Business Level Strategy: Competing in the Industry

2. Tuesday – In class case exam • Post questions Monday PM • Answers due Wednesday 8AM • Industry Analysis • Thursday - +5% • Tuesday – full credit

3. Average 72.6 • 34 out of 60 above the average • 80% or higher – 19 = 33rd percentile • 70% - 79 – 20 = 66th percentile • 60 – 69 – 8 = 78% percentile • 60 or less – 12 • Range – 95 to 43

4. Chapter 5

5. Business Level Strategy How are we going to compete in our industry/segment? Improving the firm’s competitive position Competitive advantages are the single most dependable contributor to above-average profitability

6. How do these Firms Compete?

7. How do these Firms Compete?

8. How do these Firms Compete?

9. How do these Firms Compete?

10. Porter’s Generic Strategies • Two fundamental issues • Competitive advantage - low cost vs. differentiation • Strategic Target - broad based vs. segment • Pursuit of the generic strategies provides protection from each of the five forces

11. Porter’s Generic Strategies Low Cost Competitive Advantage Differentiation

12. Porter’s Generic Strategies Broad Segment/Focus Strategic Target

13. Porter’s Generic Strategies Focused Low-Cost Overall Low-Cost Low Cost Competitive Advantage Broad Differentiation Focused Differentiation Differentiation Broad Segment/Focus Strategic Target

14. Porter’s Generic Strategies NOT one of Porter’s Generic Strategies Low Cost Best-Cost Provider Competitive Advantage Differentiation Broad Segment/Focus Strategic Target

15. Porter’s Generic Strategies WalMart Domino’s Low Cost Competitive Advantage Differentiation Broad Segment/Focus Strategic Target

16. Porter’s Generic Strategies WalMart Domino’s Grocery Outlet Little Caesar’s Low Cost Competitive Advantage Differentiation Broad Segment/Focus Strategic Target

17. Porter’s Generic Strategies WalMart Dominos’s Big Lots Lil Caesar’s Low Cost Competitive Advantage Target Papa John’s Differentiation Broad Segment/Focus Strategic Target

18. Porter’s Generic Strategies WalMart Domino’s Big Lots Little Caesar’s Low Cost Competitive Advantage Target Papa John’s Nordstrom Papa Murphy’s Differentiation Broad Segment/Focus Strategic Target

19. Differentiation • Offer attributes that customers want, and are willing to pay for. Leads to premium price, higher volume, loyalty • Maintaining uniqueness can be a challenge • Kodak, Wrigley’s, Campbell’s, Coca-Cola, Gillette, Del Monte, and Nabisco all leaders since 1923 • Marginal revenue must exceed the costs of differentiation PERCEIVED VALUE versus INCREMENTAL COSTS

20. Differentiation (cont.) • What firms pursue differentiation? • How or on what basis do they achieve differentiation?

22. Starbuck’s Differentiation • 4 Tablespoons of $10 bag = 40 cents • Three cups • Double-Tall Latte = $3.22 • Double Shot Espresso = $1.85 • $3.22 - $1.85 = $1.37 for steamed milk • 20 seconds to steam milk • $1.37 * 3 * 60 = $246 a hour to steam milk • Customers “allow” Starbucks to draw interest in their smart-cards. • Millions of dollars annually on the float • “You are one of us” • “Collectible” • Pretax profit margins of 10.5%

23. Differentiation (cont.) • Signalling important when: • nature of differentiation difficult to quantify • first-time purchase – • re-purchase infrequent • buyers unsophisticated

24. To introduce his beer, Coors often gave free sample to gold miners.

25. ..because you can’t sell beer to minors.

26. Differentiation (cont.) • Risky when: • quick imitation • no value in uniqueness • over differentiation • cell phones • premium price • costs too high • poorly understood/changing customer needs • Minivan, FAO Schwartz • costs/price become more important than uniqueness • unwillingness to offer true differentiation

27. Can you differentiate……?

28. Can you differentiate…..? • Salt?

33. Can you differentiate…..? • Deodorant

34. Strong enough for a man, …. But made for a woman

35. Ph balanced too?????

36. Can you differentiate…..? • Water

38. Evian spelled backwards - naïve • Coincidence? I think not…..

39. Now, I am going to do a card trick.

40. I am going to read your mind.

41. You are going to see a series of cards.

42. You are going to choose one card.

43. Once you select your card, clear your mind, and think only of that card.

44. Are you ready to pick a card?

45. Pick a card.

46. Did you pick a card?

47. Think of it now.

48. I hear you.

49. And now, I will remove your card.