BUSINESS LEVEL STRATEGY INDUSTRY ENVIRONMENT

OPPORTUNITIES

THREATS

DIFFERENT INDUSTRY ENVIRONMENT

BUSINESS MODEL BUSINESS STRATEGY

SUSTAINABLE ENVIRONMENT

THE INDUSTRY ENVIRONMENT

COMPANIES MUST FACE THE CHALLENGES OF DEVELOPING AND MAINTAINING A COMPETITIVE STRATEGY IN:

FRAGMENTED INDUSTRIES EMBRYONIC INDUSTRIES GROWTH INDUSTRIES MATURE INDUSTRIES DECLINING INDUSTRIES

FRAGMENTED INDUSTRIES

LARGE NUMBER OF SMALL AND MEDIUM-SIZED INDUSTRIES

CAUSES FOR FRAGMENTED ENTRIES: Low barriers to entry: lack of economies of scale Low entry barriers > constant entry by new companies Specialized customer needs - require small job lots of products no room for a mass-production Diseconomies of scale

FRAGMENTED INDSUTRIES - STRATEGIES: CHAINING linked outlets form networks to achieve cost leadership FRANCHISING for rapid growth (proven business concepts, reputation, management skills, and economies of scale)

FRAGMENTED INDSUTRIES - STRATEGIES: HORIZONTAL MERGER acquisition to obtain economies and growth IT AND INTERNET to develop new business models

CAUSES FOR FRAGMENTED ENTRIES: Low barriers to entry: lack of economies of scale Low entry barriers > constant entry by new companies Specialized customer needs - require small job lots of products no room for a mass-production Diseconomies of scale

EMBRYONIC INDUSTRIES

JUST BEGINNING TO DEVELOP WHEN TECHNOLOGICAL INNOVATION CREATES NEW MARKET OR PRODUCT OPPORTUNITIES.

GROWTH INDUSTRIES

WHEREIN DEMAND IS EXPANDING RAPIDLY AS MANY NEW CUSTOMERS ENTER THE MARKET.

REASONS FOR SLOW GROWTH IN MARKET DEMAND: Limited performance and poor quality of first products Customer unfamiliarity Poor distribution channels Lack of complementary products High production costs

DEVELOPMENT OF MASS MARKETS: TECHNOLOGICAL PROGRESS product is easier to use; customer value is increased DEVELOPMENT OF KEY COMPLEMENTARY PRODUCTS REDUCTION OF PRODUCTION COSTS lower prices.

MARKET DEVELOPMENT AND CUSTOMER GROUPS

BOTH INNOVATORS AND EARLY ADOPTERS ENTER THE MARKET WHILE THE INDUSTRY IS IN ITS EMBRYONIC STATE.

MARKET SHARE OF DIFFERENT CUSTOMER SEGMENTS

MOST MARKET DEMAND AND INDUSTRY PROFITS ARISE DURING THE EARLY AND LATE MAJORITY CUSTOMER SEGMENTS.

INNOVATORS AND EARLY ADOPTERS

Technologically sophisticated Tolerant of engineering imperfections Reached through specialized distribution channels Relatively few in number Not particularly price-sensitive

STRATEGIC IMPLICATIONS

CROSSING THE CHASM (EARLY ADAPTERS & EARLY MAJORITY) Identify correctly the needs of the first wave of early majority users. Alter the business model in response. Alter the value chain and distribution channels to reach the early majority.

CROSSING THE CHASM (EARLY ADAPTERS & EARLY MAJORITY) Design the product to meet the needs of the early majority so that the product can be modified and produced or provided at low cost. Anticipate the moves of competitors.

AMERICAN ONLINE (AOL) VS. PRODIGY COMMUNICATIONS

WHY PRODIGY FAILED: Target Customers: Typical middle-class Americans; not computer-oriented They did not understand the full range of needs customers were trying to satisfy by using the internet

STRATEGIES OF AOL Unlimited email Chatrooms Quickly redesigned its software to fit the Microsoft Windows Systems

THE COMPANY CORRECTLY SENSED THE WAY CUSTOMER STRATEGIC IMPLICATIONS NEEDS WERE CHANGING AND THEY PROVIDED A DIFFERENTIATED PRODUCT THAT RATES MET THOSE NEEDS. OF GROWTH

DIFFERENT MARKETS DEVELOP AT DIFFERENT RATES

NEW PRODUCT GROWTH-RATE ACCELERATION

Use of mass media Low-cost mass production

FACTORS AFFECTING MARKET GROWTH RATES: Relative advantage Complexity Observability Compatibility Trialability

Navigating Through the Life Cycle to Maturity

2 Crucial Factors in Choosing an Investment Strategy: 1. Competitive advantage of companys business model 2. Stage of the industry life cycle

EMBRYONIC STAGES:

IMPLICATIONS share-building strategies -Development of distinctive competencies and competitive advantage

-Weak companies requires capital to develop R&D and sales/service competencies

GROWTH STAGES:
IMPLICATIONS maintain relative competitive position

-Strengthen business model to prepare to survive industry shakeout -Requires investment to keep up with rapid growth of the market

SHAKEOUT STAGE: IMPLICATIONS increase share during fierce competition

- Invest in share-increasing strategies at expense of weak competitors

- Weak companies should exit the industry during the harvest stage

MATURITY STAGE: IMPLICATIONS

hold-and-maintain to defend business model

- Dominant companies want to reap the reward of prior investments - Companys investment depends on the level of competition and source of the companys competitive advantage

MATURE INDUSTRIES

SMALL NUMBER OF LARGE COMPANIES DOMINATE THE INDUSTRY AND DETERMINE THE NATURE OF COMPETITION

ABOUT MATURE INDUSTRIES: BUSINESS LEVEL STRATEGY Based on how established companies collectively try to reduce strength of competition. INTERDEPENDENT COMPANIES Try to protect industry profitability.

SOME STRATEGIES
DETER ENTRY INTO INDUSTRY Product Proliferation, Maintaining Excess Capacity , Price Cutting,

MANAGE INDUSTRY RIVALRY

Price signaling, Price Leadership, Capacity Control, Nonprice Competition

RESTAURANT INDUSTRY: PRODUCT PROLIFERATION

PRODUCT PROLIFERATION IN THE RESTAURANT INDUSTRY

FILLED SPACES Difficult for companies to gain foothold Difficult for companies to differentiate itself

FOUR NON-PRICE COMPETITIVE STRATEGIES

The Game Theory

Basic Principles
Look forward, reason back anticipate what rivals will do, then let it guide you Decision trees: think 3 steps ahead

Know your rival

put yourself in their shoes: what would you do?

Dominate use the most advantageous strategy pay-off matrix: if-then situations Strategy dictates the structure of payoff

Decision Trees
Adidas gets D. Rose as an endorser Probability: 80% Profit: $200M

Adidas doesnt get D. Rose as an endorser Profit: $400M Probability: 20%

Profit: $100M

Payoff Matrix
BDO Offer rewards Offer rewards

No rewards

No rewards

C I T I B A N K

5, 5

10, 0

0, 10

0, 0

Declining Industries

MARKET DEMAND HAS PLATEAUED AND TOTAL MARKET SIZE IS DECREASING

Causes of intense competition

Speed of decline rapid spike in decrease vs gradual

High fixed costs

from fixtures and furniture assets, etc

Height of exit barriers when its hard to pull out of the industry Commodity nature of products if there are lots of substitutes

Possible Strategies
Leadership seek to become the biggest player

Niche
focus on pockets of demand falling more slowly

Harvest analyze expenses and income Divestiture sell the business

STRATEGY SELECTION FOR DECLINING INDUSTRIES