An Integrated Framework of Competition in Consumer Markets A Synthesis of Patterns of Competitive Dynamics in 24 U.S. Markets

Abstract

The objective of this paper is three-fold. One is to evaluate the results of Hierarchical Cluster Analysis (HCA) of 24 consumer markets, and learn about the picture of competitive dynamics revealed by this review.

Second--and most importantly--is to propose an integrated framework of competition in consumer markets.

Third, the important lessons--and valuable insights--we can learn from this extensive research.

The path to market share leadership does not lie in lower price founded in cost leadership strategy, as Michael Porter suggests. Rather, it is based on the premise that it is customer-perceived quality that is crucial to long-term competitive position and profitability. So, the answer to market share leadership for a business is to differentiate itself by offering quality better than that of the nearest competition.

The best route to market share leadership lies in serving the middle class by competing in the mid-price segment. This is the socio-economic segment that represents about 40% of households in America.

The 24 U.S. consumer markets have been divided into six groups.

Employing Hierarchical Cluster Analysis (HCA), we have tested two hypotheses for each market:

• Hypothesis I: That the market leader was going to be a member of the mid-price segment.
• Hypothesis II: That the unit price of the market leader was going to be higher than that of the nearest competition.

Results in fourteen markets supported Hypothesis I: a 58% success rate that is surely remarkable.

Results in eleven markets supported Hypothesis II.

Next, we present the philosophical foundation of a business:

• That there is only one valid definition of business purpose: To create a customer.
• That the concept of a customer can be both a philosophy and a practical guide.

Next, we present an integrated framework of competition in consumer markets.

Because its purpose is to create a customer, a business has only two entrepreneurial functions: marketing and innovation. Marketing is the first entrepreneurial function. It is a concern that must permeate all of an enterprise. It is the lens through which one can see the whole business from the customer’s point of view.

Innovation is the second entrepreneurial function. Like marketing, innovation, too, cuts across the entire business.

We have learnt three important lessons from this extensive research:

• It is at the Brand level where real competition takes place, and where the rich dynamics of competition reveal themselves.
• A deep understanding of customers should be the primary mission of a business
• The importance of Brand Equity

We have gained two valuable insights from this major endeavor

• Coffee prices on the world market are lower than the cost of production.
• Industrialization of American food has led to heart disease, diabetes, stroke, and cancer