Intro to Marketing: Marketing Environment - Competitive Forces, Direct Indirect Substitute

What This Is

Competitive forces refer to the external factors that influence a company's market position and profitability. These forces can be direct (e.g., competitors), indirect (e.g., suppliers, regulators), or substitute (e.g., alternative products or services). Understanding competitive forces is crucial for marketers to develop effective strategies and make informed decisions. For instance, Nike's success in the athletic wear market can be attributed to its ability to differentiate itself from competitors like Adidas and Under Armour through innovative products and branding.

Key Frameworks & Metrics

• BCG Matrix: A tool to evaluate business units based on their market growth rate and relative market share, helping companies allocate resources effectively.
• Customer Journey Map: A visual representation of the customer's experience across different touchpoints, enabling marketers to identify pain points and opportunities for improvement.
• Direct, Indirect, and Substitute Competitors: Understanding the different types of competitors is essential for developing a comprehensive marketing strategy.
• Market Share: A key metric to measure a company's performance in the market, calculated as the ratio of a company's sales to the total market sales.
• NPS (Net Promoter Score): Measures customer loyalty by asking how likely they are to recommend the brand – a key CX metric.
• ROAS (Return on Ad Spend): A metric to evaluate the effectiveness of advertising campaigns, calculated as the revenue generated divided by the cost of the campaign.
• SWOT Analysis: A framework to identify a company's strengths, weaknesses, opportunities, and threats, helping marketers develop strategies to leverage strengths and address weaknesses.
• TOWS Matrix: A tool to analyze the relationship between a company's strengths, weaknesses, opportunities, and threats, enabling marketers to develop effective strategies.

Step-by-Step Process

1. Conduct a Competitive Analysis: Identify direct, indirect, and substitute competitors, and analyze their strengths, weaknesses, and market strategies.
2. Assess Market Share: Calculate market share to understand a company's position in the market and identify opportunities for growth.
3. Develop a Customer Journey Map: Visualize the customer's experience across different touchpoints to identify pain points and opportunities for improvement.
4. Evaluate Business Units: Use the BCG Matrix to evaluate business units based on their market growth rate and relative market share.
5. Set Marketing Objectives: Based on the competitive analysis, market share, and customer journey map, set specific marketing objectives to achieve.
6. Measure and Evaluate Performance: Use metrics like ROAS and NPS to measure and evaluate the effectiveness of marketing campaigns.

Common Mistakes

1. Mistake: Confusing market segmentation with personas.
2. Correction: Market segmentation involves dividing the market into distinct groups based on demographics, needs, or behaviors, while personas are fictional representations of ideal customers.
3. Mistake: Relying only on last-click attribution.
4. Correction: Last-click attribution only measures the effectiveness of the last touchpoint in a customer's journey, ignoring the impact of previous interactions.
5. Mistake: Ignoring LTV when setting CAC.
6. Correction: Customer Lifetime Value (LTV) should be considered when setting Customer Acquisition Cost (CAC) to ensure that the cost of acquiring a customer is justified by the revenue generated over their lifetime.
7. Mistake: Failing to consider indirect and substitute competitors.
8. Correction: Indirect and substitute competitors can have a significant impact on a company's market position and profitability, and should be considered when developing a marketing strategy.

Marketing Strategy Tips

1. When positioning a new product, avoid over-segmentation that leads to a niche with insufficient market size.
2. Use the 4Ps (Product, Price, Place, Promotion) to differentiate a product or service, but also consider the 3Cs (Cost, Convenience, Communication).
3. When evaluating the effectiveness of marketing campaigns, use a combination of metrics like ROAS, NPS, and customer lifetime value.

Quick Practice Scenario

Scenario: A D2C brand's ROAS dropped from 4x to 2x after scaling Facebook ads. What analysis would you perform to diagnose the issue?

Answer: Perform a customer journey map analysis to identify pain points and opportunities for improvement, and evaluate the effectiveness of the Facebook ads campaign using metrics like ROAS and NPS.

Explanation: The drop in ROAS suggests that the Facebook ads campaign may not be as effective as it was previously, and a customer journey map analysis can help identify the root cause of the issue.

Last-Minute Cram Sheet

1. Competitive forces include direct, indirect, and substitute competitors.
2. BCG Matrix evaluates business units based on market growth rate and relative market share.
3. Customer Journey Map visualizes the customer's experience across different touchpoints.
4. NPS (Net Promoter Score) measures customer loyalty.
5. ROAS (Return on Ad Spend) evaluates the effectiveness of advertising campaigns.
6. SWOT Analysis identifies a company's strengths, weaknesses, opportunities, and threats.
7. TOWS Matrix analyzes the relationship between a company's strengths, weaknesses, opportunities, and threats.
8. Market Share is calculated as the ratio of a company's sales to the total market sales.
9. LTV (Customer Lifetime Value) should be considered when setting CAC.
10. 'Brand equity' is not just awareness – it includes perceived quality, loyalty, and brand associations.