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