Content
Challenges and strategies in different types of industry.
Entry strategies, competitive dynamics, adaptation to changing environments.
Resources and capabilities, growth and international strategies.
IMPORTANT : (fabian.mandli@unil.ch)
Group 4-6, choose before 06.10.19
12 slides max. “Sustainability at Ikea”
Before session 10 !!! (25.11.19)
Ideas must be transmitted in a clear and concise way !!
good information at the time
Trader Joe’s
Analyse the supermarket industry. Do firms make money in this industry ?
What are the key sources of Trader Joe’s competitive advantage ? And the main threats ? Is their advantage sustainable ?
What should Trader Joe’s strategy be moving forward ?
Conclusion
It’s not a good industry to be in. We have some big threat like
E-tailers is going to get worse.
Rivalry is high and switching costs are very low
Challenges
Increasing the e-commerce
Big giants are diversified smaller format supermarket
that’s an external problem
Need to growth but danger of becoming “bureaucratic”
that’s a internal problem
They make money with the differentiation by the buyers.
Industry: supermarket
Geography: US
Buyers (-)
Consumers
low switching cost
Differenciation can get can incombent bargaining power
Suppliers(+/-)
local producers (small companies)
consumer product companies (giants)
food and beverage, clothings, cleanings, etc.
depends of the size, of the brand (bio, local, big, small, etc.)
Substitutes (-)
convenience stores
e-tailers (Amazon.com)
whosale clubs
pharmacies
Rivalry (-)
a few big giants (WalMart, Supervalue, etc.)
few actors is good for the rivalry
hard discounter
speciality supermakets
the rest is sort of…
few opportunities differentiation
Threat of New Entrant(+)
Capital requirement
Access to suppliers
Brand
Profit margin : ROA and ROE
ROA = profit margin*Asset trunover
= 100*net income/revenue*sales/assets
ROE = Profit margin*asset turnover*financial leverage
= 100*net income/revenue*sales/assets*assets/equity
profit margin are low but you can play with asset turnover and financial leverage
maximize the product’s area
minimize the back storage area
Cost leadership vs differentiation
Differentiation two strategies
sophistication (higher price, higher cost but the profit margin is better
« no frills » (lower price and lower cost but profit margin is better)
Section 2 : Where does the Porter framework come from ?
1960’s
Peter Drucker, Philip Selznick, Edith Penrose, etc.
Harvard business school create “business policy department”
BCG, McKisney
Analysis tools
Joe bain, economist at UC Berkeley, father of modern IO economics.
Product
Performance
Industry and Market structure
IO started exploring the structural reasons why some industries were more profitable than others.
Micheal Porter, Competitive Strategy: Technique for analyzing Industries and Competitors.
Perfect competition (extreme case) : it is the basis to understand
Perfect information
Atomicity
Homogeneity (non-existing switching costs)
Free entry
Outcomes of industries close to perfect competition :
Price taker
Profits are low or close to zero industry is not interesting to be there.
Sellers earn just enough to survive – or they exit
“For firms to make profits at least one of the conditions of perfect competition must not be fulfilled”
Five-forces framework allows evaluating the extend to which perfect-competition conditions are fulfilled “good” industry to be in.
Potential new entrants worth to enter, entry barriers that need to be faced.
Incumbents
Stay or exit ?
Finding ways to make the industry more “attractive”
The five forces framework (read the article) :
Threat of new entrants :
Entry barriers
Growth rate of the industry
Ability of incumbents to retaliate
Substitutes :
Identification
To what extent each substitute is a threat ?
Rivalry (within the industry) :
Degree of concentration is lower
Company sizes are more similar
Industry growth is slow
Exist barriers are high
Etc.
Bargaining power of suppliers :
Identifying them
Degree of concentration
Switching costs
Prestige (specific characteristics)
Suppliers can threaten to integrate forward
Bargaining power of buyers :
Identifying them
B2B or B2C
Switching costs
Buyers can threaten to integrate backwards
This only this forces for the Porter’s analysing !!! No another !!!
When industry structure change…
Five forces (industry structure)
Social trends
Demographics
Natural environment
Regulation and deregulation
Technology
National and international economy
Case study : Trader Joe’s
Which are the key sources of Trader Joe’s competitive advantage ?
Customer loyalty
Differentiation in one hand
And manage lowers cost in the another hand
Porter’s Value chain
Firm infrastructure :
Follow the Aldi model
Culture (kaizen system)
Human resources :
Employee satisfaction is high (good working position)
Training “introduction ?”
low employees turnover (college-educated, creative side)
Technology (R&D) : do not invest a lot)
max. Employees-customer contact
lower fixed cost but it’s not very clear about that but in theory it’s an effect.
Procurement :
Own brand easy to switch between suppliers, private labels, dynamic product mix
Prompt payment
Efficient supply management
Inbound Logistics
Operation
“special” instore experience
employees knowledgeable, introduction with customers is promoted
stores in secondary locations
Outbound Logistics
Marketing and Sales
every-day low-pricing strategy
authentic
word-of-mouth, marketing spending s low
Service (aftersales)
everything is link in another to the them goal “Culture or vision’s company”
effect on the costs strategy !
They are lot of link to be the key advantages sources so we can’t know which is the most importance
Employee satisfaction
Supply chain management
Culture of the firm
Etc.
External challenges:
Big players are developing smaller format
E-commerce
Internal challenge:
How to growth ? (risk of losing fthe successful “mix” of R&Cs)
Vision (Goals):
Keep their culture
Core R&Cs :
employees
Components of the strategy thinking process :
Vision : What do we want to achieve ? What do we want to become (goals) ?
Resources and capabilities : What do we need to succeed ? What do we do effectively and different from others ?
Industry analysis : Do we have a chance to succeed and how ?
Value proposition !
Strategy is NOT a “business model”
Business model is a description of how your business runs (or should run).
Strategy have two others dimensions :
an analysis of competition
critical question : why should the company exist and what does it produce is unique consumer ?
Generic strategies (adapted from Porter, 1980)
Differentiation can be broad or focused sophistication or “no frills”
…to achieve a cost leadership cost because differentiation make cost higher
compromise between the two strategies
Strategy is also about considering “other options”, which depend on the company, the industry and the situation ! what can be happen or not ?
…about trade-offs :
considering trade-offs and choosing one direction
rapid growth can compromise the sources of a company’s competitive advantage
some historical choices can lead to a very particular business model
making decision of different options and forgo the others !
Study’s case : Tervita
Analyse the market for secure landfill services in NEBC
Why is Complete accusing Tervita to overpay for Complete ? Is it reasonable claim ? Why ?
What would you recommend to the commissioner and why ?
Analyse the industry
Industry : secure landfill
Geography scope : NEBC
Threat of New Entrant (+)
High fixed cost (capital)
Permit (long)
Expertise
Public opposition (new landfill)
Buyers (+)
Oil and gas industry
Only secure of differentiation is distance
switching cost low !
but in this case we have only Tervita !
Rivalry (+)
Tervita (+Complete), Silverberry, N-R, etc.
almost monopoly (not on the price because substitutes exist)
Secure : no landfill
Dorg Prejay (not operational)
Supplier (+)
NR.
Substitutes (+)
on-site be remediation (temperature is too low)
disposal in Alberta
some competition is introduced but it is limited.
Oligopoly with little or not possibility of differentiation :
Risk of price war in the oligopoly situation
Risk of Bertrand competition profit = 0
Collusion (tacit), cooperative outcome
Become the only player (Margin and Acquisition)
Industry structures
Strategy in oligopolistic industries
High entry barriers
Few actors controlling the market
Little opportunities for differentiation
Intense price competition OR cooperation
Mergers and acquisition
Vertical integration
How do you maintain cooperation over time to avoid price wars ?
And how do you do so without attracting the attention of antitrust authorities ?
How do you compete without adding capacity to the market (or increasing overcapacity) ?
analysis the interactions
analysis the entry barriers
Pricing and quantity strategies
Everything depends on the interactions among competitors
NON-COMPERATIVE OUTCOME (overcapacities and engage price wars)
The lack of information
COOPERATIVE OUTCOME
Be careful collusion can be explicit but it often tacit (if illegal)
Cooperative outcome will break down (Nash equilibrium)
don’t have good information incentive to “cheat”
Coordination is more likely if :
Small numbers of actors
Can observe better (industry association)
Game is repeated and credible threat
Opportunities to differentiate
Multimarket competition can stabilize cooperation in an oligopoly but we don’t make internalisation to the goal of stabilize the cooperation !!!
Differentiated Oligopoly :
Non-price strategies Bertrand competition
Don’t compete on price but on other dimensions
Example: Coca Cola and Pepsi: product characteristics and brand promotion
Summary :
strategies are very complex
“right” level of interaction
difficult to maintain over time
antitrust policies and collusion is often illegal
When there is enough room for differentiation, we can find differentiated oligopoly structure.
Tervita case study : Part. B
efficiency gains (Art.96) are more important than the negative effect associated with structural
24.10.11
29.10.12
26.06.12
25.02.13
CB files on application to the CT
CT rules in CB’s favor
Tervita appeals (FCA)
FCA uploads CT’s decision
CB acquisition reduces
- competition (with respect to a situation in which Complete is indepenant
acquired by another company)
- entry of a new competitor would take a long time.
Tervita : “no” Complete was going to build a bioremediation facility.
CB : bioremediation is not viable.
Tervita :
- CB/CT is speculating on future events.
- efficiencies have not been assessed correctly.
- It make sense to consider alternative scenarios.
- confirm CB’s/CT’s argued based on Art. 92
Regulators, Nonmarket Strategies and Antitrust Policies
Regulation competition
independent regulator main goal is the consumer’s welfare.
infrastructure investment
The goal is to control the incumbent(s)
But uncertainly how competition regulation needs to be designed.
GAFA under increasing scrutiny
Nonmarket strategies
- Corporate politic activities
lobbying
political campaign contribution
Constituency-building
Litigation
- Political ties this is why we see ex-politicians appointed to the board of direction
Limits and problems :
Legal constraints
Uncertainty regard the return on investment
Financial and managerial resources
Reputation risk
strategies depend of how do you can influence politic or group of activist. It depends also of the market of you are and the type of policy. You must have an economic objective to do that.
Antitrust Policy
Policy Implications of the existence of oligopolistic markets: Merger sare under close antitrust policy
It is not worth engaging in a merger if the risks of being closely investigated and blocked are high.
Make sure that you do it’s possible and make a good analyse before, the rules can change so fast and you must anticipate !!!
How do antitrust judges analyse mergercases ?
Structural analysis
Increasing market power and result in higher price
Collusion
Entry barriers
Efficiency analysis
Reducing
Marginal cost
Fixed cost
Average unit cost
Dynamic analysis
Will innovation or some other change take care of competitive problems by itself ?
Competing in markets with network effects
Network effects (affected by the number of other agents choosing the same product)
Direct network effects (number of user)
Indirect network effects (number of complementary product)
What network markets are like :
Tipping effects at the end one win the race (rapidly change)
Expectations ultimate size of the network
History matters
Initial strategic choice :
Inter-standard competition : keep the technology count of the networking externality to win the standard competition.
maintain non-compatibility
making better conditions than competitors
consumer’s expectation to discourage users from buying rival’s product
long term contract
marketing : develop “fashion effect”
Intra-standard competition: open technology
make credible commitments
make concessions
GUCCI case study :
luxury industry 1990’s, global
Evolution: concentration
Fakes are threat for the brand image not a substitute
New entrants (+/-)
Relatively low fixed cost
Investment in the brand necessary to become successful
Substitutes (+)
No substitutes because the goal of the luxury market is to be exclusive
Buyers (+/-)
Easily switch from one brand to another
Existing :Brand loyalty
Rivalry (-)
Very fragmented
The same “luxury” clients
Differentiation
Suppliers (+)
Produce in house (leather, gold, etc.)
(+)
Outsource production (suppliers make the bag or the product make the quality)
(+/-)
to make money in this industry you have to successful differentiation
(controlling your image, your quality, distribution channels, etc.)
Monopolistic competition (you have pricing power)
positioning and repositioning pay attention to what competitors are doing.
Value Chain :
F.I De Sole, Tom Ford, tight control
HR Huge change
Monopolistic competition, Differentiation and Strategic Groups
players hold specific niches
Niches appear and disappear over time
The niche provides some degree of protection, but there is also some degree of price competition
differentiation on a niche
Competitive positioning in monopolistic competition markets
Step 1:
Key cost drivers
Comparison
Keeping track of the main cost drivers over time
Quantitative evaluations
Step 2 :
Value chain : source of differenciation
WTP (willingness to pay)
What does really matters ?
Market studies/test
Step 3:
Arbitrage between cost and WTP
Should one of them be scarified to focus on the other ?
Parts of the value chain that can be outsourced ?
How will competitors react ?
Who are the leading-edge customers and how will they react ?
Underserved customers ?
Strategic groups and segmentation analysis
competitive map (or strategic group map)
Strategic group = Group of firms in an industry following a similar strategy along similar dimensions.
Identify where can I move ? Go in some area where competition is low ! you can see where is the opportunity to develop and gain some market share !
Most of research focused on analysing differences in profitability
Basic argument is mobility barriers
How close you are to your competitors ?
Where to go next ?
Strategic re-positioning :
Profit frontier diagram
Price
Advantage
Differenciation advantage
Case Study : Ryanair
Be careful : it’s not about Ryanair like a low cost company but about the creation of the company in the 1980’s.
Context : Margaret Thatcher make lot of privatisation British airways was privatised.
1985: test of the first flight 14-seat turboprop Waterford-Gatwick route
1986: license to get the route of Dublin-London
1. What is your assessment of Ryaniar’s launch strategy ?
2. How do you expect Aer Lingus and British Airways to respond ? Why ?
3.
1. strategy triangle use for evaluate a future strategy but also to evaluate a strategy have been already done.
Vision, goals :
Short-term :
Operate the Dublin-London route
Good quality service, successful
Long-term :
Becoming an European airline, covering many European routes
Market/industry
Many passengers by ferry + price-sensitive customers
Favourable labour conditions
British Airways and Aer Lingus are already covering the route
On going and coming deregulation in European market
R&Cs
Secondary airports
Father’s contact and expertise and capital
License for London-Dublin
Value Proposition
One-price affordable tickets on the London-Dublin route
Same service than Aer Lingus and British aiways
First mover in Ireland and UK
cost leadership position (same quality for lower price)
100% occupancy (AL and Ba 60-70%)
secondary airports (lower cost)
more efficiency than incumbents (US market)
So we use BA data to make some rough calculations about Ryanair’s costs:
margin cost
fixed cost
Can Ryanair be profitable ?
We assumed 100% utilization is it realistic ?
4 daily round trips, 44 seat : 4*44*365 = 64,240 seats/year
gain theory cf feuille
Napa Valley wine industry :
1.
industry : wine
geography scope : napa valley production problem
it’s not a ggod industry to be, to make profit you have to make a successful differentiation !!!
Threat to New Entrants (+)
Capital (land, winery, equipment)
Expertise
Access to distribution channel
Buyers (-) but (+/-)
B2C
switching cost low but if you have a successful differentiation switching cost can be higher !
B2B
restaurant
distributors
speciality shops
Suppliers (+/-)
Grapes:
Produce them
Buy them if you need quality; suppliers have som B.p.
Packaging, pesticides, etc.
Rivalry (-)
Very fragmented
Room for differentiation
No room for growth
Substitutes (-)
other Californian wines
other alcoholic beverage
2.
Expertise
Historical heritage
PREMIUM (cabernet Sauvignon) with positioning
Relatively important distribution scale
3.
temperature and climate patterns change quality of the grapes can be affected.
Increased risk of pests need more pesticides/new ways of managing pest
Decreased water availability
ADAPTATION
Planting, other variety, exposition to the sun
Farming
Making the wine
MOVE TO A NEW AREA
Cost is very high
Which area ?
Move quickly buy the best land
You don’t know which area will be the best
change your business if you can’t make wine make another fruit or product with the grapes ?!?
IKEA : sustainability in supply chain
Value proposition is not really used to measure sustainability !!!
it’s used for business analyst
preferred Value chain and table negative and positive points
diagnostic : design sustainability strategy and growth strategy (value proposition if you want)
Value chain :
Infrastructure
integrated the stakeholders is very important even if that spend a lot of time. !!!
When we speak about sustainability, an important asset is the transparency.
HR
IWAY: workers condition
technology
R&D improve or develop new product
Procurement
IWAY
sourcing close to markets
different types of suppliers / goal 100% “more sustainable”
resume that with a table
Full support of the top management
Sustainability is integrated in each step of the value chain
Provides objective that allow to monitor progress
Strict with suppliers
Don’t invest in the design of sustainable product
Short life of their product !
problem of the main business model
Comment controller les fournisseurs des fournisseurs owning more forests !!!!!
Equal variance : No structure in the errors
Errors are increasing « randotness »
LINK institute
“For every challenge a solution”
clusters is group of data items with similar characteristic.
typology is about the characteristic like socio-demographic etc.
persona is about storytelling, name , role, face, history, etc.
cluster mathematic
typology psychological
persona prosaic
segmentation
What kind of segmentation :
(socio-)demographic geographic, economic, age, gender, etc.
description of the target groups
psychographic personality, lifestyle
imagery, value and communication style
need types individual preferences, aspect of attitude, value
How should a product be designed ? What has to be at the forefront in the communications ?
Behavioural basis of current or historic behaviour, differentiation (heavy, low user)
Where do I find my target group ? How great is the potential ? fan of the brand ?
loyalty satisfaction
who are my most loyal customers ? With whom is there a risk of termination ?
innovation attitude, character, self image, demonstrates who are opinion leaders
Who do I have to convince when introducing new products ? Who tends to buy established products ?
ABC customer value, previous sale
Classification of customers by importance
Measurable
Stable in terms of time
Relevant to purchasing behaviour
Implementation oriented
(POS = point of sale)
The most important question : How should be segmented ? and the method of the research concept !
From data to the segment :
Survey data Factor analysis cluster analysis statistical quality criteria plausibility of the content and interpretation of… operational consideration final segmentation solution
Methods :
Cluster analysis
Profiling
Power question
Factor analysis
Scoring
Qualitative approaches
Latent class
Etc.
What is meant by implementation ?
the segmentation must be designed with the ultimate task in mind !
“We will be surprised by how many people participated to the investigations.”
I think people like give their opinion about nothing
Cluster to persona :
Conjoint/MaxDiff initial basis for target group specific product development
Cluster can be further developed into types by additional variables
Type suitable for segmenting the market
Personas clear description
Personas help ensure that everyone in the company can deal with and identify with segmentation
Clusters : Needs-based product development
Types : Specific appeal and choice of channel
Persona : Customer orientation of all amployees; template for marketing give an image of the segmentation for all people in the company !
Positioning
“Positioning is not what you do to a product. Positioning is what you do to the mind od prospect.”
“What is important to measure in positioning is not the brand manager’s intent, but the brand positioning’s actual end result – how consumers catalog, classify and remember a brand.”
Positioning statement :
For target group
Brand X is the only brand among all category/competitive set
That value proposition
Because reasons to believe
Exercise positioning :
Evian for middle-class looking for a premium water
Evian is the only brand among all bottled waters
That offer youth, health and beauty
Because it offers naturally pure and mineral-balanced water from the pristine French Alps and is associated
Choosing a target segment :
“A good target analysis not only decides who is your target but who is not your target.”
What are jobs to be done ? example of telephony
Points of Parity (PoPs) : Associations that are not necessarily unique to one brand but might be shared with other brands (open your mind).
Category PoPs : what you need to be compared to be recognized as a legitimate brand… McCafé is a copy of Starbucks !
Competitve PoPs : Apple/Microsoft
It is essential to have Someone to differentiate from…
Crafting the value proposition:
“Price leadership is not as easy as it sounds”
Price/Benefits
More
Same
Less
More
More for more
More for the same
More for less
Same
Same for less
Less
Less for much less
Perceived Positioning (market place)
Positioning means anchoring a brand in the perceptual space of a (group of) customer(s).
The perceptual space has n dimension
number of relevant dimensions must be defined
denomination of relevant dimensions must be defined.
Positioning Maps (perceptual maps)
“Be careful we don’t always use price depend of the market because it’s not relevant for anything !”
Positioning is a dynamic co-production
“The world will ask you who you are and if you don’t know the world will tell you.”
Brands and Branding
Holt’s model of brand culture :
The firm
Popular culture
Brand Stories
Brand Culture
Influencers
Customer
Be careful, be credible and be clear with the message you want to send and why ! Pepsi
Creating value :
Identifying and differentiating
Awareness and emotional engagement loyalty
Premium price Skoda vs VW
Competitive advantage (entry barriers)
Marketing cost
Attract talent (employer brand)
Company perspective
Risk reduction reputation of manufacturer
Choice heuristics interpretation and easier processing of information
Time and effort for purchasing
Purchasing choice
Identity value
Social value
Consumer perspective
With brand we can make a persona of you ! You can know who you are with the brand you use because each brand have functional, emotional, relational and social orientation.
just think how brand change your life or more how brand is present in your life… What are you doing without whattsapp or instagram ? It’s including our social life ! But is it new technology or new brand ?
“The response to our High Tech world is an increasing search for what it means to be human. High Touch will be the key to differentiate products and services.” John Naisbitt
Brand management :
Aaker’s Brand identity model
“A unique set of brand association that brand strategist aspire to create or maintain. These association represent what the brands stands for and imply to the customers from organization members. (1996)”
Competitive Strategy 23.09.19 14:34
Quantitative methods 23.09.19 14:34
Strategic marketing 23.09.19 14:34
23.09.19 14:34