Page 324 - Marketing Management

COMPETITIVE DYNAMICS | CHAPTER 11 301

online ordering system and drive-through windows at most freestand- Shuttle have all been unsuccessful. One school of thought is that
ing stores. These steps helped it increase its revenue from $15 billion companies should set up low-cost operations only if: (1) their existing
in 1998 to over $59 billion in 2008, making it the largest U.S. businesses will become more competitive as a result and (2) the new
drugstore chain. business will derive some advantages it would not have gained if inde-
pendent. Low-cost operations set up by HSBC, ING, Merrill Lynch, and
Execution Royal Bank of Scotland—First Direct, ING Direct, ML Direct, and Direct
Kmart’s disastrous experience trying to compete head-on with Walmart Line Insurance, respectively—succeed in part thanks to synergies be-
on price highlights the difficulty of challenging value leaders on their tween the old and new lines of business. The low-cost operation must
own terms. To compete effectively, firms may instead need to downplay be designed and launched as a moneymaker in its own right, not just
or even abandon some market segments. To compete with Ryanair and as a defensive play.
easyJet, British Airways has put more emphasis on its long-haul routes,
Sources: Adapted from Nirmalya Kumar, “Strategies to Fight Low-Cost Rivals,”
where value-based players are not active, and less on the short-haul Harvard Business Review, December 2006, pp. 104–12; Robert J. Frank, Jeffrey P.
routes where they thrive. George, and Laxman Narasimhan, “When Your Competitor Delivers More for Less,”
McKinsey Quarterly (Winter 2004): 48–59. See also Jan-Benedict E. M. Steenkamp
Major airlines have also introduced their own low-cost carriers.
and Nirmalya Kumar, “Don’t Be Undersold,” Harvard Business Review, December
But Continental’s Lite, KLM’s Buzz, SAS’s Snowflake, and United’s 2009, pp. 90–95.

To stay number one, the firm must first find ways to expand total market demand. Second, it
must protect its current share through good defensive and offensive actions. Third, it should in-
crease market share, even if market size remains constant. Let’s look at each strategy.

Expanding Total Market Demand
When the total market expands, the dominant firm usually gains the most. If Heinz can convince
more people to use ketchup, or to use ketchup with more meals, or to use more ketchup on each oc-
casion, the firm will benefit considerably because it already sells almost two-thirds of the country’s
ketchup. In general, the market leader should look for new customers or more usage from existing
customers.

NEW CUSTOMERS Every product class has the potential to attract buyers who are unaware of
the product or are resisting it because of price or lack of certain features. As Chapter 2 suggested, a
company can search for new users among three groups: those who might use it but do not (market-
penetration strategy), those who have never used it (new-market segment strategy), or those who live Frappuccino coffee drinks have
elsewhere (geographical-expansion strategy). been a new source of growth and
Here is how Starbucks describes its multipronged approach to growth on its cor- revenues for Starbucks.
porate Web site. 4
Starbucks purchases and roasts high-quality whole bean coffees and sells them
along with fresh, rich-brewed, Italian style espresso beverages, a variety of pas-
tries and confections, and coffee-related accessories and equipment—primarily
through its company-operated retail stores. In addition to sales through our
company-operated retail stores, Starbucks sells whole bean coffees through a
specialty sales group and supermarkets. Additionally, Starbucks produces and
sells bottled Frappuccino® coffee drinks and a line of premium ice creams
through its joint venture partnerships and offers a line of innovative premium
teas produced by its wholly owned subsidiary, Tazo Tea Company. The
Company’s objective is to establish Starbucks as the most recognized and re-
spected brand in the world.

MORE USAGE Marketers can try to increase the amount, level, or frequency of
consumption. They can sometimes boost the amount through packaging or product
redesign. Larger package sizes increase the amount of product consumers use at one
5
time. Consumers use more of impulse products such as soft drinks and snacks when
the product is made more available.