MGT 112 Midterm
Consumers purchase based on how well they perceive a brand meets their needs. In Markstrat those consumer needs are expressed as:
economy, performance, and convenience
How Strategy improves Competitive Advantage
•Cost Leadership works to lower your cost •Differentiation works to increase your customer's willingness to pay Either way, Competitive Advantage goes up
Comparative Economic Advantage
•Natural advantage: Natural endowments make some countries/regions more efficient at producing particular goods •Relative advantage: in the absence of natural advantage, industries tend to cluster around some factor •Clustering is mutually advantageous •Clusters encouraged by technological interdependency
Competitive Environment
•Number •Size •Quality
The Political Environment
•One important aspect is the phenomenon of ethnicity •Driving force behind political instability •Firms must assess political risks •Government actions that could adversely affect the long-run profitability or value of business
Globalization Risks
•Political Risk •Legal Risk •Economic/Financial Risk •Socio-cultural Risk
Product Leadership
•Produce a continuous stream of state-of-the-art products/services •Three challenges of Product Leadership: 1.Creativity does NOT have to be original (usually originates from outside company) 2.Must commercialize ideas quickly 3.Relentlessly pursue new solutions to problems their own last generation just solved.
Simplified Value Chain Example
•R & D -> •Design -> •Raw Materials -> •Component Assy -> •Product Mfg -> •Marketing -> •Sales -> •Distribution -> •Finished Product ->
Operational Excellence
•The objective of this strategy is to lead your industry in price and convenience. •Focus on delivering at competitive prices with minimal inconvenience •Seek ways to minimize overhead, cut intermediate production steps, reduce transaction costs and "friction", and optimize business processes
First-Mover Advantage
⁺+ Pre-empt rivals & capture demand ⁺+ Build early sales volume ⁺+ Create switching costs ⁻- Time and effort to learn "rules of game" ⁻- Mistakes due to ignorance ⁻- Liability of being a "foreigner" ⁻- Cost of promotion (educating customers)
Arbitrage
"Buy low [in one market], sell high [in another]" Treat differences across borders as opportunities rather than constraints "Globalization is about producing where it is most cost effective, sourcing capital from where it's cheapest and selling it where it is most profitable." - N.R.N. Murthy, co-founder of InfoSys A way of exploiting differences, especially cost differences. Outsourcing and offshoring are typical arbitrage strategies
Multidimensional perspective: Markets
"MUST" Markets - Volume - Economies of Scale - ADDING Value Scorecard - Technological leadership - Revolutionary breakthrough - Emerging consumer trend - New competitor - Pending government regulation - Competitive battles - Maximize Competitive Advantage - AAA Strategy Map
Globalization realistically
- Appearance of gradualism is deceptive - Managers underestimate differences between domestic & international - Globalization requires key changes in: •Company mission •Core competencies •Structure •Processes •Culture
Economic Distance
- Class distinction - Infrastructure - Availability/quality of resources - Economic size - Per-capita income
components of a business model
- value proposition - market participation - management model - value chain infrastructure
Ghemawat's AAA Global Strategy Framework describes the way companies react to differences arising at borders as
-. Adapting to the differences - Bridging the differences - Exploiting the differences
Stages of Globalization
1. Market Entry 2. Product Specialization 3. Value Chain Disaggregation 4. Value Chain Reengineering 5. Creation of New Markets
Product Management Life Cycle
1. Pilot it 2. Nail it 3. Scale it 4. Milk it 5. Kill it
Global Innovation - AAA
1. Prospect 2. Assess 3. Mobilize
Steps to Strategic Management
1. goal setting, 2. analysis, 3. strategy formulation 4. strategy implementation using tactics, and 5. strategy monitoring. 6. Repeat as required.
Purpose of a Business Model
A Business Model defines how a company creates value for itself while delivering products or services that create value for customers.
A strategy of changing one or more elements of a company's offerings to meet local requirements or preferences is known as:
Adaptation
Global Product Development
Adaptation + Arbitrage
ADDING value scorecard
Adding volume: what level of addi4onal volume yields economies of scale or scope? Decreasing costs: what are the cost drivers other than scale or scope? Differentiation: how do cross-border differences (CAGE) in preferences affect willingness-to-pay? Improving industry attractiveness: what are the implications of your ac4ons on rivals' costs or willingness- to-pay? Normalizing risk: what is the extent and key source(s) of risk in your cross-border operations Generating knowledge: assess the location-specificity vs. mobility of knowledge (or other resources)
Two key ways to reposition brands in Markstrat
Advertising & R&D
Global Product Platforms
Aggregation + Adaptation = Transnational
Corporate Inertia
Although the global competitive climate changes everyday, choices made by companies have an enduring impact on the industry environment. •Industry evolution and competitors' decisions drive strategy •Industry/government commitments may either spell opportunity or impose constraints for many years
"Buy low in one market, sell high in another" best describes:
Arbitrage
Adaptation
Changing one or more elements of a company's offering (i.e., business model) to meet local requirements or preferences Most widely used global strategy Some degree of adaptation is essential for virtually all border crossing ventures
Cultural Distance
Cultural Empathy - Critical to Venture Success/Failure - Problems more human than technical
Consumers' and manufacturers' perception of brands is the same.
False
In global strategy, the only borders management needs to be concerned with are geographic.
False
The ADDI elements of the ADDING Value Scorecard apply only to domestic strategy, while the "N" and "G" elements apply only to international strategy.
False
Fundamental Equation of Business Strategy
Goal of Strategy is to Maximize Your Margin Your Margin = Industry Margin + Your Competitive Advantage
Markstrat BRAND MAP
Plots perceived physical characteristics instead of consumer needs
Modes of Entry
Risk x Lack of Control: Least to Most - Domestic - Licensing/Franchising - Exporting - Strategic Alliance - Joint Venture - FDI
Core (domestic) Strategy
Strategy - Value Proposition - Offer - Positioning - Market Participation - Target markets - Go-to-market - Distribution - Branding - Value Chain - Core competencies - Partner network - Supply chain - Implementation Model - Mgmt Mind-set - Organization Structure
Value Proposition Globalization Matrix
The Offer(x) The Message (y) Same (Aggregation) Different (Adaptation) Global Mix Global Message Global Offer Global Change
A business model defines how a company creates value for itself while delivering products or services that create value for customers.
True
Every company has a core domestic strategy, even though it is not always explicitly articulated.
True
In Markstrat there are two ways to position your product - through advertising, and through research and development.
True
The International Mentality is illustrated by companies that regard themselves as fundamentally domestic with "some foreign appendages."
True
Markstrat PERCEPTUAL MAP
Valuable tool for visualizing brand positioning required for advertising
Economic Value comes from
Volume Margin - Competitive Advantage: Costs & Differentiation - Industry Attractiveness - International Addition: - Uncertainty/Risk - Knowledge/Resources
Competitive Advantage: The Competitive Wedge
Your Competitive Advantage = ([willingness-to-pay - cost] for your company) - ([willingness-to-pay - cost] for your competition) You create a Competitive Advantage when you drive a wider wedge between willingness-to-pay and costs than your competitors.
The Convenience of a brand is based mostly on:
a. Price b. Price and Design c. Battery Life and Processing Power d. None of the above
The value chain infrastructure portion of the business model deals with:
internal resources and capabilities
Although we often speak of global markets, research by Ghemawat and others best describe the world's competitive structure as
regional or semi-global
Customers Make Purchase Decisions based on
their perception
Customer Intimacy
•Continually tailor and shape products to fit an increasingly fine definition of customers. •Typically look at lifetime value of a customer, rather than the value of a single transaction. •Will do almost anything to make sure the customer gets what he/she wants.
Outsourcing & Cooperative Strategies
•Contract Services •Offshoring •Joint ventures •Strategic alliances •Other Partnering arrangements Pros: •Lower cost •Greater flexibility •Enhanced expertise •Greater discipline •Freedom to focus on Core Competencies Cons: •Financial risk •Loss of control •Loss of innovation •Loss of organizational trust •Higher transaction costs •Loss of capacity
Operational Model
- Architectural configuration - Production - Go-to-market approach - Administrative processes - Resource flows - Knowledge management - Supply chain partners
Value Proposition Adaptation
- Brand name, color, size, taste, design, style, features, materials, performance - Buyer preference - Government regulations & standards, packaging, climate, transportation cost - Commercial infrastructure - Metric vs. English
Cost Leadership
- Compete for the largest number of customers through price. - Cost leadership works well when the goods or services are standardized. The company can sell generic acceptable goods at the lowest prices. - They can minimize costs to the company in order to minimize prices to the customer without decreasing profits.
Make or Buy: Core Competencies
- Core competencies are the combination of pooled knowledge and technical capacities that allow a business to be competitive in the marketplace. - Not just "things we do well." - Skills or systems that create uniquely high value for customers at 'best-in-class' levels Production + Sales + Marketing --> Core Competencies --> Competitive Advantage => New market - Core Competency = Production MAKE - Core Competency ≠ Production BUY
A Great Business Model...
- Creates a customer value proposition - What "job" do we help customers get done? - Defines the profit formula - Revenue: Price x Volume - Cost structure: direct/indirect, economy of scale - Margin: contribution ratio - Resource velocity: asset turnover to support volume - Identifies key resources and processes - People, technology, equipment, brand - Production, planning, sales, service
five "imperatives" that drive companies to become more global
- Customer Needs & Preferences - Growth - Efficiency - Knowledge - Competition
Business Model
- Economic (revenue model) - Operational (business concept) - Strategic (business strategy)
Political Risk: Typical risk events
- Expropriation of assets - Forced sale of equity - Discriminatory treatment - Barriers to repatriation of funds
Strategic Model
- Identify and measure business "drivers" - Stakeholder identification - Value creation - Differentiation - Vision & Values - Networks & Alliances
Globalizing the Value Chain
- In-House vs Outsource - Right Partnerships - Supply chain management model
Economic Model
- Logic of Profit Generation - Revenue sources - Pricing - Cost structure - Volume - Margins
Industry Globalization Drivers - Yip
- Market Drivers (Customer Behaviors) - Cost Drivers (Opportunity to Scale) - Competitive Drivers (Competitor Behaviors) - Government Drivers (Regulatory Climate)
Institutional Contexts
- Political & Social System - Open-ness - Product Markets - Labor Markets - Capital Markets
Differentiation
- Provide a product or service with distinctive qualities valued by customers. - Set yourself apart from the competition. - To succeed at this strategy, your business should have: - access to leading scientific research (or perform this research) - a highly skilled and creative product development team - a strong sales and marketing team - a corporate reputation for quality and innovation.
Administrative Distance
- Rule of Law/Corruption/Institutions - Common currency - Home bias - Membership in Int'l Organizations
Strategy is management's game plan for:
- Satisfying customers - Achieving performance targets - Strategic (e.g., market share) - Financial (e.g., sales or stock price) - Strengthening the firm's competitive position - How the firm will respond to changing industry & market conditions
Markstrat distribution channels
- Specialty Stores - Mass Merchandisers - Online Stores
Business Drivers
- Stakeholder identification - value creation - differentiation - vision and values - networks and alliances
A value proposition composes the core of the business model and includes:
- a bundle of products and/or services - creates value for a specific customer segment - how the company differentiates itself
To introduce a new brand in Markstrat you must do all of the following:
- choose a name that meets the Markstrat naming convention - enter the role of the new brand in your portfolio - have a new base R&D project
What are Treacy & Wiersema's Value Disciplines?
- customer intimacy - operational excellence - product leadership
Strategy is management's game plan for
- satisfying customers - strengthening the firm's competitive position - achieving specific performance targets
Setting Perceptual Objectives in Markstrat brand advertising involves:
- setting your advertising research to 10-15% of your brand advertising budget - deciding on the scale (semantic or MDS) that you will use for your objectives - setting the dimensions you want to communicate on - picking the coordinates you want to reach
Strategic Management Process
1. Where Are We? - Situation Appraisal - Situation Assessment - Clarification of Objectives 2. Where Are We Going? - Corporate Strategy - Competitive Strategies 3. How Are We Getting There? - Strategic Decisions - Implementation - Tactics 4. How Are We Doing? - Monitor Progress - Situation Appraisal
Identifying Core Competencies
1.Provide access to a broad array of markets 2.Help differentiate core products and services 3.Hard to imitate
Customer Segments in the Sonite Market
5
In strategic terms, a company's margin is equal to their industry margin plus a company's ________________.
Competitive Advantage
Cooperative Partnerships
Drivers of Cooperative Partnerships •Risk sharing •Funding limitations •Market Access •Technology Access •Lack of management skills •Inability to add value in-house •Lack of acquisition opportunities
World View Approach
How a company chooses to compete in two or more foreign markets is driven by how management sees: • Benefits of global integration • Standardization • Economies of Scale • Need for local responsiveness • Market conditions • Buyer Preference
According to the Fundamental Equation of Business Strategy, the main goal of strategy is to maximize your company's _____________.
Margin
Partnerships
Modes of Entry &Cooperative Strategies - Strategic Alliance - Two companies that have decided to share specific resources to undertake a specific, mutually beneficial project - A strategic alliance is less involved and less permanent than a joint venture. Each company maintains its autonomy while gaining a new opportunity. - Joint Ventures - A business arrangement in which two or more parties pool their resources (i.e., share equity) to accomplish a specific task, or for a specific time period. - Each member is responsible for profits, losses and costs associated with it. - The joint venture is its own entity, separate and apart from the participants' other business interests.
Effective Global Brand Structure
Parsimony - provide an umbrella for all brands in the portfolio ex. Microsoft, Microsoft Office, Windows 10 Consistency - do brand names differentiate product lines or establish a common identity across product lines? ex. pringles or pampers Connectivity - logo or name needs to connect different brands to the company (customers, distributors, partners) ex. apple, iTunes, appleTV
Aggregation
Using various grouping devices to create greater economies of scope/scale than country-by-country adaptation - Scope is number of different goods produced - Scale is amount of a single good produced Exploit similarities among geographies or regions rather than adapting to differences, but stopping short of complete standardization
