si 422 book

steps for relative cost analysis

1. focus on particular product line or service that is the locus of competition 2. construct one's own cost structure for the focal p/s 3. using an understanding of what drives each cost item and how a rival differs in terms of those drivers, build up an estimate of the competitor's current cost of structure 4. in light of the decision at hand, use the cost analysis to conduct what if experiments.

brewery percentages of revenues from what americans spent

12% applied to taxes 42% to retailers margins 12% to wholesalers margins 32% to beer at wholesale prices

products

4 segments: off road, cruisers, touring, and sport bikes. off road included both motorcycles for purely off road use, as well as on road and off road (dual purpose bikes). upright ergonomics, thickly padded seats, sturdiness. japanese manufac: ktm, bmw, huskvarna. cruisers = big motorcycles iwht upright riding position. styling over comfort and speed, american riders preferred. harley davidson dominated this segment. japanese companies like honda, yamaha, and suzuki imitated traditional harley style. bmw introduced own interpretation of a cruiser, enjoyed stunning commercial success. touring bikes larger motorcycles equipped for longer rides and greater comfort. BMW, harley davidson, and honda. sports bikes lighter frames, more forward seated position, emphasized speed, acceleration, and minimal comfort. this niche which ducati identified as its relevant market could be further disaggregated into 4 subsegments: hyper sport, super sport, naked, and sport touring. japanese companies dominated this niche, euro companies like ducati, bmw also vied for market share.

merchandising

4,000 skus per location compared with as many as 50,000 for most grocery stores. >80% of items private label. tjs buyers scour globe for interesting new products and tried not to follow trends, but to set them. avoided trade shows that feature products every other retailer could see. with low variety, tjs buyers purchased large quantities of each SKU at low prices. enables them to purchase goods directly from manufacturers rather than working through distributors or wholesalers. tj's did not charge suppliers to slot their products on retailer's shelves. paid suppliers promptly. dynamic product mix that made shopping at store feel like a treasure hunt. required vendors to maintain complete secrecy about relationship with retailer. tj's didn't want rivals or customers to know where and how it sourced private label goods. suppliers were providing tj's with lower cost version of branded product, which might be selling at wf's or other retailers.

economic profit economic loss

ACC P > cost of equity capital cost of equity capital > Acc P

primary activities

Add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain. (scm, ops, distrib, mk&sales, after sales service) support activities add value in directly but necessary to sustain primary acts (r&d, is, hr, ac/fe, firm infrastructure processes, procedures, policies) each distinct act to achieve CA has to either add incremental value to p/s or lower relative cost. although resource based view of firm helps id integrated set of resources and capabil that are building blocks of core comp, the value chain perspective enables managers to see how CA flows from firm's distinct set of acts. this is bc firm's core competency is generally found in a network linking diff but distinct acts, each contributing to firm's strategic position as either low cost leader or differentiator. ex vanguard group does low cost investing and quality service for clients, lowest fees, efficient management approach, etc.

customers

claimed 80% of tj's customers attended college. tj's has a cult like following. customers trust the company.

input cost per unit of output =

factor cost / productivity

competitors

HD major american motorcycle manufacturer. dominated us market, but had a modest global presence. LIFESTYLE company. social and cultural phenomenon, representing history of motorcycling. had some bikes in touring and custom market segments, buell competed in sport segment. honda world's largest manufacturer of motorcycles. shared tech, engineering capabilities, mMK, and distribution with automobile division. competed in all segments. strong reputation for reliability and technical excellence. LOW EMISSION, fuel efficient four stroke engine designs. cheap. bmw: one of europe's top automakers. bmw was top euro competitor in US. technical innovations like advanced suspension systems, fuel injection, and anti lock brakes, thus giving firm a reputation for exceptional quality, safety, reliability, and comfort. touring bikes. cruiser, performance bike. more pricey. triumph: jap production techniques - virtually unbreakable bikes. high income middle aged professionals bought these bikes. touring sports and off road/dual purpose segments. not too pricey. other jap manufac: three other competitors held 57% share of ducati relevant market. yamaha suzuki started in us by selling small bikes then moved into heavyweight segment. these companies competed on tech innovation and price, but not as strong in cruiser market, where HD had a stronger appeal. yamaha best known for motorcycles, but also made water vehicles, snowmobiles etc. General motors owned 10% of suzuki, sold motorcycles in US and had reputation for reliability. kawasaki similar to yamaha products. cruiser of the year. HONDA AND YAMAHA AGREED TO JOINTLY TRANSPORT THEIR BIKES AND SPARE PARTS TO SAVE 30% DELIVERY COSTS. KARASAKI AND SUZUKI PLANNED TO HAVE A SIMILAR ALLIANCE.

examples of dual competitive advantage

SW airlines: standardized fleet around fuel efficient boeing 737s, short haul point to point routes between midsize cities and secondary airports, low ticket prices. no frills service. quick turnaround times. keeps planes in the air one third longer each day than the average airline. stripped down offering may generate slightly less WTP than a full service airline, but incurs FAR LOWER costs than a full service rival. SW is the only us airline to have been consistently profitable during last 30 years. lowest debt levels among major carriers. cirque du soleil combines elements of circus and theater. in designing its performances, cirque excluded many of the high cost components of traditional circuses - animals, star performers, and three ring shows - and focused on sustainable circus elements - clowns, tent, and acrobatic acts. stripped out costly elements of traditional circus and added costs in other areas for which a segment of customers is willing to pay a great deal.

WTP and supplier opportunity cost

a customer's WTP for a p/s is max amount of money that they are willing to part with in order to obtain the p/s. supplier opportunity cost is symmetrical to WTP. smallest amt supplier will accept for the services and resources required to produce a p/s. opportunity cost bc dictated by best opportunities that the suppliers have to sell their services and resources elsewhere. total value created by a transaction is the difference between the customer's WTP and the supplier's OC. supplier opportunity cost -> cost -> price -> WTP supplier share between their OC and cost harnischfeger share between cost and price customer share between price and willingness to pay

conclusion

a successful firm does not simply participate in an attractive industry. also strives to generate more economic profits than the typical firm in the industry. ability to generate and capture profits in an industry derives from added value. firm has added value when network of customers, suppliers, and complimentors in which it operates is better off with the firm than without it, firm offers something unique and valuable to marketplace. firm can't claim any value unless it adds some value. to have added value, firm must drive wedge between customer WTP and supplier OC. wider wedge than rivals achieve. then has competitive advantage. to est comp adv. firm has to do diff things than rivals on day to day basis. differences in acts, and their effects on relative cost and relative WTP can be analyzed in detail. firm can use analysis of acts to generate and assess options for creating comp adv. management team must decompose firm int o parts, and craft a version of an integrated whole.

dual competitive advantage

achieving both wtp and cost dec. some argue that they are rare, based on operational differences and easily copied. others say that replacing tradeoffs with trade ons is a fundamental way to transform competition.

distribution

all major motorcycle firms had some presence in US, Europe, and Japan. wholesale distributors and retailers wholesale to build and manage network of retail dealers in a geographic area. independently, partly, or totally owned wholesale distributors (subsidiaries) depending on strategic importance of this area. retail networks composed of multifranchise dealers - dealers selling motorcycles of multiple brands, whose role was to sell the bike and provide adequate technical assistance. size of network largely a function of company's strategy. large jap mass producers like honda and yamaha maximized reach and penetration while harley and bmw and ducati emphasized quality of dealer and used single franchise agreements wherever possible. firms using the latter strategy used their stores as a way to control prices and brand positioning by allowing direct COM with customers. harley davidson had single franchise agreements with majority of its dealers.

swot analysis

allows mangers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses with those from an analysis of external opportunities and threats to derive strategic implications. internal strengths and weaknesses concern resources, capabil, and competencies. whether they are strengths or weaknesses can be det by applying the VRIO framework. a resource is a weakness if it is not valuable. it doesn't allow the firm to exploit an external opp or offset an external threat. a resource, however, is a strength if it is valuable, rare, costly to imitate, and the firm is organized to capture at least part of the economic value created. external opps and threats can be captured by PESTEL and porter's five forces. swot allows u to eval firm's current situation and future prospects by simultaneously considering internal and external factors. 1. focus on strengths - opps to derive offensive, alternatives by using internal strengths to exploit external opps (TOP LEFT) 2. focus on weaknesses - threats to derive defensive alternatives by eliminating or minimizing an internal weakness in order to mitigate an external threat. (BOTTOM RIGHT) 3. focus on strengths - threats to use an internal strength to minimize the effect of an external threat (TOP RIGHT) 4. focus on weaknesses - opps to shore up an internal weakness to improve its ability to take advantages of an external opp (BOTTOM LEFT) problem with this framework is that a strength can also be a weakness and an opp can also be a threat. ex google is in silicon valley heart of tech, but california has a high cost of living, earth quakes, etc.

unrestricted bargaining

amount of value a firm can claim cannot exceed its added value. by adding new features or something, harnischfeger can increase the amount of value it can potentially claim by widening the gap between WTP and supplier OC.

common drivers of factor costs

bargaining power over suppliers: walmart buys inputs at larger scale, can negotiate discounts location: manufac in high wage countries incur higher labor costs per hour policy choices: firm may choose to use inputs of higher quality, purchased at higher prices to make customers more willing to pay for products

CA better chances

better expectations of future resource value: re developer buys land that later inc in value due to highway being built nearby. she had better expectations of the future value of the land than her competitors. path dependence casual ambiguity social complexity IP protection these barriers to imitation are important examples of isolating mechanisms bc they prevent rivals form competing away the advantage a firm may enjoy. path dependence: describes process in which the options one faces in a current situation are limited by decisions made in the past. ex carpet industry focused til today in dalton georgia. boom after wwii drew manufac to south after high taxation in north. tech progress allowed industrial scale production of tufted textiles to be used as substitutes for more expensive wool. this innovation emerged in and near dalton. sometimes a firm will not be as effective as other firms who have spread out effort and investments over long periods of time. trying to achieve same results in less time even with higher investments, tends to result in inferior results due to TIME COMPRESSION DISECONOMIES. strategic decisions generate LT consequences due to path dependence and time compression diseconomies. they are not easily reversible. a competitor cannot imitate or create core competencies quickly, nor can one buy a reputation for quality or innovation on the open market. these types of valuable, rare, and costly to imitate resources, capabilities, and competencies must be built and organized effectively over time, often though painstaking process that includes learning from failure. casual ambiguity: situation in which the cause and effect of a phenomenon are not readily apparent. ex why exactly is apple so successful, hard to pinpoint. obvi has innovative products and all that supportive ecosystem, but is it the visionary role of steve jobs or tim cook who adds superior org skills or combination, etc?? social complexity: situations in which diff social and business systems interact with one another. emerges when TWO OR MORE systems are combined. copying emerging social systems is hard bc neither direct imitation nor substitution is a valid approach. intellectual property protection: critical intangible resource that can also help sustain a CA. patents, designs, copyrights, trademarks, trade secrets. (5) ip protections provides not only an incentive to make these risky and often large scale investments, but affords strong isolating mechanism that is critical to capture returns on the investment. initial investments quite high but marginal cost, cost to produce next unit are low after initial invention like drug R&D and then selling the drug everywhere. once patent expires in 20 years, can be used by others, aka generic drugs come into the market.

coors background

colorado based. got through prohibition by making milk, cement, porcelain and near beer. after prohibition, coors grew, appointed first independent wholesalers and began selling outside colorado by adding AZ to distribution territory. started expanding and selling so much. "best private company in america." college students outside coor's 11 state distribution paid premia of several hundred percent for bootlegged supplies. concerned about maintaining quality (consistent refrigeration), coors said on wapost "please do not buy our beer" younger members of coors family believed company's traditional strengths in production had to be supplemented with attention to and expertise at marketing skills. older family members were like racist and stuff. coors spent money and time working with minority vendors and distributors and supported local communities.

product devo and R&D

company invested in new design tech, product devo, human capital. internal design devision (ducati design center) REDUCED TIME TO MARKET for new product launches. ducati's engineering team was reputed as one of most expert and skilled. marketing research also provided fundamental input to design and tech innovation. product devo and r&d became an open structure, coordinated all resources together.

step 2 use activities to analyze relative costs

competitive cost analysis for competitive advantage analysis. betsy baking was doing better than collins kitchens. so they had to do cost analysis, cataloged major elements of value chain and calculated costs of each. det set of cost drivers associated with each activity aka the factors that make the cost of an activity rise or fall. cost drivers are critical because they allow managers to estimate competitors cost positions. one usually cannot observe a competitor's costs directly, but one can often observe the drivers. collins found betsy used inexpensive RM, purchased in bulk, tapped national scale economics, used preservatives so deliveries could be made less frequently, simple product line. didn't run promotions. when running cost analysis, important to focus on differences in indiv acts, not just differences in total cost. pay attention to cost categories that pick up on significant differences across competitors or strategic options, correspond to technically separable activities, are large enough to influence overall cost position. focus on drivers that have biggest impacts. drivers that vary across competitors. since analysis of relative costs involves a large number of assumptions, SENSITIVITY ANALYSIS is critical. id's assumptions that really matter and therefore need to be honed.

structural impact

consolidation after the war. six major brewers accounted for virtually all domestic shipments. only the uppermost end of the market had resisted consolidation. imported brands which wholesaled at twice the average price of domestic brands were not that popular. ultrapremium boutique beers offered by domestic microbrewers also not popular. german market was characterized by long term contracts between brewers and retail outlets that guaranteed brewers exclusive supply rights and restrictions on TV ads of beer. this allowed for large brewers, medium to large brewers, and small brewers to flourish at different price levels.

procurement

coors always stressed quality and self reliance. pure rocky mountain spring water in colorado. made own malt out of proprietary strains of barley grown by farmers under LT contract. operated its own rice processing facilities to protect itself from fluctuations in price of broken brewing rice. acquired grain processing facility that supplied starch requirements. VERY VERTICALLY INTEGRATED. RM standpoint, coors was most expensive beer in america. although bottles costed slightly less than cans, coors canned more of its beer than other brewers. pioneered first two piece, all aluminum can and sourced cans from a canmaking facility that grew to be largest in the world. started can recycling program and opened its own can recycling facility. coors made most of its own labels and secondary packaging. - above average vertical integration. coors built all of its malting equipment, most of its brewing equipment, and most of packaging equipment. also invested to become self sufficient in energy by developing its own coalfield.

marketing

coors beer was supposed to derive superior drinkability from rocky mountain spring water and brewing process. hired marketers from other companies to target niches in which coors penetration had been limited such as with black and hispanic consumers. launched new brands and inc advertising expenditures. coors light silver bullet had characters that gave background story to beer. miller lite and budlight just had male athletes drinking beer, no story. was very profitable bc light beers use less inputs than other beer, reduced total manufacturing costs. coors had really good ads with settings of mountain lakes and fields that discussed product quality. as coors beefed up advertising, it beefed up prices. in new distribution territories. added revenue per barrel was negated though bc of additional shipping costs of beer in new greater distances.

production

coors emphasized quality and scale. aged beer for 70 days compared to average 20-30. natural fermentation process, minimized use of additives. longer brewing cycle tied up more capital. coors did not pasteurize beer. claimed that intense heat harmed the taste of beer. stored it in refrigerated warehouses, extra costs of refrigeration roughly equaled the energy it saved in skipping pasteurization. was in a good area to make up deficit in western states bc brewery in colorado, but later other competitors arrived to meet demands. coors operating practices led to numerous strikes over the years by workers, occasional suits by federal agencies. coors was the only major brewer that wasn't unionized.

plans for multisite expansion

coors national rollout considered opening a second site in rockingham, VA. although this would reduce transport costs and help overcome capacity limits from the first site, coors would prob have to resort to external financing, and the idea of issuing debt was resisted by some of the older family members.

resources reinforce core comp, capab allow managers to orchestrate core comp

core competencies are then leveraged to do activities, CA, and superior firm performance. core competencies have to be sustainable, otherwise lose CA. can be too easy to focus on visible elements or facets of core competencies such as superior p/s, but more important to understand the invisible parts of core competencies. ex best buy outperformed circuit city based on strengths in industry like segmenting customers and configuring stores etc. but did not compete with amazon bc did not invest in continually upgrading its core competencies and competitors were able to devo equivalent or superior skills.

dynamic capabilities perspective

core competencies might form basis for CA at one point, but as the external environment changes, the very same core competencies can turn into core rigidities: former core comp that turned into a liability bc firm failed to hone, refine, and upgrade competency as environment changed. capabilities are org and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. capabilities are intangible. find their expression in company's structure, routines, and culture. dynamic capabilities = firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for CA. for a firm to sustain its advantage, any fit between its internal strengths and external environment must be dynamic. strategic fit. dynamic capabil also allows firms to CREATE market changes that strengthen strategic position and force rivals to respond. ex apple redefined markets for mobile devices and computing - forced competitors to respond. ex IBM had to adapt from mainframes and computers to become an IT business, now focusing on aiding with disruptions such as cloud computing, enterprise systems, and big data and analytics. dynamic capabil perspective: CA is outflow of a firm's abil to modify and leverage its resource base in a way that enables it to gain and sustain CA in a constantly changing environment. dynamic reconfiguration of a firm's resource base. resource stocks: firm's current level of intangible resources resource flows: firm's level of investments to maintain or build a resource. intangible resource stock is water in the bathtub, dynamic capabil, new product devo, engineering expertise, innovation capability, reputation for quality, supplier relationships, employee loyalty, corporate culture, etc. inflows: investments in resources, faucets: investments in building innovation capabil, etc. intangible resources take a long time to build thru continuous investments and experience. outflows represent reduction in firm's intangible resource stocks. employee turnover of key employees, etc can erode a firm's CA. firms sometimes forget how to do activities well.

total value =

diff between WTP and supplier OC. OC is the least that suppliers will accep for the resources used to make a product. managers often examine ACTUAL costs, not OC, bc data on actual costs are concrete and available. now wedge is between actual costs and WTP.

step 3 use activities to analyze relative WTP

diff in WTP account for more of the variation in profitability observed among competitors than do disparities in cost levels. any activity in the value chain can affect cust WTP. product design, sales or delivery like ease of purchase, convenience, post sale service complementary goods, also affect. advertising branding. support activities like hiring, training, and compensation practices of nordstrom create helpful ongoing sales staff that allows them to charge a premium for their clothes.

within industry differences in performance are often larger than

differences across industries. but industry analysis is crucial to creating competitive advantage for many reasons. companies that generate competitive advantages typically do so by devising strategies that neutralize the unattractive features of their industries and exploit the attractive features. industry conditions appear to have a large influence on whether competitive advantages are even possible. some industries leave little room for new entrants to est a superior wedge between WTP and costs. market leaders often face a tension between managing industry structure and pursuing an advantage within that structure. consider impact of new capacity on industry supply demand conditions, not just its effect on a company's competitive advantage.

marketing

fearless flyer, radio ads, never tv ads. wrote ads and flyer themselves, had employees rather than professionals starring in commercials. never invested in PR. customers usually learn about tj's through WOM. no loyalty card program or coupons, no sales. low prices everyday. do not participate in marketing that customers do online with fan accounts and such.

distribution

distribution via wholesalers and retailers. two broad categories of retail outlets: on premise and off premise. on premise were restaurants or bars, carried limited number of brands of beer and averaged margins of 190%. state and federal laws prevented brewers from operating on premise outlets except at their breweries. off premise outlets included supermarkets, grocery, convenience, liquor stores. broader selection of brands, smaller margins of 21%. off premise outlets share increased over the years. small brewers traditionally distributed beer in local markets, kegged draft beer to on premise outlets. relied on independent wholesalers who purchased beer, stored it at their warehouses, and delivered it to their retail accounts. wholesalers also worked with brewers to open large accounts, secure prime shelf space, and fund local promotions. wholesalers averaged 28% margins. each wholesaler had exclusive rights to sell a specific brand within a market usually no larger than a metropolitan area. wholesalers often carried more than one brand, and might represent more than one brewer. a market usually had at least two large wholesalers. anheuser busch's network was strongest, it had 970 wholesalers who didn't carry other brands, simplifying inventory management and delivery. most major brewers except coors distributed beer in all 50 states. shipping costs absorbed by brewers, not wholesalers.

step 1 catalog activities (value chain)

divides all acts into 2 classes. primary activities that directly generate a p/s and support activities that make the primary activities possible. primary acts broken into inbound logistics, outbound, MK and sales, and after sales service. support include procurement of inputs, devo of tech and hr, general firm infrastructure. must be anaLyzed in terms of cost and WTP RELATIVE TO THE COMPETITION.

beats by dre core competency: coolness factor

dr dre acquired by apple, he expected nothing less than perfection from people he worked with, similar to how steve jobs worked. beats headphones aren't even the best, inferior quality, but apple sought this acquisition bc apple iphones turned into a standard commodity with successful imitation by samsung, and others. itunes store also disrupted bc content delivery moving from ownership via downloads to streaming on demands. celebrity endorsements. acquired beats to try and get into streaming business.

decisions

ducati had a market share of almost 7% and excellent growth prospects. but minoli not satisfied. considered entering HD's niche, cruiser market. ducati would need to make additional investments and have additional costs. minoli had in mind a ducati interpretation of the cruiser. envisioned a line of bikes to be priced at HD levels. could potentially be successful in Europe.

turnaround program

ducati's technical signature: the desmodromic valve distribution system. allowing engine to have more revolutions per minute and greater usable power. noise made by desmo engine was music to the ears. technical superiority helped ducati rapidly achieve success in the international racing circuit. strong reputation in performance segment of motorcycle industry. fortunes declined in 80s due to major shareholder of company deciding to refocus the company on products other than motorcycles. ducati acquired by cagiva, an italian manufac conglomerate. under cagiva, ducati quickly recovered its reputation for on and off track excellence. was performing better in world superbike championships than jap competitors. however, toward mid 90s, cagiva had capital funding problems, deprived ducati of necessary funding, delayed payments to some key suppliers and that resulted in significant production delays. ALMOST BANKRUPT. Texas Pacific Group an american PE firm bought ducati, put in new committed management team.

valuable resource

enables firm to exploit an opportunity or offset an external threat. enables firm to inc economic value creation (V-C). increase WTP or dec costs. beats had premium prices and astronomical margins bc cost was about 15, sold for 150-450. rare resource if only one or few firms possess it. if resource is common, it will result in perfect competition, no firm will be able to maintain CA. a resource that is valuable but not rare can result in competitive parity at best. beats relationships with celebrities was rare, no other brand had so many endorsements. costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost. competitors will try to do direct imitation or do substitution, with a comparable p/s. beats is costly to imitate because dr dre relies on gut instinct to make decisions rather than market research. hard to replicate dr dre's network in the industry and reputation for good music. direct imitation: way to copy/imitate a valuable and rare resource, when firms have difficulty protecting their advantage. easy if the firm has IP, patents, or trademarks that can be easily circumvented. crocs had explosive growth and cheap imitators sprung up before they issued patents, which took a big bite into their profits. CA cannot be sustained if underlying capability can easily be replicated and thus be directly imitated. substitution: second avenue of imitation is substitution, often accomplished through strategic equivalence. amazon used strategic equivalent substitute to satisfy a customer need previously met by brick and mortar stores. combining imitation and substitution: samsung did direct imitation (look and feel) and substitution (google apps and OS) to compete with apple. organized to capture value: characteristic of having an in place effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies. before apple or microsoft, xerox was inventing early interface, etc with valuable, rare, and costly to imitate potential to create CA, but due to lack of organization, inventions did not fit within xerox business. other firms caught up before they could fix their coordination. if firm not effectively organized to exploit the competitive potential of a valuable, rare, and costly to imitate VRI resource, the best case scenario is temporary CA. groupon was valuable and rare, but not costly to imitate, google offers was created. also imitated by some local markets that paired merchants to local people, within same geographic space, which ended up being more valuable than groupon, a global leader. ability to imitate is linked to barriers to entry, which is on an external level.

good habits

ethical approach to competitor analysis triangulate, use multiple angles to confirm cost estimates. use public financial statements with caution. bottom up analysis can be helpful with info from salespeople, rivals, suppliers, former employees, etc. consider marginal cost as well as total cost per unit. ready fire aim, there will be gaps in data, but you need to move past them. practice.

prologue

federico minoli worked at mckinsey and bain and co specialized in turnaround management. accepted chance to run ducati bc he saw a company that beyond its liquidity crisis, needed to be radically changed to fully exploit its enormous potential. he moved to ducatis headquarters with two goals in mind: double digit growth and and equalling HD's profit level, which was the highest in the industry by far. he believed lack of rigid internal boundaries, esp if coupled with leadership and managers who id strongly with ducati, would stimulate creative decision making. he said ducati had good product, depsite being less efficient and reliable than jap bikes bc they were unique and beautiful performance vehicles. also had top notch engineers, who wanted to continue defeating jap in superbike competition. soul of ducati. ducati also had strong brand loyalty.

tj's in 2013

financials not public, but believed to have higher ROIs than most supermarkets. while WFs had the highest sales per sq foot of any publicly traded grocer in the country, TJ's DOUBLED the sales per sq foot. stores in old strip malls, <10K sq feet. angled passageways and rows squared with malls to let arriving customers see stuff better. no tech, customers had opportunity to talk to tj's employees at checkout or wherever.

the logic laid out so far

firm can boost its added value by widening the wedge it achieves between customer WTP and supplier OC beyond what rivals attain. a firm with wider wedge, competitive advantage has added value and therefore potential for profit. competitive advantage derives fundamentally from scarcity. firm est. added value by making sure that it is unique in some valuable way - the network of suppliers, customers, and complementors within which it operates is more productive with it than without it and that it is not readily replaced. two basic ways to est advantage. raise cust WTP without incurring too much inc in supplier cost. second is to reduce supplier OC without sacrificing WTP. either will est a wider wedge.

analyzing relative costs

flagstaff and tsujimura nub producers for disposable plastic parts that beverage makers use. two companies dominated, but in different areas. now tsujimura said making a plant in chicago, instead of usual europe and japan. flagstaff can respond in 3 ways 1. accept 2. resist and announce that they're tentatively exploring jap market 3. go into all out war and try to win over tsujimura's regions in europe and japan immediately and aggressively. need to know tsujimura's cost position, relative to flagstaff, before this turns into a price war. if flagstaff doesn't even price low enough to expand into japan or force tsujimura out of america, this will fail. need to det flagstaff's relative cost position.

landscape metaphor

goal of mgmt is to guide firm to high point on landscape - integrated set of decisions that generate a great deal of added value. search for high ground is diff bc diff choices interact with one another: production decisions affect mk choices, distrib choices need to fit with operation decisions, etc. changing of many activities in unison to attain a higher peak in rugged landscape. to improve LT prospects, firm might have to step down and tread thru valley. ruggedness implies that often more than one internally consistent way to do business within an industry. can be more than just one high peak. two diff firms can occupy diff peaks on landscape of the same industry. merrill lynch operates large offices in cities full range of securities, national, corporate clients. edward jones has one broker offices in rural areas, only conservative securities, door to door sales. creation of competitive advantage involves choice.

distribution

governed by the fact that its unpasteurized beer tended to spoil rather quickly. company shipped beers in refrigerated rail cars and trucks to wholesalers warehouses. wholesalers had to keep it chilled and abide by strict freshness policy. beer that lasted on shelves longer than 60 days was destroyed at wholesaler's expense. coors had one of he industry's most extensive distributor monitoring programs. tough policies towards its channels had been challenged in 1971 by FTC. national roll out. median distance increased by double for shipping, coors had to respond by est distribution centers in outlying markets. absorbed cost of shipping beer from brewery to these centers directly and in line with industry practiec, indirectly picked up cost of getting beer from distrib centers to wholesalers. they had to find new wholesalers in new states. chose weaker wholesalers willing to carry coors as their lead brand instead of others. each new wholesaler had to spend a lot on market development. had a trucking subsidiary, coors transportation company hauling nearly half of the truck shipments. independent truckers were still better performers though.

VRIO framework

id certain types of resources as key to superior firm performance. explains and predicts firm level CA. valuable rare costly to imitate organized to capture the value of the resource has to satisfy ALL criteria to be sustainable with CA resources in this framework apply to assets as well as capabil and competencies that a firm can draw upon when formulating and implementing the strategy.

resource based view

id core competencies by seeing interplay between resources and capab. sees resources as keys to superior firm performance. a firm is a unique bundle of resources, capabilities, and competencies. tangible resources: visible, physical attributes. labor, capital, land, buildings, plant, equipment, supplies. intangible resources: invisible, no physical attributes. culture, knowledge, brand equity, reputation, intellectual property (patents, designs, copyrights, trademarks, trade secrets). google location in heart of silicon valley is an intangible resources that provides access to valuable network of contacts good schools, largest concentration of VC in silicon valley for funding. CA more likely to spring from intangible rather than tangible resources. tangible assets can be bought on open market by anyone who has necessary cash. however, brand name must be build over long periods of time. in the resource based view of the firm, a resource includes any assets as well as any capabilities and competencies that a firm can draw upon when formulating and implementing strategy.

tech and r&d

improvements in style and features. most imp trend had been progressive introduction of electronic components. advances in materials science led companies to introduce composites, carbonium, titanium, magnesium, to make bikes lighter and more reliable. inhouse r&d was 2-5% of total revenues. tech improvements stemmed from diff sources. manufacturers concentrated on optimizing engine performance while decreasing motorcycle's weight. improving aerodynamics to lower fuel consumption and toxic emissions. pushed suppliers to improve quality and tech. used racing competitions to devo tech solutions and test materials. recent trend was stronger integration between R&D and marketing. larger number of tech improvements or innovations to derive from market surveys or customer feedback.

coors annual report for 1985 went on to set records set by company's brewing division

in a year when domestic beer consumption was flat, coor's beer volume jumped by 13% to a new high of 14.7M barrels. revenues had topped 1B for first time. brewing division accounted for 84% of coor's revenues and over 100 of operating income coors had diversified into several businesses incl food products, porcelain, biotech, oil and gas, and health systems, but company's fortunes tied to brewing. strategy of brewing division changed drastically over ten years. in 1985 announced they would build a second brewery in VA.

distribution

in past, directly through multifranchise retail dealers in italy and thru a series of independent distributors covering specific geographic areas in rest of world, except US where ducati owned a subsidiary. each distributor was responsible for managing its network of retail dealers, majority of which were multi brand. ducati started a new distribution strategy in 97, which was designed to unfold in three phases, first phase to take control of distrib and MK in strategic markets by establishing totally owned sales and marketing subsidiaries. second was centered around reorganization of dealers. did not aim to inc geographical reach, but to IMPROVE AVG QUALITY of dealers. competent salesforce, good technical assistance, good space for bikes. decreased number of retailers in world. exclusivity. third phase, creation of a chain of ducati stores - mono franchise dealers in select markets and cities around world. superior technical and service support, but unique retail environment emphasizing distinctive traits of ducati's brand. showing history. creating brand name and recognition.

since WWII beer prices declined in real terms, and inputs had come to account for a thicker slice of them

in response, major brewers had backward integrated. focused on cans, whos prices had risen sharply in mid 70s. independent canmakers experienced significant excess capacity.

input cost per unit of output =

input cost per unit of input / units of output per unit of input

firms want to leverage internal strengths to exploit external opps and mitigate internal weaknesses and threats

inside the firm: core competencies, resources, capabilities. use these to respond to challenges and opps in external environment. PESTEL forces: political, economic, sociocultural, tech, ecological, legal. internal strengths need to change in dynamic fashion and with a strategic fit. core competencies allow a firm to differentiate its p/s from those of rivals, creates higher value for customer or offers p/s at a lower cost. CA driven by core competencies. honda core competency - small but powerful and reliable engines. superior engineering know how. underneath the p/s that make up visible side of competition lies a diverse set of invisible competencies that make this happen. invisible core competencies reside deep within the firm. companies develop core comps through resources like assets, intell prop, etc (tangible or intangible) and capabilities (org and managerial skills necessary to orchestrate diverse set of resources) competencies demonstrated through activities which are distinct business processes that enable firms to add incremental value by transforming inputs into p/s.

wtp often depends on

intangible factors and perceptions that are hard to measure. think about who the REAL buyer is. can be tricky. for baked goods, even tho supermarket buys, and ultimate consumer is a child, the parent is the one who makes the decision among brands. work to understand what the buyer wants and what theyre willing to pay for. id what are most imp needs and how customers make tradeoffs among different needs. assess how successful company and competitors are at fulfilling customer needs. related differences in success in meeting customer needs back to activities. at this point, managers should have an idea of how activities translate, through cust needs, into WTP. also understand how acts alter costs. now prepared to take final step, analysis of diff strategic options.

manufacturing

invested heavily to automate production lines and work with parts suppliers to improve quality and delivery. only a few firms inc level of vertical integration. many outsourced and had a highly flexible, streamlined production structure. outsourcing minimized fixed asset investment, but quest for quality, reduced costs, and responsiveness to market fluctuations forced final assemblers to create strong commitment at level of suppliers. harley had a supplier advisory council of 16 suppliers, exposing supplier executives to best practices of other suppliers in their network. with inc reliance on 3rd party suppliers, manufac process became an assembly line where motorcycle components were assembled. 4 major parts: engine, frame, fairing, front forks. wheels, braking system, handle bars, fuel tank, etc. majority of components first tested then assembled tog as sub groups. finally mounted on the vehicle. leading motorcycle firms implemented jap manufac techniques, like Just In Time and Materials As Needed production to respond more readily to market fluctuations, optimize production levels, and improve quality.

major challenge in analyzing WTP

is narrowing long list of customer needs down to a manageable roster. horizontal differentiation. diff customers rank products differently. vertical differentiation. customers agree on which product is better, but differ in how much they will pay for the better product. segmentation is the response to this. one first finds clumps of customers who share preferences and then analyzes WTP segment by segment. pinpoint between 2-12 segments of customers. more diverse customer needs and cheaper it is to customize, the more segments a firm considers. can go beyond to embrace mass customization. enabled by information and production tech, companies tailor products to INDIV customers. hard to det WTP when there is a large subjective component to buyer choice, when customer tastes are evolving rapidly, and when the benefits the customer derives from the product are hard to quantify. market techniques like surveys, conjoint analysis, etc are designed to overcome such problems. in some settings, creative insight may have to replace analysis.

company history

joe coulombe grew up in san diego, had an MBA at stanford, worked with a drugstore chain, then launched conveniece store chain which was acquired by 7 eleven, so he founded tj's for this newly educated class of people who would want something different. tj's located near centers of learning. tj's is for overeducated and underpaid people. sophisticated consumer interested in finding good bargains. natural and organic foods that you can't always find at supermarkets. private label items variety of non food items, california wines became focal point. stores <10,000 square feet. employees wore hawaiian shirts (south seas) theme, captain, first mate. paid good wage. forget about the merchandise. it's the quality of the people in the stores. didn't have traditional supermarket advertising. distributed a customer newsletter, Fearless Flyer. no sales or coupons, just embraced everyday low pricing. recorded short radio ads with behind the scenes stories on various products.

focus on particular p/s

line that overlaps most with the competitor of interest, largest line, or a line where it believes a cost difference really matters (ex if customers of the line are price sensitive). flagstaff produced a variety of nubs, but focused on the type of nub that competed directly with tsujimura's and that it produced the most. common mistake is not to focus on a particular product line, but to compare the costs of an average product from company A to the costs of an average product from company B. cannot compare averages, need to see who has better cost structure for specific piece of business.

marketing

low budget tactics. WOM, free media coverage through PR, rest through own marketing efforts. urban hip look for zipcar. didn't want to use brochures, preferred customers going to zip car website. if they couldn't handle the web, they weren't the type of customers to use zipcar. this strategy also kept costs down. used humorous post cards for 7 cents each. chase was willing to invest time and money necessary to get the website right.

firms with low factor costs or high productivity have

low cost positions. cost per unit of output ($/nub) is usually most relevant and telling way to look at relative cost analysis. analysts who look at cost structures in percent of sales rather than cost per unit of output risk confusing cost differences and price differences. focusing on total cost instead of cost per unit is also not good, can't tell whether a company can afford to set a lower price per unit than rivals. COST PER UNIT PLEASE.

analysis of activities four steps

managers catalog the firm's activities examine costs assoc with each activity - use diff in activities to examine how and why costs differ from those of competitors. then they analyze how each activity generates customer WTP and use differences to examine how and why cust are willing to pay more or less for good/services of other rivals. finally managers consider changes of a firm's activities.

relative cost analysis

most common quantitative analysis. goal is to simply estimate how a company's costs compare to a rival's. do this to anticipate how a rival is likely to react to a price change, predict how a price war may evolve, test whether a cost advantage it believes it has is real and sustainable, to decide how low a company must bid in order to win a competitive contract from a rival, to identify opportunities for internal cost reduction, to estimate in M&A how the costs of the acquired company might be reduced and what a reasonable price might be for the company, etc. when a company's costs are lower than rival's for similar products, the company can drive a wider wedge between WTP and the costs than rivals achieve, thereby attaining a competitive advantage.

starting zipcar

needed a good name to communicate friendliness and convenience. discussions revealed 300$ annual fee was too high, chase decided to lower it to 75$ and implement a tiered pricing structure, raising hourly charge dep on parking costs assoc with the area. est a max daily rate for daily renters to appeal to them. other costs include parking, would cost $600 per year per car for parking attrition: 15% per year in boston lease cost increased too 4,400$ per year per car access equipment increased to 500$ per year per car

strategizing at ducati

objective to increase market share to 10%. despite efficiency improvements that engineers wanted to do for ducati, minoli said the right strategy was to devo a global brand that could appeal to not only extreme riders but also to a broader spectrum of customers. large segments of buyers were not attracted by the intrinsic attributes of the motorcycle, but what the bike evokes and represents. not just about beating japanese bikes, ducati has a powerful brand to preserve and devo. ducati isn't only a motorcycle company, sells something more like a dream, passion, piece of history, etc. moving from mechanical to entertainment. factory had a leak in the roof, instead of fixing it minoli built a museum.

added value concept harnishfeger industrial equipment company

offered a new product, portal cranes. designed to life entire tree length logs off of railcars and trucks and hoist them around woodyards. significant improvement over giant forklifts they replaced. possible to calculate customer benefits easily. each crane replaced a fleet of forklifts, less expensive to operate, less labor, fuel, maintenance etc. lifespan longer, NPV of 6.5M in savings in operating costs. costs this company only 2.5M to produce and install each crane, so a large gap existed between the customer benefits associated with the crane, and harnishfeger's costs. despite this gap, harischfeger was making little profit on its sale of portal cranes, what happened?

by end of 2000, frederico minoli had won his battle. over past 5 years, the TURNAROUND artist transformed ducati from being on verge of bankruptcy into one of the most profitable motorcycle manufacturers in the world. minoli was concerned about sustainability though and next steps for ducati to continue growth.

one alternative was to attack harley davidson's niche with a ducati interpretation of a cruiser. was this broadening of ducati's traditional niche the right move to sustain the profitable growth of the company? motorcycle is a perfect metaphor for the twentieth century. invented at beginning of the industrial age, evolution tracks the main currents of modernity. object and history represent themes of technology, engineering, innovation, design, mobility, freedom, love death etc. crowds gathered around parked motorcycles. popular bc they represented something.

step 4

options and make choices. generation of options is ultimately a creative act. distill the essence of what drives each competitor. betsy baking saw preservatives are a substitute for fast delivery. savory pastries, tapped into WTP for freshness. crucial to consider competitor reactions. collins managers felt betsy baking could launch a price war against any competitor that tries to match its low cost, low price strategy. less concerned about an aggressive response from savory pastries, whos managers were distracted by expansion into a diff business. need to consider full range of ways in which all activities can create a wedge between WTP and costs, not just physical product characteristics and narrow benefits to buyers. need to draw out company's value chains and those of cust and suppliers and linkages between chains. reduce buyers costs, improve buyers performance, reduce suppliers costs or improve suppliers performance. pay attention to bleeding edge customers, whose demands presage the needs of the larger marketplace like circus circus is family hotel in vegas and SW airlines serves small group of travelers. adjust scope of operations - changing range of cust or products offered broad scope advantageous when significant economies of scale, scope, and learning, when customer needs are uniform across market segments, when it is possible to charge diff prices in diff segments.

rivalry in pharma market muted by factors such as

patent protection, product differentiation, and expanding demand rivalry in steel industry is fierce - fueled by excess capacity, limited differences across products, and slow growth. pharma companies hesitate to switch among products or brands, but steel companies are usually willing to switch among producers to get a better price. many pharmaceuticals are made from commodities with little labor input, while unions exercise such power in the steel industry that labor costs often account for a quarter of total revenue. contrasts in industry competitive forces are one reason that profit levels of firms in diff industries differ. spread between industry's return on equity and cost of equity and average equity in industry. industry level effects account for 10-20% variation in business profitability while stable within industry effects account for 30-40%.

sizing the market

penetration in western europe was relatively small but growing rapidly. us market large and virtually untouched. competition: two largest car sharing orgs in europe swiss mobility carsharing and drive stadauto. in canada, communauto. in west coast: car sharing inc and flexcar, both for profit companies that focused on environmental impact of car sharing rather than convenience and cost effectiveness. chase also anticipated that traditional car rental agencies like hertz or avis might enter market if they saw it as a substantial business opportunity. car manufac also potential competitors. VW already conducted own studies of market potential and could participate as a supplier or consider entering the market directly. service she envisioned would deliver convenience, ease of use, freedom to travel, and hassle free ownership for urbanities. solution for people who did not need a car to get to work, but wanted convenience of private vehicle for occasional errands, go out of city, etc. primary emphasis on convenience and cost savings, though also marketed as environmentally friendly. challenges: devo tech that would admit only the confirmed driver to car and capture usage data for billing when car was returned. pricing was critical component of business devo, she wanted to cover cogs and then cover OH at some target volume and utilization level. customers would be comparing prices to price of renting a car, so had to stay under that umbrella. said nonrefundable app fee, fully refundable security deposit, annual subscription feel. members would be charged for driving time at 1.50 an hour and .40 per mile. had to be 21, valid driver's license, and no major traffic violations. drivers had to handle simple maintenance like refuel and submit receipts for reimbursements. keep car clean and take care of any tickets. return car to original location and 20$ fee for late returns. chase assumed a 95% renewal rate aka 5% attrition rate each year. mature european companies were at 50% utilization but chase planned for 40 target.

added value

plays a large role in det how much value a firm actually captures. max value created by all participants in a transaction minus the max value that could be created without the firm. value that would be lost if the firm disappeared.

activities

production: aggressive outsourcing policy. maintaining only R&D, design, quality control, and the machining of two key strategic components, crank cases and cylinder heads. despite relatively low volumes, ducati was one of the most efficient manufacturers in the industry thanks to STANDARDIZATION of products. radically rationalized network of suppliers through adoption of more strict selection procedures and careful quality control. ducati had only short term contracts iwth suppliers. identified at least two sources for each component and switched to alternative supplier as need arose. arrangements increased quality and reliability of ducatis, which before were known for mediocre reliability and high maintenance costs. platform production process shifted to. so that bike divided into small # components, turned into sub components and one key supplier responsible for one component and managing suppliers of sub components.

world of ducati

racing: members of ducati clubs could "live" the racing event in close contact with team, participating in dinners or social events during days preceding competition. brand loyalty. advertising: ducati only advertised through specialized magazines. launched first global advertising campaign "Ducati/People" featuring central values of brand. engaged co marketing initiatives with different major international brands: neiman marcus. dkny apparel. museum: in addition to the symbolic role that it played in strategic transition, the museum also attracted 10K visitors every year. ducati owners clubs: estimated presence of more than 400 clubs around world. events: company org first world ducati weekend in bologna, great public success. repeated, attracting more fans. ducati.com successful but e business was not a key priority for ducati.com. internet is a resource to communicate to virtual visitors racing and italian identity. mechanism to understand needs, their polls, market surveys. creates a community. people talk to each other and feel part of something.

differentiation strategy

raise WTP a great deal with only slight inc in costs. differentiation doesn't equal different. you have to boost WTP of customers for output, command a price premium. charging a lower price also is not differentiation and does not affect how much customers are intrinsically willing to pay for a good.

low cost strategy

reap large cost savings with only slight dec in cust WTP.

marketing

reason for gains was demographics, baby boomers reached drinking age, swelled number of beer drinkers, volume went up even more because younger drinkers consumed more beer than older ones. marketing variables brewers worked with: price and differentiation. beer prices fell by 30%, which stimulated volume even though price elasticity of demand for beer seemed to be relatively low. most observers thought that prices fell because of cost reductions and pressures to fill excess capacity rather than because of conscious predation. brewers used low prices to enter new markets or promote new products, but if they kept them this low, the could impair the images of all but downscale popular brands. weakened premium brands by discounting them. brewers differentiated their beers through advertising, segmentation, and packaging. advertising increased after the war bc of TV, rising consumer incomes, shift to off premise consumption. intensified ads helped national brewers buy space or time in larger quantities, use media network TV and national magazines, achieve critical thresholds of exposure, and spread the fixed costs of ad campaigns over more volume. segmentation was the second tool to differentiate beer. before 1970, two categ of beer: popular beers sold primarily on basis of price, premium beers which didn't cost more to produce, but sold on basis of their images. premium segment rose when brewers going national added price premiums to products to offset extra transportation costs. premiums on prices used to fund advertising even tho transportation costs were eliminated when national breweries emerged. brewers introduced even higher priced brands and also differentiated beers according to alcohol content. larger brewers had several advantages in introducing new brands: existing brand names provided leverage, could afford launch costs and maintenance advertising and their production and distribution capabilities let them quickly ramp up sales. major brewers then had typically a popular, a premium, and a superpremium brand in the regular category and at least one light brand. packaging was the third way to be differentiated. brewers had bottled or canned, but miller had a pony bottle that was popular. diff oz containers.

two critical assumptions in resource based model

resource heterogeneity: assumption that a firm is a bundle of resources and capabilities that differ across firms. ex. resource bundle of companies competing in same industries are diff. like SWA and alaska airlines both compete in same group of low cost point to point airlines, but draw on diff resource bundles. SW employee productivity is higher bc has diff resources. resource immobility assumption that a firm has resources that tend to be sticky and that do not move easily from firm to firm. SW imitators like continental and delta failed bc unable to successfully imitate resource bundle and firm capab that make SW unique. in perfect competition, all firms have access to same resources and capabilities, ensuring that any advantage that one firm has will be short lived. resource based view is better, this perfect competition view is better for like commodity markets.

procurement

rm cost major brewers over half their net revenues agricultural inputs, packaging inputs. large, relatively efficient markets existed for all these commodities (malt, yeast etc) a brewer with a single plant could buy them on best terms available. packaged in cans bottles and kegs. cans had been promoted by steel and aluminum manufacturers, bottles had proved relatively overweight, and sales of kegs dwindled as americans drank more and more beer at home

zipcar

robin chase and antje danielson. started looking for investors in boston. danielson had returned from a trip in germany with idea for the startup, impressed with car sharing concept that was catching on across europe. car sharing companies provided short term, on demand use of private cars conveniently located and easily accessible to service subscribers. chase had an mba and danielson had a background in environmental studies. business of organized car sharing originated in switzerland in 87 to provide convenience and cost savings to users. coordinated use of vehicles by various subscribers in succession and indep of one another. not unlike condo time sharing, but could for cars and time usage was not fixed and could reserve any car in network. paid large upfront deposit, annual fee, and per usage fee det by time and mileage. members could reserve car time regularly or as needed. cars parked in designated spaces in neighborhoods convenient to users. best suited for urban locations. short term on demand private car access.

common drivers of productivity costs

scale: large volume players can spread fixed costs over more units of production, lowering cost per unit. capacity util: firms that achieve higher capacity util also spread fixed costs, costs that don't rise with greater util - over more units of output experience: firms that accumulate greater production experience or achieve greater specialization typically enjoy higher productivity, as they work out kinks in production processes, devise process improvements, reduce waste or network policy choices: firm that reduces product variety and refuses to interrupt production runs for special orders, for instance, is likely to attain higher productivity.

activity analysis

sheer entrepreneurial insight certainly plays a large role in spotting such opportunities. michael dell starts a direct to the customer computer business to avoid the additional costs that come with tech. liz clairborne perceives a huge pent up demand for a collection of medium to high end work clothes for female professionals. dumb luck also plays a role. strategists break down a firm into discrete activities and examine how each contributes to the firm's relative cost position or comparative WTP. activities to design, produce, sell, deliver, and service goods are what ultimately incur costs and generate customer WTP. differences in what firms actually do day to day OPERATIONAL produce disparities in cost and WTP and hence dictate competitive advantage. by analyzing a firm activity by activity managers can understand why the firm does or does not have a competitive advantage. spot opps to inc firm's competitive advantage, and foresee future shifts in competitive advantage

drivers relate to

size: economies of scale, scope, experience, capacity util location: functional policies, timing, institutional factors like unionizations gov reg, tariffs, etc. diff in resources possessed by firms may also drive diffs in act costs.

production costs

split between direct labor and other cost components, quarter of a major brewer's revenues. two steps - brewing and packaging. aging cellars bottlenecks, stretched brewing capacity by 20-30% scale economics in packaging increased since wwii. newer vintages of filling lines were faster and more efficient, package sizes proliferated, increased importance of run length. capital costs underlay much of the effect of increasing or decreasing production scale. capacity utilization hovered in 60% range in 1950s bc of stagnant demand. late 70s, capacity surged despite stagnant demand. multiplant configurations reduced risk of catastrophic shutdowns due to strikes, fires, or explosions, permitted centralized production of low volume packages (increased run lengths), and let brewers absorb the output repercussions of a large new brewery over several existing ones. Coors was the only one that operated one brewery instead of several breweries, which was good for economies of scale and centralized production.

people

staff paid well, tjs contributed to retirement accounts, healthcare benefits. job appeals to people who went to college, but can't find technical jobs. training time spent discussing tj values, not the menial work of a grocery store. 7 core values. encouraged employees to try new foods. funds to let them sample and do that. customers can also sample. employees are generalists not specialists, know how to do every job in the store. rotate employees every hour. no intercom messages, use a bell system to communicate messages. tjs replenish shelves during peak shopping periods. keep shelves looking full. adapt how and where products placed dep on understanding of local clientele.

sometimes reverse the process

start with set of options, articulate what each option implies for acts, and analyze impact of each configuration of acts on wedge between costs and WTP.

competitive advantage

systematic way of analyzing within industry differences in performance. a firm is said to have competitive advantage over rivals if it has driven a wide wedge between the willingness to pay it generates among buyers and the cost it incurs - a wider wedge than its competitors have achieved. to create advantage, firm just configure itself to do something UNIQUE AND VALUABLE. no one could replace it perfectly. competitive advantage comes from full range of firm's activities from production to finance from marketing to logistics acting in harmony. integrated set of choices that distinguishes a firm from its rivals.

chase planned to launch the business in a single

target market. but she believed there were at least 14 cities in US that would be excellent long term growth targets. she needed a well designed tech platform. asked people for funding, one VC guy asked her hard questions that coached her like what util rate was required to cover COGS and how many cars would require an increase in staff? got a convertible loan that used for tech platform. software developer was an MIT engineer made a proximity card reader, installed in windshield of each zipcar, members had zipcards, unique proximity cards. members make reservations online, server wirelessly sends reservation to black box in car, telling car when and for whom to unlock the door. member resents right card at right car at right time, car unlocks, enables the starter, starts billing record noting time and odometer reading. member uses card to lock and unlock doors. billing data sent wirelessly back to server, billed in real time. they HAVE A PATENT.

build up an estimate of competitor's current cost structure

team must combine knowledge of what drives each cost item with an understanding of how the rival differs in terms of those drivers. rival may differ in how much it pays for inputs or how well it uses those inputs; may differ in factor costs or productivity.

tj's higher sales per sq foot than any of its rivals

tesco is an imitator, 3rd largest retailer launched a chain of small neighborhood markets in western US. british firm appears to borrow extensively from tj's with its fresh and easy stores. ended up losing 1.8B due to failure in US market. walmart also experimented with smaller foot print stores. neighborhood markets that were a hybrid between food, pharmacy, and convenience store, did well.

aldi acquisition

theo albrecht owned german Aldi which ran low cost operation with minimal overhead. also had private label brands, low prices, low stock, etc. merchandising prowess and operational efficiency. TJ's adopted albrecht's obsession with secrecy. john shield became CEO, started expanding outside of southern california, first east cost store in brookline, MA. sold famous private label wines, "cheap chic." stores are low tech, don't have self checkout.

products

three categ of sport segment: hypersport, supersport, naked. widened offering within each family. challenge was to id the core attributes underlying the id and uniqueness of ducati motorcycles. elements to be universally associated with the brand. desmo engine, l twin engine, tubular test frame, italian style, unique sound. ducatis also improved reliability and overall quality. ducati motorcycles had longer lifespan than typical competitor's machines. minoli acquired the company that was producing a line of accessories for ducati to do it inhouse. hypersport supersport doing well, but naked became most popular bike. "Monster" pop culture interpretation. for the streets, rather than fantasy racetrack. sport touring bikes offered more comfortable riding position.

widening wedge is tough bc firm must incur higher costs in order to deliver a p/s for which customers are willing to pay more

toyota's higher profit margins than hyundai derive from the fact that the difference in WTP is greater than the incrememental costs associated with its product.

RM costs flagstaff said that tsujimura's product was slightly heavier but suppliers and former employees reported process improvements that improved yields and reduced scrap. tsujimura only used 25 grams of resin for each nub, but resin prices in japan higher than US.

tsujimura produced more nubs with fewer production lines, but labor savings were offset by high wage rates in japan. high electricity rates where factory was located. couldn't find info about sterilization process, but that was a small part of the cost structure and sterilization costs per nub were pretty standard around the world. flagstaff salesperson compensation differed form tsuji only to degree that cost of living differed in places that salespeople were posted. jap and europe locations were 10% more expensive than locations of flagstaff people in america. R&D and G&A looked up in financial statements that tsuji filed publicly. then did a bottoms up analysis, posted a team outside of tsuji's corporate facilities in japan, watched people going and coming, found that r&d efforts were comparable to flagstaff and impressed that on g&a, tsuji was so frugal. examination of logistics and distribution showed that tsuji paid slightly more for distrib in jap and europe. but JUST IN TIME manufac approaches at tsuji allowed them to hold considerably less inventory. flagstaff concluded that their cost was comparable to tsuji's but tsuji's was slightly lower flagstaff's cost in us.

creating vs sustaining competitive advantage

two issues are married: choices that establish a firm's advantage also influence whether the advantage can be sustained. ex a product can be sustained with the addition of customer support to extend the product's reach.

a firm's ability to gain and sustain CA is partly driven by core competencies

unique strengths that differentiate its p/s from those of rivals, creating higher value for the cust or offering p/s of comparable value at a lower cost. beats provides best possible acoustic experience, but functions as fashion statement that communicates coolness. worn by celebrities, extent to which beats succeeds at product placements is unprecedented. dr dre relies on gut instinct rather than market research like steve jobs, consumers don't really know what they want until someone else shows it to them. beats created a higher perceived value for its customers, CA. much of overall performance differences explained by firm specific effects. since companies in same industry face similar external opps and threats, source for observable performance diff found inside the firm.

use the cost analysis to conduct what if experiments

us factor cost advantages related to inputs allowed flagstaff to be competitive despite poor productivity, low capacity util, and high overhead. need to see what happens when tsuji opens a production line in US and what happens to relative costs then. and other scenarios like how expensive the price cut would be or what if flagstaff went into jap. det where flagstaff falls short: inventory levels too high, low capacity util. locked in LT contracts with US customers. after all these efforts, tsuji announced their chicago plant was for products other than nubs.

continuing search for financing and building the management team

used same convertible loan terms with diff investors. major expenditures were related to devo of tech platform for members services and car access. chase and danielson didn't take personal salary. ppl were concerned with their experience so they hired a new president who would have no salary until financing came through and get a bonus equivalent to back pay. but this was A MISTAKE. he was a big company corporate guy working at a startup. spent a lot of money in lunches and parking, out of date tasks. used to working at a much later company where goal was to put procedures in place and follow them strictly. chase let him go bc wrong guy for the job and had to cut their losses as quickly as possible

construct one's own cost structure

usually companies have two sets of accounts, financial accounts for reporting and management accounts for what's really going on and are usually more detailed and are right place to start relative cost analysis. to det costs assoc with a particular product line, mgmt team must allocate fixed costs such as R&D and overhead across product lines. activity based allocation of costs. often given costs per unit of output for one company and focus on estimating costs for its rival. per unit figures typically most useful bc reflect how well prepared a firm is to prevail in price competition. firm with lowest unit cost can make a profit even when prices fall so low that others lose money. good cost analysis enables you to envision how a product gets to market. (can see use of third parties, etc) each cost item consists of two elements: factor (input) cost and some measure of productivity. factor cost is the input cost per unit of input. productivity reflects number of unites of output that each unit of input yields.

value chain analysis

value chain describes internal activities a firm engages in when transforming inputs into outputs: each activity adds incremental value and also incremental costs. economic value creation (V-C) breaks down into distinct set of acts that help det perceived value (V) and costs to create it (C). activities are distinct actions that enable firms to add incremental value at each step by transforming inputs into goods and services. when a firm's distinct acts generate value greater than the costs to create them, firm obtains a profit margin.

customers

variety of indiv with diff tastes bought and rode motorcycles. knee down or racing aficionados sought extreme performance and functionality. easy riders associated bikes with particular lifestyle. weekend riders and highway lovers were interested in functionality and comfort. undecided bikers preferred balanced and versatile bike. each cust had diff age, income, education, and gender. harley davidson older median age, ducati younger. women became a new attractive customer base and imp to harley and ducati. specialized magazines catered to buyers and educated them about technical and style characteristics of new products. ranked motorcycles on several criteria. majority of motorcycle companies advertised thru specialized magazines, only some though, typically the largest manufacturers. also advertised through the non specialized press. companies also gained media coverage by participating in racing events. movies also brought fame to bikes. dept stores sometimes used motorcycles in window displays.

supermarket industry

walmart, kroger etc largest grocers in us. traditionally operated on very thin profit margins, started facing challenges when being squeezed between premium players like WFs at high end and hard discounters such as dollar general and aldi at low end. WF's was leading retailer of organic and natural foods. dollar general had largest number of small discount stores. supermarkets faced challenge of decreased share of grocery sales as large discount retailers like walmart and target and warehouse clubs and pharmacy chains inc grocery sales. walmart became largest grocery retailer in nation. highly efficient operations enabled it to take share from traditional supermarkets by dropping prices significantly. traditional supermarket chains shedding employees to be cost competitive, financial distress.