2. Tuesday – In class case exam
Post questions Monday PM
Answers due Wednesday 8AM
Industry Analysis
Thursday - +5%
Tuesday – full credit

3. Average 72.6
34 out of 60 above the average
80% or higher – 19 = 33rd percentile
70% - 79 – 20 = 66th percentile
60 – 69 – 8 = 78% percentile
60 or less – 12
Range – 95 to 43

4. Chapter 5

5. Business Level Strategy
How are we going to compete in our industry/segment?
Improving the firm’s competitive position
Competitive advantages are the single most dependable contributor to above-average profitability

6. How do these Firms Compete?

7. How do these Firms Compete?

8. How do these Firms Compete?

9. How do these Firms Compete?

10. Porter’s Generic Strategies
Two fundamental issues
Competitive advantage - low cost vs. differentiation
Strategic Target - broad based vs. segment
Pursuit of the generic strategies provides protection from each of the five forces

11. Porter’s Generic Strategies
Low Cost
Competitive
Advantage
Differentiation

12. Porter’s Generic Strategies
Broad
Segment/Focus
Strategic Target

13. Porter’s Generic Strategies
Overall Low-Cost
Focused Low-Cost
Low Cost
Competitive
Advantage
Broad Differentiation
Differentiation
Focused Differentiation
Broad
Segment/Focus
Strategic Target

14. Porter’s Generic Strategies
NOT one of Porter’s Generic Strategies
Low Cost
Best-Cost
Provider
Competitive
Advantage
Differentiation
Broad
Segment/Focus
Strategic Target

15. Porter’s Generic Strategies
WalMart
Domino’s
Low Cost
Competitive
Advantage
Differentiation
Broad
Segment/Focus
Strategic Target

16. Porter’s Generic Strategies
WalMart
Domino’s
Grocery Outlet
Little Caesar’s
Low Cost
Competitive
Advantage
Differentiation
Broad
Segment/Focus
Strategic Target

17. Porter’s Generic Strategies
WalMart
Dominos’s
Big Lots
Lil Caesar’s
Low Cost
Competitive
Advantage
Target
Papa John’s
Differentiation
Broad
Segment/Focus
Strategic Target

18. Porter’s Generic Strategies
WalMart
Domino’s
Big Lots
Little Caesar’s
Low Cost
Competitive
Advantage
Target
Papa John’s
Nordstrom
Papa Murphy’s
Differentiation
Broad
Segment/Focus
Strategic Target

19. Differentiation
Offer attributes that customers want, and are willing to pay for. Leads to premium price, higher volume, loyalty
Maintaining uniqueness can be a challenge
Kodak, Wrigley’s, Campbell’s, Coca-Cola, Gillette, Del Monte, and Nabisco all leaders since 1923
Marginal revenue must exceed the costs of differentiation
PERCEIVED VALUE
versus
INCREMENTAL COSTS

20. Differentiation (cont.)
What firms pursue differentiation?
How or on what basis do they achieve differentiation?

22. Starbuck’s Differentiation
4 Tablespoons of $10 bag = 40 cents
Three cups
Double-Tall Latte = $3.22
Double Shot Espresso = $1.85
$ $1.85 = $1.37 for steamed milk
20 seconds to steam milk
$1.37 * 3 * 60 = $246 a hour to steam milk
Customers “allow” Starbucks to draw interest in their smart-cards.
Millions of dollars annually on the float
“You are one of us”
“Collectible”
Pretax profit margins of 10.5%

23. Differentiation (cont.)
Signalling important when:
nature of differentiation difficult to quantify
first-time purchase –
re-purchase infrequent
buyers unsophisticated

24. To introduce his beer, Coors often gave free sample to gold miners.

25. ..because you can’t sell beer to minors.

26. Differentiation (cont.)
Risky when:
quick imitation
no value in uniqueness
over differentiation
cell phones
premium price
costs too high
poorly understood/changing customer needs
Minivan, FAO Schwartz
costs/price become more important than uniqueness
unwillingness to offer true differentiation

27. Can you differentiate……?

28. Can you differentiate…..?
Salt?

33. Can you differentiate…..?
Deodorant

34. Strong enough for
a man, ….
But made for a
woman

35. Ph balanced too?????

36. Can you differentiate…..?
Water

38. Evian spelled backwards - naïve
Coincidence? I think not…..

39. Now, I am going to do a card trick.

40. I am going to read your mind.

41. You are going to see a series of cards.

42. You are going to choose one card.

43. Once you select your card, clear your mind, and think only of that card.

44. Are you ready to pick a card?

45. Pick a card.

46. Did you pick a card?

47. Think of it now.

48. I hear you.

49. And now, I will remove your card.

51. Your card is gone….yes?

55. The Logitech Saga Fortune’s one of 25 cool places to work
CEO complained in a 4AM phone call to their advertising agency that Logitech’s ads “failed to breakthrough the clutter of “tech and spec” in the computer publication he was reading.”

56. The Logitech Saga
Woolward & Partners responded to the wake-up call by developing a campaign featuring a series of improbably human images that included fat men in beanies, a urinating baby boy, and fully-clothed nuns splashing in the surf

59. The Logitech Saga
“After a twelve-year roller-coaster ride of profit and loss, leadership and anarchy, attention and ignorance, Logitech is now plagued with recreating itself. The company has been plagued with inefficient manufacturing, mixed marketing messages, and ill-conceived product ventures. In 1995, despite a 40% market share, the company lost $17 million. The company with advertisements featuring a peeing baby or a nose picking (Henry) Kissinger is dead”

60. The Logitech Saga
“We didn’t want to be in mice. They seemed beneath our intelligence. We wanted to be a software company, like Microsoft.”
“I don’t know where I am going, but I’m on my way.”
“We are the most critical users of our products. Customer need recognition is limited by their understanding of technology - they don’t know what is possible.”

61. Sound Familiar?
“This is what customers pay us for - to sweat all these details so it’s easy and pleasant for them to use our computers. We’re supposed to be real good at this. That doesn’t mean we don’t listen to customers, but it is hard for them to tell you what they want when they have never seen anything remotely like this.”

63. Problems with P&G’s Differentiation Strategy

64. How has P&G responded?
Introduction of new, higher margined products like battery powered toothbrush and white strips
Introduction of “Rejuvenating Effects,” a toothpaste for women marketed as a beauty product
Using Emeril Lagasse to hawk their citrus, cinnamon, and herbal mint toothpastes

65. How can Differentiation protect against…?
Starbuck’s
$1.80
New Entrants
Price
Profit
Costs

66. How can Differentiation protect against…?
Starbuck’s
$1.80
New Entrants
Joe’s Coffee
Assume
Equal
Costs

67. How can Differentiation protect against…?
Starbuck’s
$1.80
New Entrants
Joe’s Coffee
99 cents

68. How can Differentiation protect against…?
Starbuck’s
$1.80
New Entrants
Joe’s Coffee
99 cents
Extra Profits

69. How can Differentiation protect against…?
Starbuck’s
$1.80
Rivals
Joe’s Coffee
99 cents

70. How can Differentiation protect against…?
Starbuck’s
$1.80
Joe’s Coffee
99 cents
Advertising
& Promotions
drive costs UP

71. How can Differentiation protect against…?
Starbuck’s
$1.80 $1.70
Joe’s Coffee
99 89 cents
Discounts
and sales drive
prices DOWN

72. How can Differentiation protect against…?
Starbuck’s
$1.80
Substitutes

73. How can Differentiation protect against…?
Starbuck’s
$1.80
There is no
substitute for the
truly differentiated
product

74. How can Differentiation protect against…?
Power of Buyers - How do powerful buyer’s leverage their power?
Lower Prices, Higher Quality

75. How can Differentiation protect against…?
Starbuck’s
$1.80 $1.70
Joe’s Coffee
99 89 cents
Lower
Prices
Raise
Quality

76. How can Differentiation protect against…?
Power of Suppliers - How do powerful suppliers leverage their power?
Drive up costs

77. How can Differentiation protect against…?
Starbuck’s
$1.70
Joe’s Coffee
89 cents
Raise
Costs

78. How can Differentiation protect against…?
Differentiation does not eliminate any of these forces, it just allows the differentiated firm to more easily deal with these forces, or offset the power of these forces, and potentially, remain profitable.

79. Low Cost Leadership
Design, produce, and market a comparable product at a lower cost
Effective utilization of value-chain
capital intensive mfg processes - efficient scale
process, not product engineering - cost reductions
products designed for simple assembly and sharing common components
procurement and materials handling
low cost distribution
Requires organizational culture to support
close supervision, cost controls

81. Low Cost Leadership (cont.)
Attractive when price is dominant consideration
commodity
low switching costs
powerful buyers

82. Low Cost Leadership (cont.)
What firms pursue a low cost strategy?
How do they drive their costs down
Risky when:
technology breakthroughs frequent
easy to imitate
costs advantages erode more quickly than differentiation
causes near-sightedness on a few activities/sunk costs

83. Less than 24 hours after rival HP reported its PC division had lost money one quarter last year, Dell lowered prices by up to 22%
Analysts believe Dell has a 5% cost advantage
HP forced to choose between market share and profitability

84. How can Low Costs provide protection from….
New Entrants
Bottle of Tide
$1.99
Wal-Mart
Joe’s

85. How can Low Costs provide protection from….
Bottle of Tide
$1.99
Higher
costs
Wal-Mart
Joe’s

86. How can Low Costs provide protection from….
Rivalry
Bottle of Tide
$1.99
Wal-Mart
Joe’s

87. How can Low Costs provide protection from….
Bottle of Tide
$1.89
…can push
prices down….
Wal-Mart
Joe’s

88. How can Low Costs provide protection from….
Bottle of Tide
$1.99
… or push
costs up
Wal-Mart
Joe’s

89. How can Low Costs provide protection from….
Bottle of Tide
$1.99
Substitutes
Wal-Mart
Joes

90. How can Low Costs provide protection from….
Bottle of Tide
$1.89
…can push
prices down….
Wal-Mart
Joe’s

91. How can Low Costs provide protection from….
Bottle of Tide
$1.99
… or push
costs up
Wal-Mart
Joe’s

92. How can Low Costs provide protection from….
Power of Buyers
Bottle of Tide
$1.99
Wal-Mart
Joe’s

93. How can Low Costs provide protection from….
Bottle of Tide
$1.89
…can push
prices down….
Wal-Mart
Joe’s

94. How can Low Costs provide protection from….
Power of Suppliers
Bottle of Tide
$1.99
Wal-Mart
Joe’s

95. How can Low Costs provide protection from….
Bottle of Tide
$1.99
… can push
costs up
Wal-Mart
Joe’s

96. How can Low Costs protect against…?
Low cost leadership does not eliminate any of these forces, it just allows the low costs firm to more easily deal with these forces, or offset the power of these forces, and potentially, remain profitable.

97. Focus
Emphasizing a market niche where customers have unique preferences or requirements. Either focus-low cost or focus-differentiation
Profitable when
niche is large, growing
niche is not crucial to broad-based competitors
firm is able to defend position

98. Focus (cont.) What firms pursue a focus strategy? What is their niche?
Risky when:
competitor “outfocuses the focuser”
broad based competitors have deep pockets
homogenization of customer needs
economies of scope becomes a dominant KSF

99. Integrated Low Cost-Differentiation
Combines both generic strategies
Difficult to implement

100. Stuck in the Middle
Firm’s offering are too costly to compete with low costs provider’s product, and too undifferentiated to command the price premium gained by the differentiated firm