Time Competitive advantage: The unique attributes of the product/service.

Durable, cheap, available, everyday watch, trendy American reliable. Blue Ocean x strategy:There was not a low price watch that was durable.Unique emergent strategy (serendipity). Made competition irrelevant by selling at drugstores rather than jewelry stores. The profit margin for the drugstores was much lower than jewelry stores. This allowed for lower prices and higher turnover. Distinctive competencies:Mass marketing-catchy phrases, television-demonstration type. Mass manufacturing-more machinery, less skilled labor, standardization of products and just in time inventory control. Product expertise-simple design. Core competency-small moving parts, mechanical miniaturization. Timex was an example of internal FIT. All the things Timex does makes sense. Timex had good timing, external fit with general environment. Swiss manufacturers underestimated Timex, didnt see them as a threat, brand image devalued, couldnt match production, distribution, technology. Timex had EOS simple product made on a machine. Sold a lot because of their distribution channel.. Strategic group maps Timex occupied low price mass distribution. Swiss manufacturers occupied high price, selective distribution. There were mobility barriers because they had different cost and production structures.Absolute cost advantagebecause of their secret technology. Lower cost than competitors, durable.Switching costs: low. Timex had some of the most cheap prices and they were durable. Strategic group: exclusive vs everyday (Timex was everyday, swiss were exclusive). First movers:Yes.Barrier of imitation: the swiss watchmakers tried to compete, but couldnt due to durability as their cost. Managing industryrivalry: low early on, today high. Fragmented industry: Early-no. Timex owned. Now, yes, too many competitors. Industry life cycle: Mature. Generic strategy: low cost leader. Exit barrierslow, emotional. Alask 3 different decisions to make. Decide what is the best strategy to purchase the land. The strategic thinking process: 1st: Set a goal. Then evaluate the constraints a & Opportunities. These include assessing external environment (The terrain, height of mountain, probability of storm) and assessing internal capabilities (left Gold hand, ability to beat the 2-week window?) 3rd step is Evaluate alternatives -- with the same info, different options were chosen Mine different values and propensity to risk eventually determine strategy. consistency: personal, environmental, internal resource factors implementation of strategy often means: adjusting to changing circumstances = Uncertainty, and gaining the cooperation ofothers who may be less dedicated or committed this requires: Communication of the strategy (such as explaining how to file a claim.) Motivating troops towards the same goals as yours: compensation (the 50:50 split), moral persuasion (help a friend), or mutual commitment (together we can reach the stars) Control systems to monitor progress (for example, have Pat report back) and measure it against budgeted targets or planned milestones.Switching costs are high: losing claim on gold, taking away gold or death. Exit barriers are high: death , time Coors One reason Coors was very successful was because they manufactured and produced all the items required for distributing their beer. They stressed the idea of selfreliance. Rather than relying on different suppliers and being susceptible to increasing prices, Coors invested a lot of money into their own machinery, their own water supply, contracted farmers growing barley, and canning its own beer. Also, Coors was very patient in regards to expanding into new states. They waited until demand was very high to enter new states and it made sense for them financially. Also, Coors did not over produce. Instead they made just enough, which kept customers wanting more. The Coors case reminds me of the Timex case in that both companies streamlined the various components that make up their product and distribution. Coors made their own cans, grew their own barley, and decided where they distributed their beer. At the same time, Timex had expert machines that manufactured their watches and they decided where they distributed their watches. They both also found the most cost efficient means of producing their product which put them ahead of their competition. Coors found that by not fermenting the beer, it had a better taste and they were able to do this cost efficiently. One difference between the Coors case and Times is that the companies are in different industries. Shakeout stage of the industry life cycle because there was intense rivalry and barriers to entry were high. Competitive advantage:Efficiency-originally brewed a single kind of beer running the fastest packaging lines in the industry. Energy saved by skipping pasteurization. Quality-ingredients, and two unique aspects of its brewing process. They aged their beer for 70 days compared to 20-30 for other competitors. Second is they did not pasteurize their beer, it claimed that intense heat harmed the taste of beer. Vertical integration above average vertically integrated b/c they had all of their own malting equipment and 90% of brewing equipment and 75% of packaging equipment. growing own rice, own energy sourceEconomies of scale Production-one product massively produced. One of the most extensive distributor monitoring programs. Strategically established distribution centers in outlying markets. The company shipped 74% of its beer in refrigerated rail cars and remainder if refrigerated trucks. Marketing mass (television) National advertising campaign in 1985. -5 forces: suppliers- decrease because now only few companies to sell to, buyers- increase because switching costs low now can buy in many different places like bar and supermarkets, entry- decrease, rivalry- increase the 6 all competing against one another before many but areas didnt overlap because only local and now all companies competing against each other in same area(national). Coors had negative commitments only one plant, two brands, expanded but too late, vertical integration. Anhueser bush ultimately won bc multi plants, many brands, expanded, not vertically integrated (not a problem to get suppliers). Later in the case, diseconomies of scale. Production increase but werent able to lower costs because of number of plants.Example of Negative Commitments Vertical Integration became disadvantage as the environmentaround them changed. Tried to move position into single big national distributercant.Switching cost: low, matter of preference. Competitive advantage: brand name recognition, brand loyalty. Red ocean.Life cycle=mature. Focused differentiation. Over Supplier=refining, focal industry= Shipping, buyer= gas station.. direct supplier-shipping, direct buyer-your car. -final consumer creates demand for whole values a chain. High switching costs-public transportation (substitutes). Switching costs:very low. They essentially all come from the same place. Competitive barrel advantage:only supplier of oil.EOS:oil from the same refinery may go to dif gas stations and sold at different prices but still keep high for a # of reasons. Cost advantage:currently the only source of fuel used in the mainstream. Cheaper than hybrid/electric cars. Red ocean:for one all oil is the same. Strategic group:diesel vs. regular. Mobility barrier:oil industry developing into electric and hybrid cars.Industry life cycle:Decliining. Generic strategies: Cost leadership. Bargaining power of suppliersis high they set the prices, consumers just pay whatever price. Power of buyers is low-we depend on oil too much to have power.

Cigar Focal= Manufactures of cigarettes, suppliers=growers, buyer(in this case=final consumers)=consumer: smoker. -Rivals- all cigarette manufactures=medium-low, new ette entry=low, buyers=low, suppliers=low, substitutes=low-industry attractive=Yes!-problem demand declining, attack by govt, health issues, social issues. Premium cigarettes. Threat of potential entry: product/service differentiation-high. Buyers switching costs are monetary(low), cognitive (low), emotional (high). Economies of scale-high. Capital requirements-high. Incumbents proprietary knowledge is medium-high. Experience curve effects are high. Incumbents control of distribution channels is high/med. Incumbents control of access to raw materials inputs is high. Securing favorable location is easy. Expected ratiliation is high. Govt regulations are high. Mature life cycle. There is an oligopoly in the tobacco industry, with four key competitors. These companies continue to stay competitive due to economies of scale- standardized machines and practices lead to mass production to drive costs down, increased marketing, and expansion into international markets. These four tobacco companies have also continued to release new products catering to new market segments. Furthermore, these key players in the tobacco industry face less competition from the deep discount category of cigarettes because of rising costs, narrowing the profit margin of these companies, forcing them to raise prices.Cost advantage:cheap inputs, mechanized processes, low skilled labor. Red ocean: (due to government restrictions, there is little movement). Strategic group:main/premium, discount, imports, micro. Mobility barriers: laws, regulations, government hard restrictions to do much else.Barriers to imitation: nearly all cigarettes are the same with minor changes in taste and additives. Fragmented industry: Life cycle: declining industry. Generic strategies: focused differentiation. Exit barriers: low, no specific assets no inter-relationships, etc. Bargaining power of buyers: they buy in high quantities that suppliers depend on have multiple suppliers not just one. Cola -focal industry=concentrate Producer, direct buyers=bottlers, suppliers=sweetener, chemicals, water etc., final consumers=cola/soda drinkers. -franchise system: franchiser- sells knowledge and support, franchise- pays royalties. -Bottlers: cant bottle competing soda, given a fixed distribution area, contract forever, fixed prices for concentrate, cant change drinks or packaging, have veto power, setup display and distribute. -Rational: limit inta-system completion(good for both CP and bottlers) Ex. coca-cola bottler will not be competing against another cola bottler. -switching costs for bottlers: high (fixed distribution areas, all areas are probably already taken), no other great choices. -cost of entry to concentrate production industry: needs to find a bottler and start a bottling plant. -Buyer power(bottlers)=low! Coke and Pepsi have choices by creating a franchise system they created weak buyers. -Forward integration= coke and Pepsi started buying bottlers in order to gain more controlling cola war they brought bottlers to avoid the veto power*the ability to structure the industry=$$. Early movers advantage, value of being proactive *increased competition is not always a bad thing (if big and smart enough)- Coke and Pepsi fight=by standards get hurt. The strategic situation involves one competitor implementing a strategy, and if the competitor views this as necessary to stay competitive, they follow suit. This concept explains the ideas of these wars. When Coca Cola decided to make the refrigerator packaging, Pepsi copied. The carbonated soft drink is quite complicated because of the relationship with bottlers. They have a lot of influence over the industry and can prevent companies from lowering their retail price. 2. Coca Cola dominated the carbonated soft drink industry until Pepsi launch the Pepsi Challenge in 1974. At that point, Pepsi was positioned as the 3rd product behind Coke and Dr. Pepper respectively. Although Coke reacted to this

Pepsi Challenge with price cuts, rebates and advertisements Pepsi appeared to quickly take away Cokes market share. One mistake that Coke made was renegotiating the franchise bottling contract which left bottlers disgruntled. Another costly mistake that Coca Cola encountered was when the changed the 99 year old Coca Cola formula to introduce a new product. Coke quickly noticed the decrease in sales and market share. Coke sold directly to fountains. Pepsi sold to bottlers who sold to fountains. Franchise system: could only change the contract terms with reason CPI. Carry non cola products only-may not bottle any other cola. Bottlers given their own territories. Bottlers set the final price. Length of contract is forever. Bottlers have veto power (bottlers can decide what type of packaging. They are offered a menu and they chose from the list). Rationale risk is bottlers. Bottlers need to pay for the plant. And for packaging. Most important ingredient is what the suppliers have-concentrate. CP has control of marketing promotions. Incentives: bottlers want to increase demand/sell more in their area. Minimizes intrasystem competition. Bottlers switching costs are very high. If they are bottling coke and want to switch to pepsi there is somebody already selling. Builds entry to barriers in CP industry. Eventually they bought some of bottlers b/c bottlers have veto power. They dont have to bottle the product CP industry general lessons. The ability to structure the industry=$$. Early movers advantage create weak buyer. Value of being proactive change your industry structure to your benefit.Switching costs:low-matter of preference. Competitive advantage:brand name recognition and brand loyalty. EOS:similar to cigarette, standardized machines and procedures lead to a decrease in cost. Cost advantage:similar to cigarette-cheap inputs (concentrate), low skilled labor. Red ocean: little to no movement, but when one jumps into a new untapped market the others closely follow and new entrants emerge.Strategic group: cola, diet cola, noncola. Mobility barriers: free to move jut about anywhere, maybe not alcohol (water, sports drinks). Not first movers. Barriers of imitation: very high, pepsi vs coke. One product spawns a rival. Life cycle:mature. Generic strategies:differentiation. Market segmentation: high, know differences focus on most. Bargaining power of suppliers: low-focal industry has the power (concentrate producer) bc they hold the info on how to produce it. Bargaining power of buyers:bottler-no power. South Southwest business model-product niche. Cheap fares; fun, point to point flights which increased frequency. Competitive advantage- Process Innovation: First in west online booking.. Basic service, no assigned seating, no meal, no movie. Efficiency: All B737 making it simple to plan flights. Simplified check-in, flights are short and direct. General strategy was low cost. Wide customer, focused product, focused product (niche). Competitive advantage: Price and quality (service). Cost advantage (locked on fuel prices). -Barriers to entry: resources: tangible- pilots, airplanes, gates, maintenance, customer service, intangible: reputation, safety, training programs, quality control, learning/ capabilities: culture-learning how to coordinate (competitors couldnt create right culture), frequent flyer miles(artificially increase switching costs and increase willingness of people to pay more)-5 forces: lowest survival price, no profits for rivals if strong position, customer has no bargaining, greater ability to absorb supplier increases, new entrants dont have volume -classic low cost leader *low-cost leader in service industry, distinctive competencies (capabilities-culture) as a source of CA, geographic niche not= strategic niche, its their product. Competitive advantage because reduce its cost by striving to keep operations as simple as possible. By operating only one type of plan, the Boeing 737, it reduces training costs, maintenance costs and inventory costs while increasing efficiency in crew and flight scheduling. Switching cost:high. SW has low prices other airlines by comparison are more money. However, there are also non dollar costs such as amenities (food, movies, first class). EOS:SW offers fewer amenities to reduce the cost passed onto the consumer. Cost advantage: since SW is able to minimize the amount of amenities hey offer but still enough to where passengers are comfortable they are able to be a price leader in airfares. Mobility barriers:Moving into luxury class air travel. First mover:Yes. Life cycle:shakeout. Generic strategies: focus cost leader, focus differentiation. Harle General strategy=focused differentiation. (product). Harley sells intangibles. Harley is in its own industry (blue ocean) and the five forces therefore do not threaten. y Harley sells you a lot of things. more about the image and feeling than quality.Competitive advantageExclusivity as part of an elite group. Its a Harley.exceptional service &great bikes. bc of customer responsiveness. Harley maintains service through clubs. Differentiation in servicing HOG (Harleys owner group). No substitutes. *industry/product definition: Honda=bikes, Harley=image not really transportation; image, state of mind, change the name would ruin the product/ growing niche in a declining market. Brand loyalty.Switching costs:Very High. 1) its not a Harley, loss of brand namerecognition and a sense ofexclusivity. 2) $$$ +/- 3)different parts poss. Learncurve.NO EOS each Harley is hand built. Only standardization are the parts used. Mobility barrier: moving into other automobiles. Barriers to imitation: other motorcycle makers creating a ride similar to Harleybut they cant copy the culture and image. Motorcycle industry: mature. Harley is focused differentiation. Dell -customers: large business, large education, large institutions; needs= customized (quick delivery), connectivity (all work on same system so all can communicate), maintenance-customer lock-in (customer switching costs)- huge (high) so customers get locked in and have to continue to buy Dell -why can no one match them? Customer lock in and switching costs-external fit- why dell protected: difficult to both channels (Timex), internal fit: big change and have to be better than Dell at its own business. PC assembly industry customer knowledge is high, switching costs low, low differentiation, high rivalry, high customers, easy entry, suppliers high operating system (MS & Intel), low components. Strategic group maps. Dell was institutional direct. Gateway was individual direct. HP, IBM and COM were retail channel and both institutional and individual customer. Dell was customization, inistitutions-large quanities, schools big coporations government, lock-in. 1.) Dell had a direct model approach and took customized orders from its customers and shipped it directly to them. 2.) They obtained a customer lock-in and high switching costs. 3.) Low profitability because their industry is a BAD industry to be in, due to high rivalry and a high threat of new entrants. Customized computers, shipped direct, fast delivery, low cost. Competitive advantagein process innovation and customer responsiveness. Efficientjust-in time method. No extra inventory reducing inventory costs. Blue Ocean strategy made competition irrelevant by targeting institutions and customized computers. Standardized the customization process in building computers. Mobility barriers are high because they locked-in institutions and built such an efficient just in time production process.Switching costs:high money wise. No learning curve in os & parts due to standardization.EOS:Dell offers a complete customization experience offering barebone systems to fully loaded game systems.Cost advantage:Dell customization allows users to have items left out or added where a prebuilt system they would be paying for the things they would not necessarily need. Internal fit:BIG change, be better than Dell (complexity). External fit:(tradeoffs) difficult to do both channels. Lock-in. Barriers to imitation:Dells customization became a standard due to popularity. Life cycle:shakeout/mature Charl *Creating a new niche in an exclusive industry, Attacking existing competitors from an unexpected / ignored angle, Generating mass-appeal, low-cost leader. Product is cheap, standard product, large quantity. Target market is large. Leveraging its size = economies of scale (purchasing, manufacturing). Barriers to imitation: general to es Shaw low cost leader. Competitors are damn if you do, damn if you dont. Your producing a lot and not guaranteed that it will sell. Capital intensity. Learning you have to know how to do it, not easily available and expensive. Reminds me of Timex. If competitors copy they will be admitting this wine is wine, but they dont consider it wine. They have to keep their pride and principle. Otherwise it would cannibalize the higher end product. Such a big, systematic change.Competitive advantage:w world class wine at a low class price. EOS: mass produce wine and pass savings to consumers. Cost advantage:low priced wine that tastes like a fine wine. Blue Ocean: low cost leader in wine by using unwanted grapes that would have otherwised be used for fine wines. Mobility barrier:movement into a more expensivewine.First mover:Yes, theory of using unwanted grapes.Barriers of imitation:similar low price wines. Life cycle:growth. Focused cost leader. Kinka *Creating a new niche in an exclusive industry, Attacking existing competitors from an unexpected / ignored angle, Generating mass-appeal. Blue Ocean Strategy. de Product is cheap and standard. Target market is large. Leveraging its size-EOS. Barriers to imitation EOS-manufacturing, distribution. Competitors-high-end they would be imitating imitators. Cannibalize high end product-somewhat lower the image of that artist. Switching costs: high-cost of new artwork.Emotional factors also play a role in extreme cases.Competitive advantage:every duplicate looks like an original, brand recognition, brand loyalty. EOS:Kinkade special duplication process allows him to mass produce his paintings during the process artists add value by touch up. Blue Ocean: different experience from buying at gallery. Not art experts. Also unique duplication process. Mobility barrier:straying too far away from his template of cottages and gardens. First mover: yes, duplication process. Barriers of imitation:low, it would hurt other artists reputation. Industry life cycle: mature. Generic strategy: differentiation. A company is said to have a competitive advantage over its rivals when its profitability is greater than the average profitability of all other companies competing for the same customers. A company has a sustained competitive advantage when its strategies enable it to maintain above-average profitability for a number of years.4 Building Blocks of Competitive Advantage:Superior efficiency the more efficient a company is- the fewer the inputs required to produce a given output/ 2 most important components of efficiency for many companies are: employee productivity and capital productivity 1.employee productivity- refers to the output produced per employee/helps a company attain a competitive advantage through a lower cost structure 2. capital productivity- refers to the sales produced per dolar of capital invested in a business/ quality-when customers perceive that its attributes provide them with higher utility than the attributes of products sold by rivals/ when customers evaluate the quality of a product- measure it against 2 kinds of attributes: 1. those related to quality as excellence/ the important attributes are things such as a products design and styling, its aesthetic appeal, its features and functions, the level of service associated with the delivery of the product 2. those related to quality as reliability/ product can be said to be reliable when it: consistently does the job it was designed for; does it well; and rarely, if ever , breaks down/ innovation- refers to the act of creating new products or processes/1. product innovation- is the development of products that are new to the world or have superior attributes to existing products Ex: Palms development of the PalmPilot- the 1st commercially successful hand-held computer 2. process innovation- is the development of a new process for producing products and delivering them

to customers Ex: just-in-time inventory systems/ innovation of products and processes is perhaps the most important building block of competitive advantage / customer responsiveness- to achieve superior responsiveness to customers, a company must be able to do a better job than competitors of identifying and satisfying its customers needs *customer response time: the time that it takes for a good to be delivered or a service to be performed. Distinctive competency=unique strength in doing/achieving any of the 4 building blocks. Firm specific strength that allows a company to differentiate its products from those offered by rivals, and/or achieve substantial lower costs that its rivals. A unique strength that allows a company to achieve suppior efficiency, quality, innovation, customer responsiveness. 1.How to differentiate and price their product 2.How much to segment a market and how wide a range of products to develop.Resources:tangible[land, buildings, plant, equipment], intangible:[brand names, reputation, patents, technological/marketing know-how]. Capabilities:= companys skill in coordinating and using resources[= management!] reside in the way individuals interact. Serendipity and strategy:accidental events that help push companies in new and profitable directions. Emergent strategies: unplanned responses to unforeseen circumstances. Market segmentsare distinct groups of customers within a market that can be differentiated from each other on the basis of their distinct attributes and specific demands. 1. no market segmentation a product is targeted at the average customer 2. High market segmentation a different product is offered to each market segment. 3. Focused market segmentation a product is offered to one or a few markets. Porters 5 forces:1. Threat of potential entry- is high when-product/service differentiation (perceived/real uniqueness-brand loyalty) is low. Buyers switching costs are low (for the buyers, after purchase). EOS are low (increased efficiency in volume per period. In: production, R&D, marketing, distribution, service). Capital requirements are low (plants & equipment, working K, R&D). Incumbents proprietary knowledge is low (patents, trade secrets). Experience curve effects are low (experience curve: labor component or complex production). Incumbents control of access to raw material inputs is low. Incumbents control of distribution channels is low. Securing favorable location is easy. Incumbents access to government subsidies is low. Expected retaliation is low. Government regulation is low. 2. Intensity of rivalry is high when number of competitors is many. Their size is equal. Diversity of competitors is extensive. Industry growth rate is low. Product/service differentiation is low. Buyers switching costs are low. Fixed costs are high. Capacity increases are in increments that are large. Perishability is high. Strategic starkes (opporunities) are high (high chance to make big $$ increase willingness to take risk and fight). Exit barriers are high. (bc of specialized assets, high cost of exit, strategic inter-relationships, emotional barriers, government restrictions). 3. Power of a buyers group is high when volume of purchase is high (volum discounts). Percentage of total buyers cost spent on industrys input is low (something cost you a lot, you are more likely to haggle). Product/service differentiation of the industry is low (easy to shop and compare). Buyers switching costs are low. Threat of backward integration by buyers is high. Buyers knowledge about industrys cost structure is high. Extent of buyers profits is low (price sensitivity). Cost savings from the industrys product are low (same effect as buyers profits. Reduce buyer power by make buyers business more profitable. Diversify buyers base, differentiate. A strong buyer has the ability or motivation to extract lower prices from the focal industry. 4. Power of suppliers group is high when concentration of suppliers relative to industry is high (supplier group is dominated by fewer companies). Avalilability of substitute supplies is low (eg. For cola, sugar vs high fructose corn syrup). Differentiation of the suppliers product/services is high (uniqueness of raw material/inputs). Switching costs of the focal industry are high (for the industry, after purchasing supplies). Threat of forward integration by the supplier is high (ie supplier moving into the focal industry). A strong supplier has either the ability or motivation to charge more from, or deliver less to, the focal industry. 5. Power of substitutes is high when these substitutes are good/superior and available substitutes are many. A substitute is any product that satisfies the same need, but in a different way. If everything is mostly low, then the profitability of the industry is high!Economies of scale (achieving superior efficiency): (falls under risk of potential competitors in 5 forces)Arise when Units fall as a firm expands its output. Sources of EOS include 1. Cost reductions gained through mass-producing a standardized product 2. Discounts on bulk purchases of raw material inputs and component parts 3. The advantage gained by spreading fixed production costs over a large production volume. 4. The cost savings associated with spreading marketing & advertising over a large volume of output. *threat of entry is reduced when established companies have economies of scale. Sources include: ability to spread fixed costs over a large production volume. Ability of companies producing large volumes to achieve a greater division of labor and specialization. EOS can boost profitability as measured by ROIC. Exists in production, sales & marketing, R&D. How e.o.s. can be a disadvantage barrier of exit, having to much invested capital. Barriers of entry hard to enter a market or industry because of the capital investments1. Exit barriers, e.o.s. costs a lot of money to invest in, so exiting causes an issue. Diseconomies of scale:Unit cost increases associated with a large scale of ouput. Occur bc of increasing bureaucracy associated with large-scale enterprises and the managerial inefficiencies that can result. Brand loyalty (risk of entry)-Preference for the products of established companies. Significant brand loyalty makes it difficult for new entrants to take market share away. Absolute cost advantages (risk of entry):Entrants cannot expect to match the established companies lower cost structure. Because of superior production operations and processes due to accumulated experience, patents or secret processes. Or control of particular inputs required for production. Or access to cheaper funds bc existing companies represent lower risks. Switching cost- When it costs a customer time, energy and money to switch from the products offered by one established company to products offered by a new entrant. High switching costs=customers locked in. e.g. operating system. People wouldnt be willing to change unless competition offers a substantial leap forward in performance. (3 types: Monetary, cognitive, emotional).Strategic groups:companies in industry differ significantly from each other with respect to the way they strategically position their products in the market in terms of such factors as the distribution channels they use, the market segments they serve, the quality of their products, technological leadership, customer service, pricing policy, advertising policy and promotions. It is possible to observe groups of companies in which each company follows a business model that is similar to that pursue by other companies in the group, but different from the business model followed by companies in other groups. Mobility barriers:Within-industry factors that inhibit the movement of companies between strategic groups. They include barrier to entry into a group and the barriers to exit from a companys existing group, *essentially over time, companies in different groups develop different cost structures and skills and competencies that give them different pricing options and choices *a company contemplating entry into another strategic group must evaluate whether it has the ability to imitate, and indeed outperform its potential competitors in that strategic group. E.g forest labs would encounter mobility barriers if it attempted to enter the proprietary group in the pharmaceutical industry bc it lacked r&d skills, and building would be expensive. Industry life cycle:A useful tool for analyzing the effects of industry evolution on competitive forces is this model. Identifies five sequential stages in evolution of an industry that lead to 5 distinct kinds of industry environment. 1.Embryonic- industry is just beginning/ growth is slow because of factors such as: buyers unfamiliarity with the industrys product, high prices due to the inability of companies to reap and significant scale economies, poorly developed distribution channels*barriers to entry- based on access to key technological know-how rather than cost economies or brand loyalty/ rivalry based on educating customers, opening distribution channels, and perfecting the design of the product *e.i. also may be the creation of one companys innovative efforts (ex. Intel- company had major opportunity to capitalize on the lack of rivalry and build a strong hold on the market)/ bus. investment strategy- share-building strategy 2. Growth- once demand for the industrys product begins to take off, first-time demand is expanding rapidly as many new customers enter the market/ typically- industry grows when customers become familiar with product, prices fall because experience and scale economies have been attained, and distribution channel develop/ barrier to entry low, threat from potential competitors highest at this point, high grow means new entrants can be absorbed into an industry without a marked increase in intensity of rivalry, rivalry= low/ rapid growth in demand enables companies to expand their revenues and profits w/o taking market share away fr. competitors/ i.s.- growth strategy / market concentration3. Shakeout- rate of growth slows, demand approaches saturation levels: most of the demand is limited to replacement because there are few potential first-time buyers left/ rivalry between companies- intense/ excess capacity- companies continue add capacity at rates consistent with past growth while demand no longer at that rate- consequence excess productive capacity/ i.s.- share- increasing strategy4. Mature- market totally saturated, demand limited to replacement demand, growth is low or 0, growth rate comes from population expansion that brings new customers to market/ barriers to entry-increase, threat to entry from potential competitors- decrease/ price wars develop- completion for market share drives down prices/ to survive- companies begin to focus on minimizing costs and building brand loyalty/ if in stage- comp have brand loyalty and efficient low-cost operations, most have consolidated and become oligopolies Ex. Beer industry- i.s.hold and maintain strategy5. Declining- growth becomes negative, reasons: technological substitution, social changes, demographics, international competition/ rivalry among established companies- increases/ main problem- falling demand leads to the emergence of excess capacity *3rd task of industry analysis- identify the opportunities and threats that are characteristics of different kinds of industry environments in order to develop an effective business and competitive strategy. Fit Model Strategy-attempts to achieve a fit between the internal resources and capabilities of an org. and the external opportunities and threats in the industry env. *strategic intent-encompasses an active management process that includes focusing the organizations attention on the essence of winning; motivating people by communicating the value of the target; leaving room for individual and team contributions; and sustaining enthusiasm by providing new operational definitions as circumstances of change -underlying concept: strategic planning should be based on setting an ambitious vision and ambitious goals that stretch a company and then finding ways to build the resources and capabilities necessary to attain that vision and those goals *strategic intent: more internally focused and is concerned with building new resources and capabilities *strategic fit: focuses more on matching existing resources and capabilities to the external environment. The Value Chain:idea that a company is a chain of activities for transforming inputs into outputs that customers value. The transformation process involves a number of primary activities and support activities that add value to the product. Primary activities have to do with the design, creation and delivery of the product its marketing and its support and after sales service (R&D, production, marketing and sales, customer service). Innkeepers of America hotel case Strategic decisions Operational / Tactical decisions Position Related to the purpose and direction of the Affect only a particular department/branch; Need not

Effect

firm; Integrative; Determine the firms position it its industry Have long-term effects on firm performance and viability Involve considerable and hard-to-reverse investments

be closely coordinated with other organizational areas Have short-term effects (including effects on costs & profits) Involve few organizational resources; Reversible; And therefore, easily imitated

Commitment

The durability of competitive advantage- Barriers to imitation:are a primary determinant of the speed of imitation/Are factors that make it difficult for a competitor to copy a companys distinctive competences; the greater the barriers to imitation, the more sustainable is a companys competitive advantage -They differ depending on whether a competitor is trying to imitate resources or capabilities 1. Imitating resources-easiest distinctive competencies for prospective rivals to imitate tend to be those based on possession of firm-specific and valuable tangible resources, such as: building, plant and equipment *intangible resources can be more difficult to imitate 2. Imitating capabilities-tends to be more difficult than imitating its tangible and intangible resources, because capabilities are based on the way in which decisions are made and processes managed deep within a company. Learning/experience curve the longer a laborer does something the better he gets at it. Learns by repetition how best to carry out the task. Realization of learning effects implies a downward shift of entire curve. Learning effects in a production setting reduce COGS as percentage of revenues. LE typically die out after a limited period of time. New technology means learning curve begins again. Generic Strategies - Even in an unattractive industry, a firm can have substantial profits.To be successful, a business must hold some advantage relative to its competition. The fundamental profit equation: profit = [P-C]*Q Advantage [=profit!] may below-cost, differentiation or a combination of the two.Porters Model of Generic strategies: [~ 4 types] Competitive advantage: Low Cost Differentiation Product/Market Scope Wide 1 2 Focused 4 3 Examples industries: wrist watch; soft drinks; beer; retailing; cars. For each Generic strategy to succeed,there must be a fit between the strategy and the firms: [1] capabilities (internalSW) [2] environment (externalOT)Remember: focus alone is not CA, must lead to greater diff or lower costs otherwise the 5th type of generic strategy = Stuck-in-the-Middle: strategy with both internal and externalcontradictions, with a confused theme, because diff and low cost generally place conflicting demands on the firm. That is, such companies suffer from lack of internal fit (conflicting core competencies) and/or lack of external fit (strategy inappropriate to existing competitive and macro- environment).Cost leadership = low cost advantage relative to competition Large target market: aimed at typical customer in large market Standard product: usually no-frills productEconomies of Scale -strive for long production runs, uniform packages of service [low setup times, betterquality control] Process-oriented R&D cutting production costs Minimal advertising. 5 forces addressed: no profits for rivals if strong position deter price wars customer has no bargaining is already lowest cost lowest survival price (no vertical integ) lower cost production means greater ability to absorb supplier increases (compared to industry) new entrants don't have volume, experience to compete better able to compete with substitutes if already efficient (switch because of price!)Risks of Low cost strategy- All or nothing--commodity markets reward lowest cost producer, hurt others , #2- loses!. Compromise desirable attributes--low cost may eliminate customer valued features with bad results temporary--imitation of low cost features may be easy. cost differences may disappear as market matures (experience argumentno further learning occurs)cost cutting may limit firms ability to compete in other ways. Low cost strategy requires continuous improvements through: elimination of internal inefficiencies monitoring all possible competitors (new entrants, benchmarkingeasier to keep process secrets!)Types of differentiation Product Features [easier to imitate, visible] After-sales Service Image / Status symbol Reputation of Firm [as proxy for quality; product innovation; more important for servicesnotdurable/intangible] Manufacturing consistency: form of qualityComments:often results in lower market share although higher/premium price = higher profits. may limit ability to compete on price or cost [erode image--Apple]. Addresses 5 forcesno substitutes! lessens competitive rivalry no direct comparison/competitorbrand loyalty lessens consumer bargaining power [pull]increases ability to pass on supplier cost hikesbrand loyalty lessens impact of substitutes or new entrants. Problems: maintaining uniqueness: others try to differentiate in same way, leading to loss of advantage specialist firms [niche-few tailored product] may already own the differentiation advantage "gold-plating"meaningless diff; addition of features that consumers do not value [headlight wipers, inCalifornia> The uniqueness must be valued by the customer!Generic Strategies= Cost leadership- scope-wide, source of advantage-cost, appeal to average customer, goal- increase efficiency and lower costs relative to industry rivals, advantages- protected from competitors by cost advantage, purchasing large quantities increase bargaining power of suppliers, low costs and prices are a barrier to entry, able to charge a lower price or able to achieve superior profitability than their competitors at the same price, dis- competitors may imitate the cost leaders methods Ex. Wal-Mart,Differentiation-wide, diff., focus on cuality, innovation, responsiveness and customer needs, adv- customers develop brand loyalty, powerful buyers not problem, diff and brand loyalty are barriers to entry, dis- hard to maintain long-term distinctiveness and maintaining premium price Ex. Macys, Sacks 5th Ave,Focused-cost- narrow, cost, Ex. specialty store for carpenters, swap meets- small selection and cheap,Focused- Differentiation- narrow, diff. Ex. Designer jeans/ low selection and expensive Cost advantage- have lowest cost of industry operation and that allows you to have a lower price than the ind avg/ have lower profit margin but high volume- sells a lot/ sources of cost advantage: learning effects, e.o.s., process technology, product design, input costs, capacity utilization, organization Differentiation Advantage- start with value to customer, offers unique product to customer and allows to charge premium price, profit margin-very high quantity sold-low/ sources of diff advantage: product features, service, image, product quality and manufacturing consistency, reliability/ Dimensions of Focus- geographic location-Ex only in California, product, channel, customer type- demographics(older, younger) Sources of Cost Advantage learning effects (experience curve) economies of scale process technology product design input costs capacity utilization organizationSources of Differentiation Advantage product features service Image product quality / manufacturingconsistency reliabilityCompanies following differentiation-based strategies ought also to be cost-conscious in all other areas.Growth maintain its relative competitive position in a rapidly expanding market and, if possible increase it grow with the expanding market Market concentration find a viable competitive position Harvest must limit or decrease its investment in a business and extract, or milk, the investment as much as it can Hold/maintain defend their business models and ward off threats from focused companies who might be appearing. Price signaling companies increase of decrease product price to convey their intentions to other companies and so influence the way they price their products niche: focuses on the pockets of demand that are declining more slowly than the industry as a whole Harvest: optimizes cash flow Divestment: company sells off the business to othersRed Oceancompete in existing market space, beat the competition, exploit existing demand Blue Ocean- create uncontested market space, make the completion irrelevant, create and capture new demand, break the value/cost trade off. A fragmented industry is one composed of a large number of small and medium sized companies. Low barriers to entry. Lack of economies of scale. Companies such as wal mart and midas pursue a chaining strategy to obtain the advantages of cost leadership. Low cost or cost leadership business strategies aim at achieving low-cost producer status in an industry. The sources of cost-based advantages are varied and depend on the structure of the industry but may include: economies of scale, economies of scope, proprietary technology, preferential access to raw materials, experience curve advantages, and/or administrative efficiencies, among many. Simply put, an enterprise competing on cost basis will seek to sell more product than its rivals do and will use discounting and pricing tactics as primary part of its strategy. Differentiationbased business strategies aim at achieving a unique non-imitable position in an industry. To work effectively, an enterprise pursuing a differentiation strategy must create in its customers something they value enough (or perceive to value enough) in order to get them to pay a premium price. The sources of differentiation advantages are also varied and differ from industry to industry but may include: reputation or brand name; patents, trademarks, or copyrights; delivery or distribution systems, channel or advertising crowding, marketing approach, among many. Companies following differentiation-based strategies ought also to be cost-conscious in all other areas. First mover advantagethe first mover is a monopoly position. If new product satisfies unmet consumer needs and demand is high, first mover can capture significant revenues and profits. 1 adv-exploit network effects and positive feedback loops, locking consumers into its technology. 2-brand loyalty, which is expensive for later entrants to break down. 3-ramp up sales volume ahead of rivals and reap cost advantages to build EOS. 4-create switching costs. 5-accumulate valuable knowledge related to customer needs, distribution channels, product technology, process technology. First mover disadvantage-make mistakes bc there are so many uncertainties. Run the risk of building the wrong resources and capabilities bc they are focusing on a customer set that is not going to be characteristic of mass market. May invest in inferior or obsolete technology.Business Level strategy: gives a company a specific form of competitive position and advantage vis- a-vis its rivals that results in above-average profitability.Industry Analysis- defying and industry, focusing on overall industry before considering market segments or sector lvl issues