence—it has 6.1 million Facebook “Likes” (Energizer has 168,000). Thus, despite the market’s woes, Duracell has seen eye-popping recent growth. It now holds a 46 percent share of the U.S. alkaline battery market. Much of Duracell’s recent success has come at the expense of challenger Energizer. “The Energizer bunny may still be going,” says one analyst, “but he doesn’t have quite the same spring in his step lately.”
Expanding Market Share
Market leaders also can grow by increasing their market shares further. In many markets, small market share increases mean very large sales increases. For example, in the U.S. sham- poo market, a 1 percent increase in market share is worth $70 million in annual sales; in carbonated soft drinks, $1.25 billion!17
Studies have shown that, on average, profitability rises with increasing market share.
Because of these findings, many companies have sought expanded market shares to improve profitability. GE, for example, declared that it wants to be at least number one or two in each of its markets or else get out. GE shed its computer, air-conditioning, small appliances, and television businesses because it could not achieve top-dog position in those industries.
Protecting market share: Thanks to relentless innovation and brand-building, market leader Duracell is surging while challengers like Energizer have languished.
Duracell
CHAPTER 18 | Creating Competitive Advantage 583
However, some studies have found that many industries contain one or a few highly profitable large firms, several profitable and more focused firms, and a large number of medium-sized firms with poorer profit performance. It appears that profitability increases as a business gains share relative to competitors in its served market. For example, Lexus holds only a small share of the total car market, but it earns a high profit because it is a lead- ing brand in the luxury-performance car segment. And it has achieved this high share in its served market because it does other things right, such as producing high-quality products, creating outstanding service experiences, and building close customer relationships.
Companies must not think, however, that gaining increased market share will au- tomatically improve profitability. Much depends on their strategy for gaining increased share. There are many high-share companies with low profitability and many low-share companies with high profitability. The cost of buying higher market share may far exceed the returns. Higher shares tend to produce higher profits only when unit costs fall with increased market share or when the company offers a superior-quality product and charges a premium price that more than covers the cost of offering higher quality.
Market Challenger Strategies
Firms that are second, third, or lower in an industry are sometimes quite large, such as PepsiCo, Ford, Lowe’s, Hertz, and AT&T. These runner-up firms can adopt one of two com- petitive strategies: They can challenge the market leader and other competitors in an aggres- sive bid for more market share (market challengers), or they can play along with competitors and not rock the boat (market followers).
A market challenger must first define which competitors to challenge and its strategic objective. The challenger can attack the market leader, a high-risk but potentially high-gain strategy. Its goal might be to take over market leadership. Or the challenger’s objective may simply be to wrest more market share.
Although it might seem that the market leader has the most going for it, challengers often have what some strategists call a “second-mover advantage.” The challenger observes what has made the market leader successful and improves on it. For example, Home Depot invented the home-improvement superstore. However, after observing Home Depot’s success, number two Lowe’s, with its brighter stores, wider aisles, and arguably more helpful salespeople, has positioned itself as the friendly alternative to Big Bad Orange. Over the past decade, follower Lowe’s has substantially closed the gap in sales and market share with Home Depot.
In fact, challengers often become market leaders by imitating and improving on the ideas of pioneering processors. For example, McDonald’s first imitated and then mastered the fast-food system first pioneered by White Castle. And founder Sam Walton admitted that Walmart borrowed most of its practices from discount pioneer Sol Price’s FedMart and Price Club chains and then perfected them to become today’s dominant retailer.
Alternatively, the challenger can avoid the leader and instead challenge firms its own size or smaller local and regional firms. These smaller firms may be underfinanced and not serving their customers well. Several of the major beer companies grew to their present size not by chal- lenging large competitors but by gobbling up small local or regional competitors. For example, SABMiller became the world’s number two brewer by acquiring brands such as Miller, Molson, Coors, and dozens of others. If the challenger goes after a small local company, its objective may be to put that company out of business. The important point remains: The challenger must choose its opponents carefully and have a clearly defined and attainable objective.
How can the market challenger best attack the chosen competitor and achieve its strategic objectives? It may launch a full frontal attack, matching the competitor’s product, advertising, price, and distribution efforts. It attacks the competitor’s strengths rather than its weaknesses. The outcome depends on who has the greater strength and endurance. PepsiCo challenges Coca-Cola in this way, and Ford challenges Toyota frontally.
If the market challenger has fewer resources than the competitor, however, a frontal attack makes little sense. Thus, many new market entrants avoid frontal attacks, knowing that market leaders can head them off with ad blitzes, price wars, and other retaliations.
Rather than challenging head-on, the challenger can make an indirect attack on the competi- tor’s weaknesses or on gaps in the competitor’s market coverage. It can carve out toeholds using tactics that established leaders have trouble responding to or choose to ignore.
For example, SodaStream challenges the soft drink market leaders in this way. And consider how challenger Red Bull entered the U.S. soft drink market in the late 1990s against