Ch 7 Small Business Strategies: Imitation with a Twist

Cost Strategy

A generic strategy aimed at mass markets in which a firm offers a combination of cost benefits that appeals to the customer.

Focus Strategy

A generic strategy that targets a portion of the market, called a segment or niche.

Decline Stage

A life cycle stage in which sales and profits of the firm begin a falling trend.

Industry Analysis

A research process that provides the entrepreneur with key information about the industry, such as its current situation and trends.

Differentiation Strategy

A type of generic strategy aimed at clarifying how one product is unlike another in a mass market.

Boom

A type of life cycle growth stage marked by a very rapid increase in sales in a relatively short time.

Shake-Out

A type of life cycle stage following a boom in which there is a rapid decrease in the number of firms in an industry.

Retrenchment

An organizational life cycle stage in which established firms must find new approaches to improve the business and its chances for survival.

Innovative Strategy

An overall strategic approach in which a firm seeks to do something that is very different from what others in the industry are doing.

Imitative Strategy

An overall strategic approach in which the entrepreneur does more or less what others are already doing.

Competitor

Any other business in the same industry as yours.

Scope is important for two reasons

-Knowing your market scope helps deciding where to focus sales and advertising efforts -Knowing your target market gives you a way to know which competitors to worry about most, namely those within your market scope

Benefits

-characteristics of a product or service that the target customer would consider worthwhile -value benefit, cost benefit -The best way to identify desirable benefits is through potential customers

Goals: The First Step of Strategic Planning

1. As owner, what do you expect out of the business? 2. What is your product or service idea (and its industry)? 3. For your product or service, how innovative or imitative will you be? 4. Who do you plan to sell to—everyone or targeted markets? 5. Where do you plan to sell—locally, regionally, nationally, globally?

Scope

A characteristic of a market defines the geographic range covered by the market- from local to global.

Parallel Competition

An imitative business that competes locally with others in the same industry.

Growth Stage

An industry life cycle stage in which customer purchases increase at a dramatic rate.

Entry Wedge

An opportunity that makes it possilble for a new business to gain a foothold in a market.

Industry Dynamics

Changes in competitors, sales and profits in an industry over time.

Supra Strategies Examples

Craftsmanship: Specialized product, localized business operations, high levels of craftsmanship (vs. competitors with scale economies). Customization: Short delivery times, custom features, short production runs, high quality (vs. products that are mass produced). Supersupport: Extensive, intensive, and personalized after-sales service. Serving the underserved/interstices: Targeting markets forgotten by larger competitors. Elite: High-quality products with high prices, backed up by high expenditures for advertising and R&D (vs. mass-market products). Single-mindedness: Developing and demonstrating exceptional expertise in one product or service (vs. competitors with broad approaches or product lines). Comprehensiveness: Offering one-stop shopping with complete inventory, immediate delivery, knowledgeable staff, and the major supporting services in one location. Formula facilities: Use a prepackaged business (like a McDonald's franchise or a preconfigured restaurant package from Sysco) to offer a better or more consistent product or service. Bare bones or no-frills: Keep prices super low by cutting back on décor (think warehouse stores), hours (think weekends only or flea markets), or employees. Cutting out the intermediary: Today farmers at their roadside stands and bands selling their own tracks online are able to sell at lower prices and still make more money by eliminating wholesalers' and retailers' mark-ups. Tightly manage decentralization: Once you know how to efficiently run one type of business, it often becomes easier to open related firms. This is especially common for Internet businesses.

Gross Profit

Funds left over after deducting the cost of goods sold.

Net Profit

The amount of money left after opereating expenses are deducted from gross profit.

Profit Before Taxes

The amount of profit earned by a business after calculating the amount of income tax owned.

Market

The business term for the population of customers for your product or service.

Degree of Similarity

The extent to which a product or service is like another.

Introduction Stage

The life cycle in which the product or service is being invented and initially developed.

Magic number

The post-tax income the entrepreneur personally seeks from the business

Maturity Stage

The third life cycle stage, marked by a stabilization of demand, with firms in the industry moving to stabilize or improve profits thorugh cost strategies.

Generic Strategies

Three widely applicable classic strategies for businesses of all types- differentiation, cost, and focus.

Supra Strategies

classic benefit combinations which are designed to work where there are many small businesses in an industry, along with a few larger firms