BUS 498. Ch. 7

industry life cycle 1. introduction stage

- commercialize the invention, high product innovation - the innovator's core competency is R&D, which is necessary to creating a product category that will attract customers. - innovator is investing in designing a unique product, trying new ideas to attract customers, and producing small quantities -barriers to entry tend to be high, generally only a few firms are active in the market -Small ,market share emphasize unique product features and performance rather than price.

EARLY MAJORITY

- customers coming into the market in the shakeout stage are called early majority - pragmatists and are most concerned with the question of what the new technology can do for them. -prefer to wait and see how things shake out -seek out reputable references such as reviews -makes up roughly one-third of the entire market potential, winning them over is critical to the commercial success of the innovation -key to catching the growth wave of the industry life cycle - herding effect

DECLINE STAGE

- e industry life cycle, the size of the market contracts further as demand falls, often rapidly. -note if a technological or business model breakthrough emerges that opens up a new industry, however, then this dynamic interplay between product and process innovation starts anew.

EARLY ADOPTERS

- eager to buy early into a new technology or product concept. Unlike technology enthusiasts, however, their demand is driven by their imagination and creativity rather than by the technology per se - adopters' demand is fueled more by intuition and vision rather than technology concerns -irm needs to communicate the product's potential applications in a more direct way

LAGGARDS

- enter in the declining stage of the industry life cycle -adopt a new product only if it is absolutely necessary -customers generally don't want new technology, either for personal or economic reasons

LATE MAJORITY

- entering the market in the maturity stage -Demand coming from just two groups—early and late majority—drives most industry growth and firm profitability. -not confident in new tech. They prefer to wait until standards have emerged and are firmly entrenched, so that uncertainty is much reduced -prefers to buy from well-established firms with a strong brand image rather than from unknown new ventures.

first-mover advantages

- innovators can benefit from a number of first-mover advantages - economies of scale as well as experience and learning-curve effects, network effects

3. SHAKEOUT STAGE

- rate of growth decline -Firms begin to compete directly against one another for market share, rather than trying to capture a share of an increasing pie. weaker firms are forced out of the industry. -strongest competitors survive increasing rivalry as firms begin to cut prices and offer more services, -industry often consolidates, as the weakest competitors either are acquired by stronger firms or exit through bankruptcy. -ewinners are cost leaders -Manufacturing and process engineering capabilities that can be used to drive costs down. T

crossing-the-chasm framework ?

-This can be explained as a failure to successfully cross the chasm from the early users to the mass market because the firm does not recognize that the business strategy needs to be fine-tuned for each customer segment =Conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group. -framework breaks down the 100 percent market potential into different customer segments, highlighting the incremental contribution each specific segment can bring into the market. -bell curve

A. TECHNOLOGY ENTHUSIASTS

-in the introductory stage of the industry life - smallest market segment, -oy using beta versions of products, tinkering with the product's imperfections and providing (free) feedback -enthusiasts will often pay a premium price to have the latest gadget. -google glass could not bridge the gap

4. MATURITY STAGE

-industry structure morphs into an oligopoly with only a few large firms -Any additional market demand in the maturity stage is limited. -hight competitive intensity within the industry -Demand now consists of replacement or repeat purchases -maximum size, and industry growth is likely to be zero -Process innovation reaches its maximum as firms attempt to lower cost as much as possible, while the level of incremental product innovation sinks to its minimum (domestic airline industry has been in the maturity stage for a long time. tend to be larger and enjoy economies of scale, as the industry consolidated and most excess capacity was removed.)

2. GROWTH STAGE

-objective for firms during the growth phase is to stake out a strong strategic position not easily imitated by rivals -competition tends to move away from product innovations toward process innovations -product innovation New or recombined knowledge embodied in new products. -process innovations new ways to produce existing products or to deliver existing services (standardized shipping, containerization) - firms attempt to keep up with rapidly rising demand while attempting to bring down costs at the same time -core competencies for competitive advantage in the growth stage tend to shift toward manufacturing and marketing capabilities. -firms follow cost-leadership strategy

Platform Revolution

1. A platform is a business that enables value-creating interactions between external producers and consumers. 2. The platform's overarching purpose is to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants. 3. The platform provides an infrastructure for these interactions and sets governance conditions for them.

Final stage of the industry life cycle, managers generally have four strategic options

1. exit: firms are forced to exit the industry by bankruptcy or liquidation 2. harvest: he firm reduces investments in product support and allocates only a minimum of human and other resources 3.maintain: continuing to support marketing efforts at a given level despite the fact that U.S. cigarette consumption has been declining. 4. consolidate: Although market size shrinks in a declining industry, some firms may choose to consolidate the industry by buying rivals.

platform business

An enterprise that creates value by matching external producers and consumers in a way that creates value for all participants, and that depends on the infrastructure or platform that the enterprise manages. (Apple, Alphabet, Microsoft, Amazon, and Facebook)

entrepreneurship

The process by which people undertake economic risk to innovate—to create new products, processes, and sometimes new organizations. de

strategic entrepreneurship

The pursuit of innovation using tools and concepts from strategic management. Ex. Apple's continued innovation in mobile devices is an example of strategic entrepreneurship: -Each new release is an innovation; each is therefore an act of entrepreneurship—planned and executed using strategic management concepts

social entrepreneurship

The pursuit of social goals while creating a profitable business. -Social entrepreneurs evaluate the performance of their ventures not only by financial metrics but also by ecological and social contribution (triple bottom line- profits, planet, and people). Ex. TOMS Shoes Ex. Wales' idealism is a form of social entrepreneurship: His vision is to make the entire repository of human knowledge available to anyone anywhere for free. Wiki

To fine-tune each customer segment. Formulating a business strategy for each segment guided by the who, what, why, and how questions of competition (Who to serve? What needs to satisfy? Why and how to satisfy them?)

We first introduce each customer group and map it to the respective stage of the industry life cycle.

switching costs

costs that make customers reluctant to switch to another product or service ex. Google—by offering a free web-based suite of application software such as word-processing (Google Docs), spreadsheet (Google Sheets), and presentation programs (Google Slides)—is attempting to minimize switching costs by leveraging cloud computing

THE INNOVATION PROCESS

Broadly viewed, innovation describes the discovery, development, and transformation of new knowledge in a four-step process captured in the four I's: 1. idea, 2. invention, (Patent/publin in 20 yrs) vs trade secret Valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy. 3. innovation -concerns the commercialization of an invention. temporary monopoly profits. 4. imitation For example, wireless communication technology today is built upon the fundamental science breakthroughs Albert Einstein accomplished over 100 years ago in his research on the nature of light.

Entrepreneurs

The agents that introduce change into the competitive system.

2. GROWTH STAGE

- After the initial innovation has gained some market acceptance, demand increases rapidly as first-time buyers rush to enter the market, convinced by the proof of concept demonstrated in the introductory stage - As the size of the market expands, standard signals- an agreed-upon solution about a common set of engineering features and design choices. -standards can emerge from the bottom up through competition in the marketplace or be imposed from the top down by government or other standard-setting agencies such as the Institute of Electrical and Electronics Engineers (IEEE) that develops and sets industrial standards in a broad range of industries, including energy. After a standard is established in an industry -demand is strong during the growth phase, both efficient and inefficient firms thrive; the rising tide lifts all boats. Moreover, prices begin to fall, often rapidly, as standard business processes are put in place and firms begin to reap economies of scale and learning. complementary assets in the form of products and services become widely available.

Crossing the Chasm

- Moore documented that many innovators were unable to successfully transition from one stage of the industry life cycle to the next. - Moore's core argument is that each stage of the industry life cycle is dominated by a different customer group. - Moore's main contribution is that the significant differences between the early customer groups—who enter during the introductory stage of the industry life cycle—and later customers—who enter during the growth stage—can make for a difficult transition between the different parts of the industry life cycle -differences between customer groups lead to a big gulf or chasm into which companies and their innovations frequently fall. Only companies that recognize these differences and are able to apply the appropriate competencies at each stage of the industry life cycle will have a chance to transition successfully from stage to stage. - (between technology enthusiasts and early adopters),

network effects

- The positive effect (externality) that one user of a product or service has on the value of that product for other users. - Network effects occur when the value of a product or service increases, often exponentially, with the number of users - to seed future growth initiate and leverage network effects Ex. Apple effectively leveraged the network effects generated by numerous complementary software applications (apps) available via iTunes to create a tightly integrated ecosystem of hardware, software, and services, which competitors find hard to crack.

industry life cycle

The five different stages 1. introduction, 2. growth, 3. shakeout, 4, maturity, and 5. decline— occur in the evolution of an industry over time. - follows S curve - Ex. emerging economies such as Argentina, Brazil, China, India, Indonesia, Mexico, and Russia, the smartphone industry is in the growth stage - In contrast, the market for smartphones is in the maturity stage in 2018 in developed economies such as Australia ittle or no growth in market size is expected over the next Smartphone industry is mature in these markets,. few years because most consumers own smartphones.