Chapter 10 - Innovative Strategies that Change the Nature of Competition

make money from free strategies - 3

-Cross Sell Strategy - free product at the beginning then added premium version - add ons -Third Party Pay Strategy -Bundling Strategy - free product with a paid service

high end / top down disruptive innovation

-Outperform existing products when they're introduced, and they sell for a premium price rather than at a discount -They may serve the specialized, high-end niche of a market for years before it finally trickles down to mainstream markets -Cell phone started at $3,995, but today 36% of homes are wireless only households

behavior skills of innovators---TEST Question

-Questioning -Observing -Networking -Experimenting

categories of innovative strategies know!

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

industry life cycle....draw graph

-S-Curve 1. Intro 2. Growth 3. Maturity 4a. Renewal 4b.Decline IGMRD -------------------------- x axis - time y axis - sales

innovative strategy

a strategy that introduces a fundamentally different business model than rivals

agency problems

agency relationship agency problem agency costs

Incremental innovation

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

How does a company create new markets with a Blue Ocean Strategy?

creating new demand in an uncontested market space ???

customer segment

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

low end disruption

producing a low cost product or service at the "low end" or most price-sensitive segment of the market, and then gradually moving upmarket as the product or service improves its technology and processes -Rather than eliminating steps in the value chain, some firms use a different set of activities or technologies than their rivals to produce a low cost product or service -Nucor pioneered a new way to create stell products using small electric arc furnaces to melt scrap metal in mini-mills

third party pay strategy

providing free products to a community of product users as a method of generating revenue from a third party who pay to access those users

What does it mean to target "non-consumption?"

-as companies try to create new demand(blue ocean), they sometimes target "non-consumption"---individuals who do not currently purchase a product or service---with an offering that might induce consumption -for example, 70%+ households in India do not have a refrigerator because they are large, expensive, and require continuous electricity----so Godrej decided to create an innovative small refrigerator targeted at non-consumption---run on batteries---sold in partnership by post office

What are four behaviors of business innovators that help them generate ideas for innovative strategies? know!

-question -observing -networking -experimenting

9 components of business model TEST QUESTION - probably a multiple choice where you will have to say which one doesn't fit

-Value proposition -Customer Segments -Channels -Customer Relationships -Revenue Streams -Key Resources -Key Activities -Key Partnerships -Cost Structures VCCCRKKKC

What does "mass customization" mean? How do companies use mass customization to succeed in the market?

-when a company mass-produces the various modules of the product and then allows the customer to select which modules will be combined together----such as build a bear process -until recently, most products in business were either mass produced OR customized----now both -mass produced but put together in a customized way for each individual customer

What are the differences between incremental versus radical innovations?

RADICAL INNOVATION innovation that draws on a different knowledge base, technologies, or methods to deliver value in a truly unique way -computer vs. typewriter -cell phone vs landline -mp3 player vs CD player ------------------------------------------------ INCREMENTAL INNOVATION building on a firm's established knowledge base and steadily improving the product or service a firm offers -razor with 5 blades instead of 4 -samsung offers a TV with an LED screen instead of a plasma screen

How do companies create an innovative strategy by eliminating steps in the value chain?

Southwest Airlines - eliminated steps in the value chain in order to offer low airfares relative to other airlines -by eliminating meals, seat reservations, and luggage transfers, Southwest is able to lower total costs and offer less expensive airline tickets to its customers

long tail phenomenon

a probability distribution is said to have a "long tail" if a larger share of the population rests within its tail(far from the mean) than would under a normal distribution; the portion of a distribution having a large number of occurrences far from the "head" or central part of the distribution -Internet has lowered cost of distribution because broader inventory can be offered to meet a wider variety of consumer needs -Pareto Principle says that roughly 80 percent of effects some from 20 percent of the causes -Netflix can offer 90,000 movie to customers while Blockbuster store could only offer 1,000 movies per store

hypercompetition

a term coined by Professor Rich D'Aveni to refer to his argument that competitive intensity has increased and that periods of competitive advantage have decreased -Competitive intensity has increased and that periods of competitive advantage have decreased -By 2000 the average firm that reached the Fortune 500 only stayed there for 7 years due to the emergence of new faster growing firms -Innovation necessary to stay competitive

What is the difference between "low end" and "high end" disruptive innovations? Describe what they are?

in flashcards above

radical innovation

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

disruptive innovation

radical innovative strategies in which companies in the same industry find the innovation so disruptive that they can no longer do business as usual -Innovative strategies based on radical innovations are sometimes referred to as disruptive innovations because companies in the same industry find the innovation so disruptive that they can no longer do business as usual

pareto principle

the 80-20 rule, which says that roughly 80% of effects come from 20% of the causes

revenue model

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

Associational thinking or associating

the cognitive skill of making connections between a variety of ideas, problems, fields, subjects, principles, etc. -Associating happens as the brain tries to synthesize and make sense of novel inputs. It helps innovators discover new directions by making connections across seemingly unrelated questions, problems, or ideas

innovation -

the conversion of a novel concept(an invention) into a product, process, or business model that generates revenues and profits -innovation differs from invention in that innovation refers to the use of a novel idea or method, whereas invention refers more directly to the creation of the idea or method itself

business model

the plan and set of activities implemented by a company to offer unique value and generate revenue and make a profit from operations

dominant logic

the primary logic behind how the company is trying to deliver unique value to customers -Dominant Logic means that the primary logic behind how the company is trying to deliver unique value to customers

high conversion rate

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

medici effect

when innovative breakthroughs happen at the intersetion of diverse disciplines and fields -the medici effect refers to the creative explosion that occurred when the Medici family brought together creators from a wide range of disciplines---sculptors, scientist, poets, philosophers, painters, and architects in 15th century italy -Medici effect is when individuals connect they create new ideas at the intersection of their respective fields