ch 10- Innovative Strategies and Business Models

__________ draws on a different knowledge base, technologies, or methods to deliver value in a truly unique way. Disruptive innovation Invention Incremental innovation Radical innovation

Radical innovation

disruptive innovation

Radical innovative strategies in which companies in the same industry find the innovation so disruptive that they can no longer do business as usual.

Reconfigure the Value Chain to allow for "Mass Customization"—the mass production of customized goods.

•Build-A-Bear (mass produce components of stuffed animals and customize them at stores) •Dell Direct (customized computers) •Timbuk2 (customize/design your own handbag) •Nike ID (customize/design your own shoe. •My Twinn (customize your own doll, etc.) -

4. Free Bundling Strategy (Direct cross subsidy):

•Bundle the free product with non-free products and derive revenues from non-free products; can't get the one without the other. • Requirements: §Products or services that can be bundled with the free offering OR §A free product that needs regular maintenance or complementary products (e.g., free printer but costly ink).

Low End Disruption: Low cost business model based on new technology that improves

-Nucor vs. U.S. Steel -Skype vs. AT&T Honda vs. Harley Davidson or Mercedes Benz

innovative strategy

A strategy that introduces a fundamentally different business model than rivals

Which of the following involves creating new demand in an uncontested market space? Incremental innovation Third-party pay strategy Blue ocean strategy Innovative strategy

Blue ocean strategy

blue ocean strategy

Creating new demand in an uncontested market space.

Conflicts in Operability:

Customers' demands are diverse and irregular which calls for leads to high component variety, large numbers of suppliers, and high administrative complexity

customer segment

Groups of people who share similar needs and thus are likely to desire the same features in a product.

Types of Innovation

Incremental Innovations Radical (Disruptive) Innovations

Conflicts in Name:

Mass - Aggregation Customization - one-of-a-kind

mass customization

When a company mass-produces the various modules of the product and then allows the customer to select which modules will be combined together.

high conversion rate

When a high percentage of free users are willing to convert to paid customers for premium features.

•Reconfigure the Value Chain to Eliminate Activities

-Amazon vs. Barnes & Noble; Netflix vs. Blockbuster, 1800 Mattress, Charles Schwab (eliminate stores, labor, and inventory). -Southwest vs. Hub & Spoke carriers (eliminate meals, seat reservations, baggage transfer, etc.)

Blue Ocean Strategy: create new demand in an uncontested market space.

-Cirque de Soleil (combination of circus, acrobatic troupe, music, Broadway). -Federal express (met uncontested demand for secure overnight delivery). -ChotuKool ($49 refrigerator that runs on a battery and uses solid state thermoelectric cooling)

Free Business Models

-Free Upsell (Freemium): Zynga; Skype -Free Cross Sell: Mint.com; Ryanair, -Free 3rd Party Pay: Google, Craigslist -Free Bundled free: Cell phone service; printers, financial services (e.g. trades), etc.

Reconfigure Value Chain Activities

Process innovations that typically create an efficient new business model; allow companies to create, deliver, sell, or service a product more efficiently

Radical (Technological) Innovation

•Innovations based on a different set of engineering and scientific principles and technologies. Compared to established products, a radical technological innovation establishes a new dominant design for the product and a new set of core technologies and design concepts embodied in components that are linked together in a new product architecture (e.g., Mobile phones, PCs, Electronic Fuel Injection).

3. Free Third Party Pay (Advertising) Strategy:

•Make the product/service free to generate a community (network externality) for which you get paid by a third party company who desires access to that community. Google, Hulu, Craigslist, Blyk, Ryanair Requirements: §A free offering that attracts either many users who can be segmented for advertisers or a targeted group that comprises a customer segment AND §Third parties willing to pay to reach these customers

Radical Innovations

•Reconfigure the Value Chain to Eliminate Activities •Low End Disruptive Innovations •High End Disruptive Innovations •Reconfigure the Value Chain to Allow for Mass Customization •Blue Ocean Strategy—Creating New Markets by Targeting Non-Consumers •Free Business Models

hypercompetition

A term coined by Professor Rich D'Aveni to refer to his argument that competitive intensity has increased and that periods of competitive advantage have decreased

___________ is when companies in the same industry find the innovation so unsettling that they can no longer do business as usual. Incremental innovation Radical innovation Hypercompetition Disruptive innovation

Disruptive innovation

radical innovation

Innovation that draws on a different knowledge base, technologies, or methods to deliver value in a truly unique way.

Which stage of the product/business/industry life cycle involves an increase in competitive rivalry and late majority buyers? Maturity stage Decline stage Growth stage Introduction stage

Maturity stage

1. Free Up-Sell Strategy ("Freemium"):

Offer a free version to gain attention and widespread use; then offer a premium product with advanced features for customers willing to pay. Skype, Flickr, Zynga Requirements: §A free product that appeals to a very large user base so that even a low conversion rate of free users to paying customers will generate substantial revenues OR §A high percentage of users willing to pay for the premium version

third-party pay strategy

Providing free products to a community of product users as a method of generating revenue from a third party that pays to access those users

Disruptive technologies

are a driver of leadership failure and the source of new growth opportunities

The introduction stage of the product/business/industry life cycle is often initiated by new products entering the market that cause demand to fall.

false

The secret to a blue ocean strategy is to provide a valuable free service that attracts either a very large community of product users that can then be segmented in a particular way for advertisers or a targeted community of users that comprises a customer segment, or group of individuals similar on a key dimension.

false

In the ___________ of the product/business/industry life cycle, sales begin to accelerate as innovation gains traction and increased market acceptance. maturity stage growth stage decline stage introduction stage

growth stage

When a large percentage of free users are willing to convert to paid customers for premium features it is called a __________. blue ocean strategy high customer segment high conversion rate third-party pay strategy

high conversion rate

Radical (Architectural) Innovation

•A product's architecture reflects the way in which a set of components are integrated into a "system" (product). Architectural innovations change the architecture of a product (the way they are linked together or adding new components) without fundamentally introducing changing the technology underlying its components (e.g., iPod, Starbucks, FedEx).

Incremental Innovations

•Better offerings that generate better profits from current customers • •New features • •Important for success but they don't create growth because they are replacements of existing products ex.)LED tvs --> 3d tvs

incremental innovation

Building on a firm's established knowledge base and steadily improving the product or service a firm offers.

2. Free Cross-Sell Strategy:

Offer a free version to gain attention and widespread use; then offer other products for which customers are willing to pay. Ryanair, Galderma, mint Requirements: §A broad product line (preferably products that complement the free product) OR §The ability through partnerships to sell a broad line of products to users of the free product

low-end disruption

Producing a low-cost product or service for the low end or most price-sensitive segment of the market, and then gradually moving upmarket as the product or service improves its technology and processes.

Which of the following describes an approach, or pricing strategy, a company uses to get paid for the value it delivers through its business model? Third-party pay strategy Blue ocean strategy The Revenue Model Innovative strategy

The Revenue Model

revenue model

The approach, or pricing strategy, a company uses to get paid for the value it delivers through its business model.

innovation definition

The conversion of a novel concept (an invention) into a product, process, or business model that generates revenues and profits.

invention

The creation of an idea or method; a novel concept.

Building on a firm's established knowledge base to create minor improvements to the product or service a firm offers is known as __________. radical innovation incremental innovation transformation outsourcing

incremental innovation

n the ___________ of the product/business/industry life cycle, a company attempts to attract new types of buyers who are willing to try out the latest new gadgets. introduction stage growth stage maturity stage decline stage

introduction stage

innovation

novel, useful and implemented

Providing free products to a community of users as a method of generating revenue from a third party who pay to access those users is known as a(n) __________. third-party pay strategy innovative strategy invention strategy blue ocean strategy

third-party pay strategy

Low-End Disruptive Innovations

•Target customers whose needs are over-served in the mainstream market -Price is far more important than features. •Product performance is "good enough" on basic features to attract low-end customers of the mainstream market •Entrant uses a new low cost business model; performs different activities which allows the firm to earn profits even at deeply discounted prices