The Butterfly Effect in Competitive Markets

Driving Small Changes for Large Differences

. Rajagopal

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN: 9781137434951
• eBook ISBN: 9781137434975
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

This book provides an introduction to the concept of entrepreneurship and entrepreneurial business management. It covers many elements of the entrepreneurial management discipline including choosing a business, organizing, financing, marketing, developing an offering that the market will value, and growing the business in all its dimensions.

Section II

Building Global–Local Marketing Effects

4

Market Trend Analysis

Most firms making efforts to gain competitive advantage build their marketing strategies on product improvements as impulsive changes to attract consumers and the market. Changes in existing products, services, or marketing strategies often face consumer resistance. This chapter defines market resistance as an opposition to traditions in the marketplace to create new behavior among consumers. Market shifts explore purposive behavior of consumers and attempt to recreate the modern social conventions that manifest positive impact on competitive differentiations in the marketplace. Many companies recognize that their dispersed global operations drive innovative ideas and build capabilities for introducing competitive market changes. This chapter explains the role of managers in successfully bringing innovations to an enterprise and expanding at the global scale. Arguments are illustrated with examples in reference to phases of innovations, behavioral metrics, the change-resistance cycle, critical success factors, opportunities, threats and disruptions, and chain reactions of innovation. The chapter also addresses the concept and practice of conceiving ideas and nurturing strategic business shifts in a competitive marketplace and suggests ways to increase effectiveness in managing innovations and corporate goals.

Globalization has opened many routes to marketing including marketing opportunities through the Internet and virtual shops. However, amidst increasing market competition, the rules of the game are subject to change without notice. In this process a company must understand thoroughly all the moves of rival firms from various sources. The locales of business rivalry have to be spotted to assess their strengths. An intriguing aspect of the marketplace is that the nature of competition can change over time. A technology, company, or product does not need to remain prey to another forever. Competitive roles can be radically altered with technological advances or with the right marketing decisions. For example, external light meters, used for accurate diaphragm and speed setting on photographic cameras, enjoyed a stable, symbiotic (win/win) relationship with cameras for decades. As camera sales grew, so did light meter sales. But eventually, technological developments enabled camera companies to incorporate light meters into their own boxes. Soon, the whole light meter industry became prey to the camera industry. Globalization has not only accelerated the growth of companies from developed countries that are striving to gain exponential growth in business across market territories, but has also benefitted regional firms by competition in various sectors of business. Hence, market competition in the twenty-first century appears to be random, multi-directional, and omnipresent irrespective of the region, products, and services.

The emerging markets of developing countries have received signals from global competition and are rising fast. However, there are many hidden risks in the rise of potential firms to the global marketplace and the changing intensity of existing market competition. For example, observations in various research studies reveal that there were four factors that drove Japanese firms’ early export growth, namely strong corporate models and cultures, a domestic market isolated from competition, a compliant labor force, and cohesive, homogeneous leadership. But when the firms moved into foreign markets, those strengths became downfalls. Entrenched in their corporate ways, Japanese firms were too narrow-minded to look for local insights, and they lacked leaders who had international knowledge. They were also unprepared for contentious overseas labor relations and the sophistication and expertise of their global competitors. Thus, to avoid Japan’s fate, emerging giants must change their business models, reduce their reliance on protected domestic markets, learn to cope with diverse labor, and shake up their leadership (Black and Morrison, 2010).

Contemporary global business models explain that firms tend to structure themselves as one of four organizational types: international, multi-domestic, global, and transnational. Depending on the type, a company’s assets and capabilities are either centralized or decentralized, knowledge is developed and diffused in either one direction or in many, and the importance of the overseas office to the home office varies. International marketing refers to exchanges across national boundaries for the satisfaction of human needs and wants. The various marketing functions coordinated and integrated across multiple country markets may be referred to as global marketing. The process of such integration may involve product standardization, uniform packaging, homogeneity in brand architecture, identical brand names, synchronized product positioning, commonality in communication strategies or well-coordinated sales campaigns across the markets of different countries. The term “global” does not convey the literal meaning of penetration into all countries of the world.

Many factors determine the nature of competition, including not only rivals, but also the economics of particular industries, new entrants, the bargaining power of customers and suppliers, and the threat of substitute services or products. A strategic plan of action based on this multiplicity might include positioning the company so that its capabilities provide the best defence against competitive forces, influencing the balance of forces through strategic moves, and anticipating shifts in the factors underlying competitive forces. In outwitting competitors companies must detect changes in the strategy game in reference to the market players’ status in gaining more knowledge, networking, entrepreneurship, and increasing ambitions. The driving forces of competing firms, their organization, and micro-economic environment need to be studied carefully by the company planning to overtake competitors in the business. Further in the process of winning the battle of rivals it would be helpful for a company to understand the changing stakes of competitors and the forces after such developments. A company can outmaneuver a rival by being more skillful in particular tasks and reshaping the stakes in one or more business arenas. Outmaneuvering rivals is the core of changing the rules of the marketplace. Strategy for outperforming a competitor is largely based on two issues – performance parameters and the assessment criteria of the performance. However, the critical parameters may include research for the following information as to who is:

• Creating new customer needs that do not exist.

• Developing and establishing the new attributes of the product.

• Establishing new channels to reach all existing and potential customers.

• Reinventing stakes to condemn others to play catch-up roles.

• Creating new capabilities as the source of new products and customer needs.

• Creating a knowledge base for driving the capabilities for the new goods and services.

• Establishing new relationships with channels, institutions, and customers.

• Winning or losing in the business battle.

• Establishing new chains of customer delight.

• Leading the product.

• Dominating the price–value relationship.

The parameters and assessments of the above actions would help in focusing both the thinking and strategy-building process for sailing through the competition successfully. The current and future strategy of competitors must be considered by any company planning to outwit, outmaneuver, and outperform them.

Global retailing firms build their strategies to resolve the regional disparities in their strategies by coordinating and integrating the strategy implementation activities that involve centralization, standardization, delegation of authority, and local responsiveness. In the global marketplace India and China have made significant progress in economic and commercial sectors. China has emerged as a manufacturing base for the world in providing quality products at low prices and also leading the retailing operations in domestic and international markets. As more firms turn their attention to compete in emerging markets, they strive toward developing a viable alternative to sustain competition. Market orientation requires a different competitive mind-set and a systematic way of looking for opportunities, instead of looking within the conventional boundaries that define how an industry competes; managers can rather look methodically across them. In the process of market orientation firms can find scope for real value enhancement rather than looking at competitors within their own industry. Accordingly, firms with a customer-oriented business culture have been shown to facilitate innovativeness in customer services to improve their overall business system and develop a positive perception among customers, which is expected to yield long-term loyalty. Customer-focused firms that also have market orientation rely on developing strategies toward increasing customer satisfaction and loyalty through improved service quality. It is commonly perceived by marketing managers that market-oriented campaigns are expensive but actually can lower operating costs and increase market share by yielding high sales. It is more profitable for a retailing firm to establish long-term customer relationships than to adopt a short-term transaction-oriented approach. The customer-centric strategies of a firm should go beyond customer relationships and incorporate cross-functional integration of processes, people, operations, and marketing capabilities enabled through information, technology, and applications.

Globalization has increased access to markets as remote markets have been reduced following political and economic changes world-wide. Market access has also been improved by growing trade blocs at the regional level. Such access to markets is further reinforced by reducing trade barriers through far-reaching business communication strategies, product and market development programs, and customer relations. This situation has given a boost in market opportunities as narrowing trade barriers helped in deregulating certain sectors of trade such as financial services. Technical operating standards and protocols are being widely adapted to synchronize with global industry standards. Resources are managed externally to a large extent as the best and low-cost materials are procured locally by multinational companies. The benefits of global sourcing for such companies include low-cost labor, uniform quality, innovative ideas, access to local markets, economies of scale, lower taxes and duties, lower logistics costs, and more consistent supply. However, there are also some risks in global sourcing, which might be political, economic, exchange, or supplier risks. In globalization, product lifecycles are getting shorter as new products are penetrating with higher speed in markets due to technological development and scale of operations. In this process many products are dropped off the product lifecycle either at the stage of introduction or growth. There are few products that sustain till the mature stage is passed. The growth of technology and its dynamic synchronization with industry are converging fast and leading toward quick adaptation of global products. The globalization of customer requirements is resulting from the identification of worldwide customer segments of homogeneous preferences across territorial boundaries. Business-to-consumers and business-to-business markets are powered by consumer demands from global companies as they are perceived to be more value-oriented and offer added benefits.

The globalization process reinforces the concept of locality, for a very simple reason: what is traded in a global context must be produced somewhere; global networks must begin and end somewhere. So the emergence of the global dimension in our societies does not mean the disappearance of locality, but rather the strengthening of a concept that is at the very source of globalization. Cities are anchorage points for globalization par excellence because few human territories can offer such complex facilities built up over time, offering so many facets, material and conceptual, inherited and innovative. The process of going global has enabled individuals, corporations, and nation-states to influence actions and events around the world faster, deeper, and cheaper than ever before, and equally to derive benefits from them. Globalization has led to the opening, the vanishing of many barriers and walls, and has the potential for expanding freedom, democracy, innovation, and social and cultural exchanges while offering outstanding opportunities for dialog and understanding.

Global competition is observed in both aggressive and defensive dimensions in the market. Companies that are capable of managing appropriate diffusion of technology and an adaptation process among customer segments are found to be highly successful. Competition among multinationals these days is likely to be a three-dimensional strategic game wherein the moves of an organization in one market are designed to achieve goals in another market in ways that are not immediately apparent to rivals. There is growing consensus among international trade negotiators and policymakers that a prime area for future multilateral discussion is competition policy. Competition policy includes antitrust policy (with merger regulation and control) but is often extended to embrace international trade measures and other policies that affect the structure, conduct, and performance of individual industries. The leading alliances between major multinational enterprises may be seen in reference to production, finance, technology, and supply chain along with other complementary activities. To compete in major global markets multinational companies deliver substantial financial resources. Logistics and supply chain management is an art of management of the flow of materials and products from the source of production to the end user. This system in terms of multinational companies includes the total flow of material right from the acquisition of raw materials to the delivery of finished products to customers. The function of distribution is the combination of activities associated with advertising, sales, and physical transfer of goods and services to retail and wholesale delivery points, as is being observed by global companies in order to establish their competitive strength in the market. Logistics management is an important function handled by such business companies in the marketing process, and effective logistics management improves both cost and customer service performance of the company. Globalization of distribution is particularly important for companies using the Iinternet for e-commerce as they can operate economies of scale with a wider reach of customers.

Behavioral resistance to change

The common cognitive behavior of consumers delineates that most consumers are resistant to change in products and services they are used to. Thus, improvements in products do not always encourage consumers to respond favorably and restrict the growth of changes introduced by companies to mark their differentiation and gain competitive advantage. Many consumer products grow as sustainable brands in the family context; for instance, use of a particular brand of dental cream may be adopted in a family over generations. Consumers resist accepting changes in such brands grown over generations in the family despite competitive differentiations introduced by the company.

While introducing product differentiation, companies should consider the seamless effects of change, the lifecycle of change, integrity of performance, commitment of the company, and empathy of consumers (SLICE) in managing consumer attitudes toward changes in reference to the following concerns:

• the time span to adapt to a change initiative;

• required psychodynamics among consumers in driving the change; and

• developing consciousness across consumer segments toward recognizing the differentiation, change, or competitive gains.

Some research studies indicate that there appears to be a consistent correlation between the outcomes of competitive differentiation and SLICE factors. This framework has a simple combination of elements for companies to manage differentiated products in the marketplace for gaining competitive advantage (Sirkin et al., 2005).

Conventional differentiation models, in which a company plans for change, implements change, and tries to gain stability in the marketplace, are no longer workable in an environment of market uncertainty and behavioral vulnerability of consumers, when most companies see customization as a tool to acquire and retain consumers in a competitive marketplace. The changes associated with technology implementation, enhancement of use value of products through design and applications improvements, and delivering competitive advantages to the consumers are the key drivers to develop the butterfly effect in global markets. Companies cannot anticipate all the changes that would yield a one-time impact, but adaptation to change in the marketplace is a slow process that is often discouraging. Hence, butterfly effects in the markets responding to changes are not spontaneous or rapid, but rather sluggish and complex, and indeed often disappear during the consumer ice-breaking exercise of learning about the product and service differentiations. The butterfly effect on competitive differentiation may be best observed when companies develop customer-centric changes and customer segment-based launching of new products. However, there exist two necessary conditions to drive the butterfly effect in the global marketplace, namely, aligning the competitive differentiation model with corporate goals and minimizing the possibility of failure. Companies should understand that developing competitive differentiation and launching improved products is not part of radical innovation or experimentation but should serve as a confident strategy to revive product attractiveness, rebuild consumer confidence toward the brand, and strengthen market share and corporate posture against competitors (Hofman and Orlikowski, 1997). Consumers are resistant to changes and differentiations proposed by companies to gain competitive advantage because of several self-reference and socially driven factors, as exhibited in Figure 4.1.

In order to understand the reasons for consumers’ resistance in adapting to the competitive differentiation strategies of the company toward products and services, it is necessary to review the market and customer challenges a company faces, as exhibited in Figure 4.1. One of the fiercest challenges, which every company has in developing competitive differentiation, is the difficulty in outmaneuvering existing competitors. In doing so, a company needs to trigger consumer defection from competitors by creating enhanced value through differentiation in its own products or services and inculcating attitudinal changes among consumers. Most companies practice differentiation as a continuum strat...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Figures and Tables
• Foreword
• Preface
• Acknowledgments
• About the Author
• Section I: Analyzing Market Chaos
• Section II: Building Global–Local Marketing Effects
• Section III: Unveiling Future Effects
• References
• Index