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*Discuss the entire product market structure, including generic product market and product type product market? *Identify and explain each of Porter's five forces? *discuss entirely strategic alliances and joint ventures.

\fDefining and Analyzing Product-Markets In the remainder of the chapter we discuss the activities involved in defining and analyzing product-markets. The steps are shown in Exhibit 2.2, beginning with determining product- market boundaries and structure. Determining Product-Market Boundaries and Structure Product-market boundaries and structure provide managers with important information for developing business and marketing strategies, and alert management to new competition. Considering only a company's brands and the direct competitors may mask potential com- petitive threats or opportunities. Product-Market Structure A company's brand competes with other companies' brands in generic, product-type, and product-variant product-markets. The generic product-market includes a broad group of 5354 Part Two Markets, Segments, and Customer Value EXHIBIT 2.2 Determine the Boundaries Defining and and Structure of the Analyzing Product-Market Product-Markets Form the Product-Market Dy Describe and Analyze End Users Analyze Competition Forecast Market Size and Rate of Change products that satisfy a general, yet similar, need. For example, several classes or types of products can be combined to form the generic product-market for kitchen appliances. The starting point in determining product-market boundaries is to identify the particular need or want that a group of products satisfies, such as performing kitchen functions. Since people with a similar need may not satisfy the need in the same manner, generic product- markets are often heterogeneous, containing different end-user groups and several types of related products (e-g., kitchen appliances). The product-type product-market includes all brands of a particular product type, such as ovens for use in food preparation by consumers. The product type is a product category or product classification that offers a specific set of benefits intended to satisfy a customer's need or want in a specific way. Differences in the products within a product- type product-market may exist, creating product-variants." For example, electric, gas, and microwave ovens all provide heating functions but employ different technologies.The product-type product-market includes all brands of a particular product type, ich as ovens for use in food preparation by consumers. The product type is a product ategory or product classification that offers a specific set of benefits intended to satisfy customer's need or want in a specific way. Differences in the products within a product- ype product-market may exist, creating product-variants." For example, electric, gas, nd microwave ovens all provide heating functions but employ different technologies. Guidelines for Definition n defining the product-market, it is helpful to indicate (1) the basis for identifying buyers n the product-market of interest (geographical area, consumer/business, etc.); (2) the mar- et size and characteristics, and (3) the brand and/or product categories competing for the eeds and wants of the buyers included in the product-market. The composition of a product-market can be determined by following the steps shown Exhibit 23. We illustrate how this process can be used to determine the composition of he kitchen appliance product-market. Suppose top management of a kitchen appliance um is considering expanding its mix of products. The company's present line of laun- ry and dishwashing products meets a generic need for the kitchen functions of cleaning. her kitchen use situations include heating and cooling of foods. In this example the eneric need is performing various kitchen functions. The products that provide kitchen unctions are ways of satisfying the generic need. The break out of products into specific roduct-markets (e.g., A, B, C, and D) would include equipment for washing and dryingEXHIBIT 2.3 Start with the generic need satisfied by Determining the the product category of interest to Composition of a management Product-Market Identity the product categories (types) that can satisfy the generic need Identity the specific product-markets within the generic product-market clothing, appliances for cooling food, cooking appliances, and dishwashers. The buyers in various specific product-markets and the different brands competing in these product-markets can be identified and analyzed. The process of mapping the product-market structure begins by identifying the generic need (function) satisfied by the product of interest to management. Need identification is the basis for selecting the products that fit into the product market. An example of the product-market structure to meet people's needs for food is shown in Exhibit 2.4. A fast-food restaurant chain such as McDonald's should consider more than its regular customers and direct competitors in its market opportunity analysis. The consumption need being satisfied is fast and convenient preparation of food. The buyer has several ways of meeting the need such as purchasing fast foods, preparing food in the microwave in the home, patronizing supermarket delis, buying prepared foods in convenience stores, and ordering take outs from traditional restaurants. The relevant competitive space includes all of these fast-food sources. It is essential to analyze market behavior and trends in the product-markets shown in Exhibit 2.4, since competition may come from any of the alternative services. Forming Product-Markets The factors that influence how product-market boundaries should be determined include the purpose for analyzing the product-market, the rate of changes in market composition over time, and the extent of market complexity. Purpose of Analysis If management is deciding whether or not to exit from a business, primary emphasis may be on financial performance and competitive position. Detailed analysis of the product- market may not be necessary. In contrast, if the objective is finding one or more attractivemarket segments to target in the product-market, a much more penetrating analysis necessary. When different products satisfy the same need, the product-market boundarie should contain all relevant products and brands. For example, the photography product market should include digital cameras, related equipment and services, and conventions cameras, film, and services. Product-market boundaries should be determined in a manne that will facilitate strategic thinking, enabling management to capitalize on existing an potential opportunities and to avoid possible threats. Changing Composition of Markets As discussed earlier product-markets may change as new technologies become availabl and new competition emerges. New technologies offer buyers different ways of meetin their needs. For example, fax technology gave people in need of overnight letter deliver an alternative way to transmit the information. The entry into the market by new competi tors also alters competitive space. Industry classifications often do not clearly define product-market boundaries. Fo example, people may meet their needs for food with products from several industries a shown in Exhibit 2.4. Industry-based definitions do not consider alternative ways of meet ing needs. Industry classifications typically have a product supply rather than a custome demand orientation. Of course, since industry associations, trade publications, and govern ment agencies generate a lot of information about products and markets, information from these sources should be included in market analysis. However, market analysis activitie should not be constrained by industry boundaries.Extent of Market Complexity Three characteristics of markets capture a large portion of the variation in their complexity: (1) the functions or uses of the product needed by the customer, (2) the technology used in the product to provide the desired function, and (3) the different customer segments using the product to perform a particular function.! ! Customer function considers the role or purpose of the good or service. It is the value provided to the customer. Thus, the function provides the capability to satisfy the value requirements of the customer. In the case of the personal computer, the function performed may be entertainment for the household, information search, Internet purchasing, or the performance of various business functions. Different technologies may satisfy the use situation of the customer. Steel and alumi- num materials meet a similar need in various use situations. The technology consists of the materials and designs incorporated into products. In the case of a service, technology relates to how the service is rendered. For example, voice calls can be sent via the Internet, traditional phone lines, and wireless phones. Customer segment recognizes the diversity of the needs of customers in a particular product-market such as automobiles. A specific brand and model won't satisfy all buy- ers' needs and wants. Two broad market segments for automobile use are households and organizations. These classifications can be further divided into more specific customer seg- ments, such as preferences for European-style luxury sedans, sport utility vehicles, and sports cars. It is important to focus on the consumer (or organizational) end-user of the product when defining the market, since the end-user drives demand for the product. When the end-users' needs and wants change, the market changes. Even though a producer con- siders the distributor to which its products are sold to be the customer, the market is really defined by the consumer and organizational end-users who purchase the product for consumption.Illustrative Product-Market Structure Suppose you are a brand manager for a cereal producer. You know that brands like Life, Product 19, and Special K compete for sales to people that want nutritional benefits from cereal. Nonetheless, our earlier discussion highlights the value of considering a more com- plete picture of how competing brands like Life, Product 19, and Special K also may expe rience competition from other ways of meeting the needs satisfied by these brands. For example, a person may decide to eat a Kellogg's Nutri-Grain cereal bar instead of a bowl of cereal, and the consumer may want to vary the type of cereal, eating a natural or regular type of cereal. Because of the different product types and variants competing for the same needs and wants, the cereal brand manager should develop a picture of the product-market structure within which her/his brand is positioned. Exhibit 2.5 provides an illustrative product-market structure for cereals. The diagram can be expanded to portray other relevant product types (e.g., breakfast bars) in the generic product-market for food and beverages.Competitive Forces Different competitive forces are present in the value-added chain. The traditional view of competition is expanded by recognizing Michael Porter's five competitive forces that impact industry performance: 1. Rivalry among existing firms. 2. Threat of new entrants. 3. Threat of substitute products. 4. Bargaining power of suppliers. 5. Bargaining power of buyers. The first force recognizes that active competition among industry members helps deter- mine industry performance, and it is the most direct and intense form of competition. The aggressive competition between General Motors and Toyota is illustrative. Rivalry may occur within a market segment or across an entire product-market. The nature and scope of competition may vary according to the maturity of the industry.The second force highlights the possibility of new competitors entering the mark Existing firms may try to discourage new competition by aggressive expansion and off ypes of market entry barriers. The entry of Wal-Mart into the supermarket business h substantially expanded and intensified the competitive arena in this market. The third force considers the potential impact of substitutes. New technologies that s sfy the same customer value requirement are important sources of competition. Includi alternative technologies (e.g., disruptive innovations) in the definition of product-mark tructure identifies substitute forms of competition. The fourth force is the power that suppliers may be able to exert on the producers in industry. For example, the high costs of labor exert major pressures on the commercial ine industry. Coke and Pepsi exert important influences on their independent bottlers a encourage collaboration. Companies may pursue vertical integration strategies to redu he bargaining power of suppliers. Collaborative relationships are useful to respond to needs of both partners. Finally, buyers may use their purchasing power to influence their suppliers. Wal-Ma or example, has a strong influence on the suppliers of its many products. Understar ng which organizations have power and influence in the value chain provides import nsights into the structure of competition. Key Competitor AnalysisKey Competitor Analysis Competitor analysis is conducted for the firms directly (e.g., Nike and Reebok) and other companies that manager strategy analysis (for example, potential market entrants). T tor intelligence activities by many companies in the last dec executives place on monitoring competitors' activities. Man have developed very effective intelligence units. Nonethel and legal issues to consider in competitive intelligence ga trated in the ETHICS FEATURE. We now look at two major aspects of competitor analy profile for each competitor; and (2) evaluating the competi (Steps 2 and 3 of Exhibit 2.8). Describing and Evaluating the CompetitorKey Competitor Analysis Competitor analysis is conducted for the firms directly competing with each other (e.g., Nike and Reebok) and other companies that management may consider important in strategy analysis (for example, potential market entrants). The rapid expansion of competi- tor intelligence activities by many companies in the last decade highlights the high priority executives place on monitoring competitors' activities. Many companies around the world have developed very effective intelligence units. Nonetheless, there are important ethical and legal issues to consider in competitive intelligence gathering. These issues are illus- trated in the ETHICS FEATURE. We now look at two major aspects of competitor analysis: (1) preparing a descriptive profile for each competitor; and (2) evaluating the competitor's strengths and weaknesses (Steps 2 and 3 of Exhibit 2.8). Describing and Evaluating the Competitor A key competitor is any organization going after the same market target as the firm con- ducting the analysis. American and Southwest Airlines are key competitors on many U.S. routes. Key competitors are brands that compete in the same product-market or segment(s) within the market (Motorola, Nokia, and Samsung cell phones). Different product types that satisfy the same need or want may also actively compete against each other. Thus, microwave dinners may compete with fast-food operators. Information which is typically included in the competitor profile is shown in Exhibit 2.11. Sources of information include annual reports, industry studies by government and pri- vate organizations, business magazines and newspapers, industry trade publications and websites, reports by financial analysts (e.g., Value Line Investment Survey), government reports, standardized data services (e.g., Information Resources, Inc. and Nielsen), data- bases, suppliers, customers, company personnel, and salespeople. Direct contact with the research directors of trade publications is often a useful source of information about the industry and key competitors. It is important to gain as much knowledge as possible about the background, experience, qualifications, and tenure of key executives for each major competitor. This information