Tag: Competitive Advantage

Developing Competitive Advantage

Different industries offer different competitive opportunities: therefore different strategies are required.  There is no one catch all strategy that will be successful across all industries.

So to develop an appropriate strategy for your market, you need to identify the appropriate competitive advantages and hence develop appropriate strategies.

There are three steps to identifying competitive advantage:

  1.  Define the Industry:  What are the market boundaries? What are the ‘rules of the game’? Who are the other players?
  2. Identify the possible competitive moves so as to exploit competitive advantage: What is the life cycle stage of the market? If the market is mature there will be different competitive advantages to a market which is in its growth stage; and therefore different strategies will be applicable. How will the actions of your competitors affect the market?
  3. What is your generic strategy? Differentiation, Cost focus or niche?

Remember successful strategies are the successful completion of a series of competitive moves

The first step, identifying the boundaries of an industry is not as easy as it first appears.  Take a farm shop with a cafe and children’s petting zoo.  Is that business a food retailer and producer; or is it part of the catering industry, or is it part of a wider leisure sector?

In assessing an industry’s boundaries each identified business activity should add perceived value in the minds of potential consumers. That perceived value is the string of benefits accrued by obtaining a product or service.  Some of these benefits can be abstract such as self image. The price is determined by what people are willing to pay to accrue those benefits.  If consumers place low perceived value on goods or services, they will expect those goods and services to come with a low price.

The ‘game’ is to create a disequilibrium between perceived value and the same price offered by competitors. Two factors can be adjusted, the perceived value and the price. this leads to three main options:

  1. Offering more perceived value for the same price as your competitors
  2. Offering the same perceived value as your competitors for a lower price
  3. Offering significantly more perceived value but for a higher price.

We do not live in a world of perfect competition where price is the only differentiating factor between market offers.

Obviously every activity to produce goods or services has a cost. The accrued costs of production and supply set the minimum price level at which products can be marketed.  Your business system must remain profitable. External factors such as tariffs and taxes can affect that profitability.  UK businesses currently exporting in a tariff free environment will likely face pressure on profit margins if, as seems likely, not trade agreement can be agreed with the EU and the country reverts to trading on WTO schedules.

The best approach in a market is to offer the highest possible levels of perceived benefit for the lowest possible delivered cost.

In assessing the ‘rules of the game’, you also need to take into account the logic of the business system; how business activities coordinate to achieve a common goal.  Resources needed to achieve common goals also need to be examined e.g. People, technology and finance.

When assessing competitors you need to look at all market entrants, not just core competitors.  that means suppliers, distributors, retailers etc.  You need to know which market players will sub-optimise your whole business system.

Competitive moves are defined as the best way to utilise your defined business systems to provide perceived value.  This is achieving superior performance in at least one business system activity e.g. best after-sales care; or through the innovative combination of several activities i.e. your marketing mix. This is the basis of all successful marketing strategies.

In assessing which competitive moves you need to make, you need to know the stage of the life cycle the market exists in.  Competitive moves will be different in a new emerging industry than in a mature of declining industry.

To identify strategic groups use perceptual mapping.  Plot consumers perception of value (not product quality) against cost.

There are two forms of generic strategy: one dimensional strategies and out-pacing strategies.

One dimensional strategies affect either perceived quality or price.  They are a repeated single move with the intention of retaining a static market position.  They are defensive strategies.  Short life cycle industries, such as fashion will use one dimensional strategies focused on high perceived value.

Businesses with long life cycles such as commodities (gas, electricity, water, etc) can look at low delivered cost strategies.

Using one dimensional strategies in other circumstances can be dangerous.

Out-pacing strategies do not repeat the same strategic move over and over.  You outpace your competitors by moving from one strategic position to another through altering value options.  The timing of outpacing strategies is crucial.  This is very much a dynamic strategy option.

Pre-emptive outpacing strategies are often used by industry leaders to avoid attacks by competitors. Again this is predominantly a defensive strategy option.  this could include shifting the industry life cycle through the development of product standards.  You need to create a pricing reserve so as to invest in process improvements to allow a shift to low delivered cost strategy until the new industry standard is adopted.

Price can be leveraged to prevent market followers from generating cash flow needed to transition to the next industry stage. For example, many saw Betamax video recorders as the premium product but VHS was cheaper and VHS was able to become the industry standards for home video cassettes. Price can be used to prevent new market entrants; possibly through the creation of fighter brands.

Again, the timing pre-emptive outpacing strategies is crucial.

Pro-active outpacing strategies tend to require market maturity and lower growth rates.  The are used to escape maturity stalemate and to avoid destructive price wars. In effect you are changing the rules of the game.

Unbundling perceived value is a common outpacing strategy.  This is achieved through the use of value chain analysis.  You then remove unacceptable costs which do not add to perceived value.  this may be moving from high street stores to out of town warehouses, or even moving to internet distance shopping from traditional retail. Ikea went from a traditional furniture retailer to a supplier of flat pack self-assembly furniture.

Analysing the competitive advantage options in your industry is critical to the achievement of successful strategies.

 

 

 

 

Knowledge is Power

As the famous proverb says, ‘knowledge is power’.  To be more accurate, Collating verified information so you have correct and accurate knowledge is power.

The business which owns the most accurate information about its market, customers and environment, tends to be the most successful business in that market.

Information and its assessment is therefore a critical stage in the marketing planning process and the development of sustainable marketing strategies.

It is really important that you know you are operating on correct information. Your business must know it is operating within the truth and not relying on fallacy.

In the realm of intellectual property protection generating false information is a common tactic.  It is not unknown for sportswear manufacturers to leak false football strip designs in the far east, so as to put counterfeiters off the right track.  In entertainment, film-makers deliberately leak rumours of false character arcs and storylines to divert the attention of showbiz journalists keen to publicise ‘spoilers’.

Some definitions:

  • Data:  Facts and statistics used for reference and analysis.
  • Information:  Facts or knowledge provided or learned.
  • Knowledge:  Information and skills acquired through experience and education.

Alternatively:

  • Data:  The plural of datum. A statement accepted at face value: a given.
  • Information:  A collection of facts (data) which, when analysed, can be used to draw conclusions.
  • Knowledge:  Information of which a person or organisation is aware.

Increasingly in organisations, the management of knowledge is seen as a critical factor in the development of sustainable competitive advantage.

The information to be managed is that which is focused on the organisations identity and focus. it is what the organisation needs to know about itself, its customers and the environment in which it is to operate.

Remember, knowledge is different to information in that it is used as an essential ingredient in your customer offer and business purpose.

So what is knowledge management?

  • Knowledge:  “A fluid mix of framed experience, values, contextualised information and expert insight that provides a framework for evaluating and encorporating new experiences and information.  It originates and is applied in the minds of knowers.  In organisations it is often embedded in documents, processes, policies and norms.
  • Knowledge Management:  “The explicit and systematic management if vital knowledge and its associated processes for creating, gathering, organising and exploitation.  Knowledge management is turning personal knowledgeinto corporate knowledge that can be widely shared throughout an organisation and thus appropriately applied.”

Increasingly organisations will differentiate themselves through the way they retain and manage knowledge.

Knowledge management is a concept simple in definition but desperately difficult in implementation. However, it provides real marketing advantages which offset the cost of developing knowledge management processes.

Competitive advantage is created through knowledge management by:

  1. Collecting relevant data
  2. Analysing that data – turning data into information and information into knowledge
  3. Distributing that knowledge to staff so that it can be applied in the market.
  4. Using that knowledge to enhance the customer experience.

This knowledge management process is central to the balanced scorecard method developed by Kaplan and Norton.  In that process organisational learning and knowledge management is applied to create better and more efficient corporate processes.  These new processes lead to better customer results, e.g. new customer acquisition and customer retention. These better customer results lead to better financial returns which can be re-invested in further organisational learning.

Knowledge is power and managing knowledge is increasingly seen as a key factor in any organisation’s future. It is closely linked to new technology, new market channels, market disruption and the creation of new organisational networks.  It allows the development of new ways to grab the attention of prospective customers.

 

Identifying Competitive Advantage

Marketing strategy is about creating a consumer-focused business which has sustainable and relevant competitive advantage.

Davidson (1997) said:

“Competitive advantage is achieved when you do something better than your competitors.  If that something is important to customers, or if a number of advantages can be combined, then you have an exploitable competitive advantage.”

So how do you go about identifying the competitive advantages in your business and how do you apply them to your marketing strategy to ensure you create exploitable differences in your business compared to that of your competitors? How do you turn your areas of expertise and excellence into customer-focused advantages?

The answer is a two-part process, understanding the strategic options available and understanding what attributes of your products and services customers believe to be important.  it is perfectly possible to have a strong advantage over your competitors; but if that advantage is not seen as important by your target customers, it may not be sustainable or effective.

Michael Porter of Harvard Business School identified three generic marketing strategies:

  • Cost Leadership
  • Differentiation; and
  • Focused Differentiation (or niche marketing)

Cost leadership was later split into two sub categories, overall cost leadership and focused cost leadership.

These generic strategies underpin all marketing activity.  They are crucial to developing sustainable competitive advantage.

To develop a competitive advantage strategy you need to make two decisions:

  1.  Decide on your generic strategy;
  2. Determine the strategic scope of your business.

Let’s examine each of Porter’s generic strategies and select potential areas for competitive advantage within them.

Cost leadership is about seeking overall cost leadership in your chosen market, or focused segments within that market.  Do not consider this as simply being the cheapest offer in the market.  There are plenty of products priced at their industry average level which use a cost leadership strategy.  Cost leadership is about bearing down on costs to maximise margins.  However, it can be a ‘best value’ strategy not a cheapest price strategy.

Cost leadership strategies are about creating low-cost structures and investing resources in the areas where consumers derive value.  You need to control overheads and develop economies of scale.  You need to minimise costs in subsidiary processes (including marketing!) whilst concentrating assets on primary processes.  It often requires global supply chains and sourcing of materials and labour. Manufacturing is often outsourced to regions with lower labour costs.  Cost leadership means leveraging experience effects and applying new technologies such as artificial intelligence and manufacturing automation.

Companies choosing a cost leadership strategy need to be wary of bigger, better resourced competitors entering their chosen market segments.  Creating and sustaining economies of scale are crucial to this strategy.  Such economies can be hard to achieve without significant market share and difficult to maintain if market share is falling.

It is also difficult to alter fixed costs over the short or medium term.

Cost leadership is a high volume strategy which suits commodity products.

As already stated the basic drivers of a cost leadership strategy are economies of scale, driving efficiencies, leveraging purchasing power and using experience effects in manufacture.  Another crucial aspect of cost leadership is leveraging industry relationships through joint research and development, using common manufacturing platforms and having close ties to suppliers and distributors.  it is a strategy that drives vertical integration and just in time supply chains.  You need efficient infrastructure to drive this strategy so it often requires close links to government and regulators.

Identifying those areas where a cost focus is applied is also crucial.  Take Dyson, by no means the cheapest offer in the vacuum cleaner market, they choose to design in the UK; where customers perceive difference; but manufacture in the Far East, driving down manufacturing and labour costs.

A differentiation strategy requires the development of different product offers for different market segments and customer profiles. For example, most flag carrier airlines, such as British Airways, have differentiated product offers where first class, business and economy passengers receive different levels of service on the same flight.

It is crucial to identify sources of differentiation that are perceived as important by different customer groups.  The source of differentiation is what creates customer-value.  The George Clooney film, Up in the Air, has a scene where the main character discusses the various benefits he receives from the many frequent flier offers he gets.  The level of benefits received is important to his character, it helps express his identity.

A differentiation strategy can be a means to being able to demand a price premium.

To be able to use a differentiation strategy effectively, you need to be able to create reasons for purchase.  You have to be innovative and flexible. Often perception of product or service performance is more important than the actual performance when creating difference.

In creating a differentiation strategy, costs often outweigh the benefits.  Innovations are often rapidly replicated by competitors.  Customer needs may shift over time, making chosen points of differentiation obsolete.

Take the car market.  For many years, performance was prioritised.  Then consumers became concerned about fuel efficiency.  Today, with the rise of hybrid and electric vehicles, customer seek differentiation in terms of environmental standards.  Since the recent emissions test scandal, the sale of diesel vehicles has fallen dramatically.

So what are points for product differentiation:

  • Product Performance:  Quality, durability and capability when compared to competitors’ offers.  You have to give consumers a reason to pick your product over those of competitors.
  • Product Perception:  This is often more important than actual product performance and can develop brand loyalty
  • Customer Experience: An increasingly important element in creating a successful offer and points of difference.
  • Product Augmentation:  Add to consumer value.  Use the product halo to offer better customer service, better after-sales maintenance and more efficient packaging, etc.

Focus or niche marketing means concentrating on a narrow range of activities in selected market segments.  This is the strategy of being a market specialist and often requires detailed customer knowledge.

A narrow focus increases a businesses exposure to downturns and market factors.  It is easy for consumers to shift away from a niche as fashions and interests change.

A niche can be a focus on a particular geographic region tailoring products to local needs.  It can mean serving customer groups seen as being too small for larger competitors.  However, such segments must be viable and offer adequate turnover and margins.  Niche marketing requires an end-user focus and short distribution chains.  For example Hasselblad focus on high-end large and medium format cameras used by professional fashion and art photographers and sell their products predominantly through specialist business-only suppliers.  Niche strategies require specific price points and quality standards.  often the focus is on a single product line

Porter argued that a business should select one of these strategies and that they should not attempt to combine them. He argued that to do so would mean being ‘stuck in the middle’; a marketing death zone.

Take the major airlines when the short-haul discount brands entered the market.  At first they tried to match Easyjet and Ryanair with price offers whilst also maintaining differentiated provisions in business and first class.  This strategy backfired spectacularly.  In recent times, these flag carriers have revamped aircraft and airport lounges, offering more premium priced provision to business and first class customers whilst reducing economy provision, particularly on long-haul flights.

Sources of competitive advantage must be relevant to your current and future market and they must be achievable with your existing resource base.  You must be able to defend them, putting in place barriers to replication e.g. using intellectual property rights.  Often competitive advantage is skills-based.

A useful tool in assessing competitive advantage is the Boston Consulting Group Strategic Advantage Matrix.  This compares the size of a competitive advantage with the number of ways to achieve a competitive advantage.  The result is four market positions:

  1.  Stalemate Industries: Where there are few ways to create competitive advantage and the level of such advantage is small.  This is often the position in commodity markets, and therefore infers a cost focus strategy.
  2. Volume Industries:  Where there are few ways to create competitive advantage but the level of advantage is large.  Such markets are dominated by firms able to leverage economies of scale.
  3. Fragmented Markets:  Where the size of the advantages are small but there are many ways to create competitive advantage.  This type of market suits niche businesses.
  4. Specialist Markets:  Where there are many ways to create competitive advantage and the size of such advantage is large.  These are markets dominated by specialist professionals using innovative technology.

In summary, to develop competitive advantage, you need to;

  1.  Understand your chosen market and the appropriate generic strategy for that market.
  2. Properly apply that generic strategy making the most of your organisation’s resources and expertise.

Distribution Channels: The Place Element of the Marketing Mix

One definition of marketing is as the process of developing profitable customer relationships.  The process of marketing has a dual role; to attract new customers through promoting superior value; and to retain existing customers by delivering satisfaction.  Marketing is about delivering on your promises to create competitive advantage.

Good distribution channels (now more often described as marketing channels); the place element of the marketing mix; can be a strong contributory factor to the delivery of both competitive advantage and customer value.

We live in a world where it is highly unusual for manufacturers of goods and services to sell directly to their end consumers.

Even SMEs who sell over the internet have to deal with channel intermediaries.  You have to have a relationship with your internet service provider; you may sell through online portals such as Amazon or EBay; you may receive payment through services such as PayPal; and, of course you have to rely on logistics firms such as Yodel and Royal Mail to get your products delivered.

Successful manufacturing companies do not only need to build relationships with consumers; they need to build relationships with the members of your supply and distribution chain.  You need to build upstream relationships with your suppliers (supply chain relationships) as well as downstream relationships with distributors, wholesalers and retailers (your demand chain).

Many organisations have abandoned the terms supply chain and demand chain.  Instead they use the term Value Delivery Network.  This creates a sense that all parties within the network are working to a common goal and are all contributing to the delivery of customer value.

In making products and services readily available to consumers, members of marketing channels often perform key functions.  Without their contribution to the delivery of goods and services, transactions would never be completed.

Channel members provide:

  1. Information – about consumers, competitors and other stakeholders which allows manufacturers to plan and which aids exchange.
  2. Promotion – developing and spreading positive messages about your offer.
  3. Contact – finding and communicating with potential buyers
  4. Matching – shaping offers to meet buyer’s needs including activities such as assembly, packaging and grading.
  5. Negotiation  – reaching agreements with consumers on price and other terms so that ownership and possession of products can be transferred.

These functions are in addition services such as physical distribution and financing.  They also mean that aspects of risk can be spread across the channel.

A conventional marketing channel consists of one or more independent organisations such as suppliers, wholesalers and retailers each of which is a separate business seeking to maximise their profit margins.  Often, the desire of these organisations to maximise their profits overshadows the need for the chain as a whole to be profitable.

In the UK, dairy farmers have had a long dispute with supermarket chains over the price of milk. They argue that the supermarkets are maximising their profits by paying wholesale milk prices which are below the cost of production.  This, argue the farmers, is making dairy-farming unprofitable and is putting their businesses at risk.

Some producers have therefore chosen to set up vertical marketing systems.  A VMS is where Producers, Wholesalers and Retailers work together and act as a unified system. Often the channel is wholly owned by one organisation but a VMS can be contractual or imposed by the power of one participant who can force other channel members to participate.

An example of a vertical marketing system is the franchise opportunities operated by MacDonald’s and other fast food chains.  Many fast food restaurants are independently run businesses badged with the chains identity.  It is MacDonald’s who control virtually all the aspects of the business; from the restaurant layout to the food served. The franchisee takes a share of the profits but has to take much of the business risk.

An example of a wholly owned vertical marketing system is how milk used to be delivered in the UK. Companies such as Associated Dairies used to own the dairy farms, the creameries and controlled the milk floats which delivered the bottles of milk to the doorstep.  Associated Dairies became the supermarket chain Asda.

Macdonald’s franchises are an example of a contractual VMS.

An administered vertical marketing system is where cooperation is achieved through market power.  For example Kraft Foods have enough power in the market they can control where in the supermarket and how their products are displayed. Similarly, cosmetics firms closely control how their goods are displayed in department stores and often don’t allow retailers to restock displays; instead they send in their own staff to undertake that role.

Horizontal marketing systems are where two or more companies join together to follow a new marketing opportunity.  It is the creation of a marketing channel through partnership.

An example of a horizontal marketing system from America is the partnership deal between Wal-Mart and MacDonald’s.  Wal-Mart allowed Macdonald’s to set up express outlets in their supermarkets.  Macdonald’s get to take advantage of Wal-Mart’s high levels of customer foot fall and Wal-Mart get a food outlet to feed hungry shoppers.

Some businesses use multi-channel marketing.  This is where a combination of traditional, vertical and horizontal marketing channels are used in consort.

As we have seen, MacDonald’s are one such company, they own their own restaurants (direct marketing channel);  they offer franchises (a contractual vertical marketing system); and they have a partnership deal with Wal-Mart (a horizontal marketing system).

Many SMEs may be unwittingly using multi-level marketing.  I know of one jewellery designer who sells over the net, runs pop-up shops, attends craft fairs and has a deal with a local family jewellery shop to sell her wares.  She has direct marketing, vertical marketing and horizontal marketing system in place to distribute her goods.

When deciding how you are going to distribute your goods, it is worth planning your marketing channels in a way which maximises value and which offers the most in terms of competitive advantage to your business.

 

 

 

 

 

Ten Sources of Competitive Advantage

In The Origin of Species by Natural Selection, published in 1859, Charles Darwin wrote:

“The most successful species are those which adapt to the changing environment.  The most successful individuals are those with the greatest competitive advantage over others.”

Darwin’s words apply equally if you replace the word individuals with businesses. The strategic tool used in business to develop and sustain competitive advantages is marketing.

Michael Porter proposed that a superior competitive advantage grows out of the value the firm is able to create from its customers which exceeds the cost of creating that competitive advantage.  ‘Value’ is what the customer is willing to pay.  ‘Superior’ stems from offering lower prices compared to your competitors for equivalent benefits of by providing greater benefits which are more than offset by a higher price.

Porter suggests that value chain analysis should be used to identify where customers see value.  The firm’s scarce resources can then be targeted in those areas.  He argues there are five key areas where competitive advantages can be developed:

  1. When you bring in raw materials: so a chef may develop competitive advantage by only using organic ingredients.
  2. When those raw materials are processed and modified; so our chef cooks them in a particularly skilful or special way
  3. Through the distribution of the modified raw materials: which has seen the rise of services such as Deliveroo, Ocado and Just Eat.
  4. In the marketing of those finished products;  the development of a specific marketing mix
  5. Through customer services both before and after sale.

The following anonymous quote also applies:

“The only truly sustainable competitive advantage comes from out-innovating the competition”.

Every time a product-market combination changes, so does the relative strengths and weaknesses of market actors.

Often the problem is not gaining a competitive advantage but sustaining it over time.  Many firms are first to market with a new technology, product or business model only to be overtaken by more agile competitors.  For example Tesco was the first cut price supermarket but it lost its focus on cost reduction.  The arrival of Lidl and Aldi in the UK supermarket environment has placed significant pressure on Tesco and other discount retailers such as Asda.  If you are following a low-cost strategy you need to be ruthless in driving costs from your business.  If that focus is lost you will fail.  A prime example was Kwiksave.

Davidson (1987|) said:

“Competitive advantage is achieved when you do something better than your competitors.  I you do one thing better than competitors or a number of smaller advantage can be combined, you have an exploitable competitive advantage.  One or more competitive advantages are usually necessary in order to develop a winning strategy and that this in turn should enable a company to achieve above average growth and profits”

Davidson then identified what he believed to be the ten most significant potential competitive advantages.

  1. A superior product or service offer
  2. A perceived advantage or superiority in the minds of consumers (the sale of bottled water or designer clothes).
  3. Low-cost operations through high productivity, low overheads etc.
  4. Global experience, skills or coverage (e.g. Coca Cola or McDonald’s)
  5. Legal advantages such as intellectual property rights
  6. Superior contacts and relationships with both internal and external stakeholders
  7. Economies of scale
  8. An offensive attitude; a competitive toughness and a determination to win
  9. Superior competencies in areas like design, distribution and professional ability
  10. Superior assets e.g. property and distribution outlets.  In recent years many firms have invested in their distribution and warehousing systems often introducing sophisticated robotic technologies.

To Davidson’s ten areas of competitive advantage you can add:

  • Intellectual capital – developing a strong knowledge base across your business
  • A willingness to innovate:  Virgin Group consists of over 200 companies only a small number of which are well-known.  Virgin places great importance on innovation.  At the current time Elon Musk’s Tesla are developing a hyper-loop mass transportation system, Uber are investing in flying taxis and Amazon are looking at automated drones for deliveries.
  • Investing in market research to get a better understanding of costs and target market attitudes
  • Superior technologies: such as the use of robots and cloud computing.
  • Complex selling processes. Microsoft are currently investing heavily in the promotion of Office 365.  Instead of consumers and businesses buying the software outright, it is sold on a subscription basis.  Microsoft then receive a regular injection to their cash flow.
  • There is an advantage in having the ability to be the first into a market (although this may not be sustainable).  You must look at your speed to market.
  • The development of a brand image and reputation (e.g. BMW as the ultimate driving experience)
  • Focusing on giving excellent service to your customers (“not customer satisfaction but customer delight”)
  • Efficient supply chain management.

The critical factor in any successful business is the creation of strong competitive advantages and sustaining them over time.  Far to many businesses are either first to market or first to innovate but lose any advantages they develop by concentrating of financial objectives over their wider vision.

Developing Competitive Advantage

In my home town, there are two independent cinemas.  One has taken the route of Porter’s niche generic strategy and concentrates on art house cinema.  The other, a family-owned cinema has taken a different strategic route, it shows the same range of films as the big chains but it does so in such a way as to give it a unique market presence.  It thrives by taking its unique attributes and using them to create points of competitive advantage.

The aim of marketing is to create value for customers and, in return to capture value from them.  Companies with effective marketing strategies win and keep customers by understanding their needs, by developing customer-focused marketing programmes and by building relationships with those customers.

There are three stages involved in the creation of competitive advantage:

  1. Identifying your competitors,
  2. develop competitive strategies,
  3. balance your customer orientation against your competitor orientation.

The family owned cinema competes directly against the large multiplex chains. He has analysed the market and regularly looks for changes in the way the big cinema chains present their products and services.  These are his direct competitors.  But he has gone further.

Many smaller firms have competitor myopia.  They carefully monitor their direct competition and they forget about wider latent competitors.  This doesn’t affect only small firms.  Kodak went bankrupt because it concentrated of competitors making 35mm film (such as Fuji and Ilford). Kodak was slow to recognise the rise of digital cameras manufactured by consumer electronics firms (ironic as Kodak effectively invented the digital camera).  Tower Records went bankrupt not because of other discount record stores but because it failed to see the rise of the digital download.  Borders Books went bust because it didn’t anticipate the rise of Amazon and the internet bookshop.

All these firms failed by ignoring the changes in the wider economic environment.  All were killed off by their latent, not their direct competitors.

The owners of the independent cinema didn’t just look at what the multiplex cinema chains were doing.  He recognised that consumers had wider opportunities to use their leisure time.  He wasn’t just competing against other cinemas, he was competing against theatres, bars, sports clubs and music venues.  If he was to survive and thrive he had to create a product which drew consumers away from these other sources of entertainment.

Once you have identified your competitors, you have to assess them.  You need to identify their objectives and their strategy.  You need to identify their strengths and weaknesses and you need to estimate how they will react to your strategy.

The independent cinema saw that the multiplex cinemas were aiming to attract large numbers of consumers simultaneously by offering the same film on multiple screens.  It was effectively the warehousing of entertainment.  Often they offered only the most basic of food options and only offered soft drinks.  The aim was to factory process movie entertainment e.g. consumers were processed through the site, entering the cinema through a large foyer but leaving through a separate exit.  He also found that many multiplexes were located at out of town malls and shopping centres.

Having examined both the direct and latent competition, the cinema owner looked at his business strengths and developed a strategy to use them.  He realised he couldn’t compete head on with the large chains and that he had to do things differently.

His cinema had been built in the 1930sin an art deco style.  It was located in a leafy suburb of the city and there was little off street parking in the vicinity.  His father had carried out some building work to split the large auditorium into three screens; the smallest of which was a fifty seat screening room.

He may have been showing the same product as the multiplexes, mass market blockbusters, but he realised that his venue could do it in a different way.  He installed sofa-like twin seats in his main auditorium.  He opened up a bar at the back of the auditorium so that customers could order drinks at their seats.  He showed double features with an intermission so that consumers could use the bar between films.  The smallest screen could be booked for private parties.  He used the 1930s atmosphere of his venue to build on the image of a golden age of cinema.  Staff would welcome customers to the venue and escort them to their seats.  He offers a wide-range of food and snacks, not just popcorn and nachos.  He was intent on making a visit to the cinema an event, not just an option to take up spare time. Customers are given the ‘red carpet treatment’.

Being in the suburbs, he was also keen to develop his cinema as a community asset.  He runs a cinema club where regular customers can get discounted tickets and the opportunity to see advance screenings.  He runs traditional kid’s Saturday morning film clubs and late night screenings of horror films.  He retains many customers because they see his cinema not just as a commercial venture but as an important community asset.

The family-run cinema also benefits from his competition.  The rise of the multiplex has meant a huge upturn in people going to the cinema.  In the 1970s and 1980s, cinema was in trouble.  Many venues were closing or being converted into bingo halls and nightclubs.  Now more people go to the cinema than in its golden period of the 1930s and 1940s.  The multiplex chains have allowed the development of blockbuster movies often with budgets of over a hundred million dollars.  They have increased total demand for cinemas and have allowed the development of new technologies such as surround sound, high definition and 3D.

When Apple created the Ipad, it was described by some commentators as the ‘Kindle killer’.  They expected Apple’s tablet to destroy the market for Amazon’s e-reader.  Instead, the Ipad increased the demand for tablets hugely.  Apple took the Ipad concept and turned the kindle into a multi use tablet, not just an e-reader and sales rocketed.

The independent cinemas owners worked hard to identify an uncontested market space.  They realised that there is no such thing as a one size fits all marketing strategy.  They also realised that they couldn’t follow a ‘me too’ strategy where they simply copied the strategies of their competitors.  They recognised that they needed to develop different strategies to those of their competitors and to provide a different product option for consumers.