2.  Industry Analysis Thursday - +5% Tuesday – full credit

3.  Average 67ish  30 out of 61 above the average  80% or higher – 10 = 16th percentile  70% - 79 > 15 = 41st percentile  65 – 69 > 9 = 55th percentile  55 – 65 > 17 = 83 rd percentile  Below 55 > 9  Range 97 to 36

5. Chapter 5

6. 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

7. How do these Firms Compete?

11. 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

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

13. Porter’s Generic Strategies BroadSegment/Focus Strategic Target

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

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

16. Porter’s Generic Strategies Low Cost Differentiation BroadSegment/Focus WalMart Domino’s Competitive Advantage Strategic Target

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

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

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

20. 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

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

23. Starbuck’s Differentiation  4 Tablespoons of $10 bag = 40 cents Three cups  Double-Tall Latte = $3.22 Double Shot Espresso = $1.85 $3.22 - $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%

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

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

26. ..because you can’t sell beer to minors.

27. 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

28. Can you differentiate……?

29. Can you differentiate…..?  Salt?

34. Can you differentiate…..?  Deodorant

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

36. Ph balanced too?????

37. Can you differentiate…..?  Water

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

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

41. I am going to read your mind.

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

43. You are going to choose one card.

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

45. Are you ready to pick a card?

46. Pick a card.

47. Did you pick a card?

48. Think of it now.

49. I hear you.

50. And now, I will remove your card.

52. Your card is gone….yes?

56. 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.”

57. 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

60. 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”

61. 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.”

62. 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.”

64. Problems with P&G’s Differentiation Strategy

65. 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

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

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

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

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

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

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

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

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

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

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

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

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

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

79. 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.

80. 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

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

83. 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

84. 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

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

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

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

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

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

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

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

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

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

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

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

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

97. 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.

98. 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

99. 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

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

101. 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