Competitive dynamics. Jukka Luoma, D.Sc. Assistant Professor Department of Marketing Aalto University School of Business

Transcription

1 Competitive dynamics Jukka Luoma, D.Sc. Assistant Professor Department of Marketing Aalto University School of Business

2 MSFP framework Lecture 5 Competitors - Reactions - Attacks Market orientation + Marketing capabilites Marketing action - 4Ps - (understood broadly) Impact on customer - Attitudesà Behaviors - (e.g., satisfaction à retention) Firm performance - Sales - Profits - Shareholder value Other actions Lecture 3-4 Lecture 2 Environmental change - Changes in customer behavior - Technological change - Etc.

3 Sources of performance differences External Industry structure Positioning Treat of new entrants Internal Resource-based view - Resources - Capabilities Bargaining power of suppliers Rivalry Bargaining power of buyers VRIN (Barney, 1991) - Valuable - Rare - Inimitable Threat of substitutes - Non-substitutable

4 Intellectual roots of competitive dynamics: Joseph Schumpeter ( ) Shifted emphasis from the neoclassical focus on price competition and equilibrium conditions to innovation and disequilibrium - the returns to innovation stem from the transient monopoly of a new product or process provided by imitator lag. (Nelson & Winter, 1982: 279) Competitive dynamics What makes companies capable of disturbing the market s status quo? What determines the likelihood and speed of competitor responses?

5 Competitive dynamics issues Predicting incumbents responses to entry After Years Of Patent Litigation, Nuance Acquires Vlingo techcrunch.com Explaining incumbent company performance Apple s ambition level is not very high. [ ] [The iphone] is a pretty interesting product, but it lacks few necessary features such as 3G connectivity. (Anssi Vanjoki, Head of Nokia Multimedia Division, 2007)

6 Importance of timing (e.g., Boyd & Bresser, 2008) Touchscreen Mobile gaming Tablet Large-scale consumer services are not made in a year or two. We have frequently lacked patience for that. - (former Senior Program Manager at Nokia, 2014) Quote: Helsingin Sanomat interview, 26 th April,

7 Smartphone industry rivalry A business war game

8 Background: Nokia in 2007 Nokia s dominance of the global mobile phone market seemed unchallengeable - Half of the world s mobile phones sold that year were produced by the company - The Mobile phone division s operating profits were 22 percent of net sales, up five percentage points from the previous year One Nokia executive, Anssi Vanjoki, welcomed Apple s iphone to the market. - Apple s market entry is a great thing, he said. It fuels growth in the industry. - Apple s level of ambition is not very high. It was an interesting product, but lacked few central features such as 3G connectivity that enables fast connectivity. Sources: /09/15 8

9 The smartphone revolution Due to Google s Android ecosystem and Apple s iphones Nokia was dropped from the TOP 5 smartphone vendors in The first iphone shipped in 2007, and we still don t have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable. (CEO Stephen Elop, Nokia, 2011) 28/09/15 9

10 Smartphone sales growth Millions units shipped Source: IDC vis Statista ( 27/09/15 10

11 Microsoft-Nokia deal February 2011: Strategic partnership between Microsoft and Nokia November 2011: Lumia 800 November 2012: Windows Phone 8 April 2013: Lumia 520 (entry level price point) July 2013: Lumia 1020 ( best camera in the world ) September 2 nd, 2013: Microsoft s intention to buy Nokia s Devices and Services business is announced

12 Nokia now In 2015, Nokia is no longer the crisis corporation it was in The company is profitable and has a strong financial position The acquisition deal with Microsoft included a clause that prevents Nokia from launching smartphones that carry the company brand until 2016 In the meanwhile, Nokia launched the N1 tablet device in the Chinese market, in collaboration with Foxconn, a Chinese electronics contract manufacturer - The device runs the Android OS, but is given a customized experience by Z Launcher, software that handles the launching and switching between apps. - A Nokia C1 smartphone seems to be under works Image: Nokia 27/09/15 12

13 Task: Entry to the smartphone category Craft an entry strategy for Nokia s re-entry to the smartphone category in 2016 Consider, e.g., - Product (mix) operating system, features, etc. - Pricing / business model - Advertising / branding - Distribution / geographical focus Supporting data found in MyCourses Provide sales / market share and profitability targets for end-of :05 60-second elevator pitches

14 Voting procedure Propose an entry strategy for Nokia in 60 seconds Two-step procedure - Vote (all)-discuss-vote (2) Round 2 to follow 27/09/15 14

15 Round 2 Now, we will step into the shoes of Nokia s rivals (Tsai et al., 2011) What will the competitor do, given Nokia s chosen strategy Winning team tries to predict these actions prior to hearing other team s responses Take a break, Period Samsung Apple Huawei Xiaomi 2015Q % 13.90% 8.70% 5.60% 2014Q % 11.60% 6.70% 4.60% 2013Q % 12.90% 4.30% 1.70% 2012Q % 16.60% 4.10% 1.00% 27/09/15 15

16 CASE: Xiaomi

17 Xiaomi timeline Founded in 2010 Mi1 launched in August Sold out in two days China s biggest smartphone vendor in Q2/2014, surpassing Samsung World s 4 th largest smartphone vendor in Q2/2015 (5.6 %) (IDC.com) Looking to broaden geographical scope Photo credit: Xiaomi s-top-smart-phone-vendor

18 Xiaomi products

19 Performance Rapid sales increase, revenue 27 billion yuan in % is from smartphone sales Net profit increased in 2013 to 3.46 billion yuan ($566 million) from 1.88 billion yuan in % net profit increase predicted for 2014 (~$1 billion) xiaomi-revenue-profits benchmarking-xiaomis-servicesrevenue.html#.vgj5qkuhmds

20 Tightly coupled, highly differentiated activity system Product range MUIU (customized Android) - Most blatant ios 7 ripoff ever (Mashable.com) Look and feel of the iphone - Empire Built by Aping Apple (NYTimes.com) New product development Intensive involvement of users Frequent updates (every week) Customer relationship management Mi Fans Word-of-mouth Advertising Social media Services Virtually no advertising in traditional media Accessories Distribution Online sales Low pricing Rock-bottom pricing (WSJ.com)

21 Why is it hard for rivals to respond (e.g., Apple, Samgsung)? Awareness - Yes, but given the rapid growth of the company, Xiaomi has not probably been at the center of Apple/Samsung s attention for long Motivation - Apple and Samsung do not want to destroy their margins - The activity systems of Apple and Samsung look entirely different (e.g., flagship stores, heavy advertising, secretive product development); change something, screw up everything - Xiaomi s near-term target markets are less attractive because of low average selling price (esp. Apple) Capability - Apple and Samsung are traditional marketing companies, they don t necessarily have the competencies to engage in user-lead design and product development, social media marketing, etc., that form the basis of Xiaomi s competitive advantage

22 How to prosper in highly competitive environments: Case Xiaomi To be able to create value for customer and extract profits in the process, you need to re-think the industry business model (how to create value and make money) however, this does not necessarily mean entirely new products or services, but a different way of producing them - and appropriating value A differentiated, tightly coupled activity system is a strong barrier to imitation from incumbent firms (Rivkin, 2000) - A business model based on complementarities (Amit & Zott, 2013) (previous lecture)

23 Conclusions In dynamic markets, competitive advantage rests on the company s capability to constantly re-create temporary advantages The likelihood, speed and intensity of competitor responses affect the return on a firm s innovation / marketing activities - Competitive responses are predicted by awareness, motivation, capability - Predicting competitive responses requires seeing the situation from the competitor s perspective Competition is a dyadic phenomenon Perceived competitive tension may not equal actual level of competitive interdependence 28/09/15 23