Chapter 7 - Small Business Strategies - Imitation with a Twist

Goals: Imitation and Innovation

- Owners who imitate competitors still want something that distinguishes them from the others. - An imitative strategy is the classic small business strategy. - An innovative strategy means they do something very different. - Most firms use imitation plus or minus one degree of similarity. - Competing locally in the same industry is parallel competition. - Imitation plus one degree of similarity is incremental innovation. - When a new product or service is introduced, this is pure innovation, also called a blue ocean strategy. - Research shows that imitators do better than pioneers in the long run.

Differentiate between incremental and pure innovation

1. Incremental Innovation - An overall strategic approach in which a firm patterns itself on other firms. With the expectation of one or two key areas. 2. Pure Innovation - The process of creating a new product or service which results in a previously unseen product or service (blue ocean strategy)

What is strategy?

1. The ideas and actions that explain a firm and how it will make its profit. 2. It defines how your business operates.

What are the four key consideration decisions that entrepreneurs need to make to build the strategy of their firms?

1. The major goals you set for your firm 2. The types of customers you seek and what benefits you plan to offer them 3. The stage and trend of your chosen industry 4. The specific generic and supra strategies you choose to pursue

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/service, how innovative or imitative will you be? 4. Scale: Whom do you plan to sell to - everyone or targeted markets? 5. Scope: Where do you plan to sell - locally, regionally, nationally, globally?

What is meant by industry analysis? How does industry analysis help an individual in the strategy process?

A industry analysis is a research process that provides the entrepreneur with key information about the industry, such as its current situation and trends. Most entrepreneurs do an industry analysis (IA) to find out what profits are in the industry in order to better estimate possible financial returns.

How do marketing and strategy relate?

Marketing is the actions related to promoting and selling. Marketing focuses on value proposition. Strategy focuses on the firm's competitive advantage.

What are the small business supra strategies?

Supra-strategies are classic benefit combinations which are designed to work where there are many small businesses in an industry, along with a few larger firms. Eleven small businesses supra-strategies: 1. Craftsmanship 2. Customisation 3. Super support 4. Serving the underserved/interstices 5. Elite 6. Single-mindedness 7. Comprehensiveness 8. Formula facilities 9. Bare bone or no-frills, 10. Cutting out the intermediary 11. Tightly manage decentralisation

Differentiate between strategic actions and tactical actions

The major ways you can cope with competitive pressures is by undertaking a combination of strategic actions and tactical actions Strategic actions - Entering new markets - New product introductions - Changing production capacity - Mergers/alliances Tactical actions - Price cutting (or increases) - Product/service enhancements - Increased marketing efforts - New distribution channels

What are the two market decisions that entrepreneurs need to make early in the process of going into business?

Two market decisions to make: 1. Scale: A characteristic of the market that describes the size of the market - a mass market or a niche market. 2. Scope: A characteristic of the market that defines the geographic range covered by the market - from local to global.

What is a benefit? Differentiate between value and cost benefits Provide examples for each type of benefit

- Benefits are characteristics of a product or service that the target customer would consider worthwhile, such as low cost or high quality. Value and Cost Benefits - A value benefit displays characteristics related to the nature of the product or service itself. They almost always lead to higher prices and high profits. - e.g. quality, style, delivery, service, shopping ease etc. - Cost benefits refer to the ways by which a firm can keep costs low for the consumer. - e.g. lower costs, scale savings, cope savings etc.

What is the strategic planning process for small businesses? Four steps - See slides for image

1. Reviewing and confirming the goals that define your firm and knowing your magic number. 2. Finding your distinctive competence - plot your customers and the benefits you want to offer against competitors. 3. Studying dynamics and trends of your industry using industry analysis to identify the best way and time to enter business. 4. Building on the prior three steps to determine the best strategic direction and strategy for the firm. After this four-step process, there is a continuing effort called post start-up, refining your strategies/tactics to maintain a competitive advantage.

Briefly describe the industry lifecyle

1. Introduction stage: - The life cycle stage in which the product or service is being invented and initially developed. - The number of firms grow slowly at first, sales are probably small and most customers are unaware of the offerings. 2. Growth stage: - An industry life cycle stage in which customer purchases increase at a dramatic rate. Most products and services tend to grow at a regular rate, one at which the growth in the number of firms more or less meets customer demands. - Some products/services turn out to be extremely popular and grow very rapidly (original firms cannot keep up with growth and other firms jump in to take advantage of this growth). - Firms compete in price which increases choices - Other firms can jump in and take advantage of the growth, called boom, which is a type of life cycle growth stage marked by a very rapid increase in sale in a relatively short time. - Shakeout: A type of life cycle stage following a boom in which there is a rapid decrease in the number of firms in an industry. 3. Maturity: The third life cycle stage, marked by a stabilisation of demand, with firms in the industry moving to stabilise or improve profits through cost strategies. 4. Decline stage: A life cycle stage in which sales and profits of the firms in the industry begin a falling trend. - Retrenchment: An organisational life cycle stage in which established firms must find new approaches to improve

What is an entry wedge? Explain any five of the entry wedges

1. Supply shortages: Occur when a new product is in demand. The key benefits are delivery, shopping ease and style. 2. Unutilised resources: Resources such as physical or human resources. The key benefits include lower costs, scale savings or organisational practices. 3. Customer contracting: A customer, most often a small business, is willing to sign a contract with a small business to ensure a product or service. The key benefits are quality, delivery, technology, shopping ease and brand/reputation. 4. Second sourcing: Seeks out customers who are already being serviced by another firm. Often a small business offers the advantage of being locally based. 5. Market relinquishment: Occurs when business firms leave a market. Smaller businesses gain the opportunity to expand and provide ongoing service to customers. 6. Favoured purchasing: Occurs because government agencies and many big businesses have policies that provide for set-asides or quotas for purchases from small businesses. 7. Government rules: Rule changes by the government can help small firms compete.

What is a generic strategy? What are the different types of generic strategies?

Generic strategy: Three widely applicable classic strategies for businesses of all types: differentiation, cost and focus. Types of Generic Strategies: 1. Differentiation strategy: A type of generic strategy aimed at clarifying how one product is unlike another in a mass market. This strategy tries to show how your firm offers some combination of value benefits that is different from and better than those offered by competitors. 2. Cost strategy: A generic strategy aimed at mass markets in which a firm offers a combination of cost benefits that appeals to the customer. Typically, this comes when a small business can pursue a very low cost operation. 3. Focus strategy: A generic strategy that targets a portion of the market, called a segment or niche.