1 42001: Competitive Strategy Neale Mahoney Lecture 7a: Introduction to Strategic Interaction
Plan • Amazon: Quiz + discussion • Lecture 7a: Introduction to Strategic Interaction • Lecture 7b: Dynamic Pricing Rivalry • Break • Shrimp Game Wrap-Up • American Airlines Case 2
Quiz 1. What was the profession of Bezos’ biological father a. Policeman b. Unicycle rider c. Artist 2. What is the name of Jeff Bezos’ space company? a. Blue Origin b. Infinity and Beyond c. SpaceX 3. For what category did Paris Hilton design merchandise? a. Intimate apparel b. Jewelry c. Romance novels 3
Amazon: Distribution For Wegner, the questions being asked that day carried personal resonance. “We had a key decision to make,” he says. “Was distribution a commodity or was it a core competency? If it’s a commodity, why invest in it? And when we grow, do we continue to do it on our own or do we outsource it?” If Amazon chose to outsource it, Wegner might be out of a job. “I basically saw my own career flash before my eyes,” he says. • Do you think distribution is commodity or core competency for Amazon? • What about other retailers? 4
Amazon: Distribution At the end of the day, Bezos, Wilke, and their colleagues reached a conclusion: the equipment and software from third-party vendors simply wasn’t designed for the task at hand. To escape from batches and move toward a continuous and predictable flow of orders through the facility, Amazon would have to rewrite all the software code. Instead of exiting the business of distribution, they had to reinvest in it. 5
Amazon: Distribution Wilke’s gradual success in making the logistics network more efficient would offer Amazon innumerable advantages in the years ahead. Tightly controlling distribution allowed the company to make specific promises to customers on when they could expect their purchases to arrive. Amazon’s operating all of its own technology, from the supply chain to the website, allowed Russell Allgor and his engineers to create algorithms that modeled countless scenarios for each order so systems could pick the one that would yield the quickest and cheapest delivery. Millions of those decisions could be made every hour, helping Amazon reduce its costs—and thus lower prices and increase volume of sales. The challenge was getting good enough to do this well. 6
7 An introduction to strategic interaction
8 Overview Industry and firm- level drivers of profitability Boundaries of the firm Strategic interaction WEEKS 1-3 WEEKS 4-5 WEEKS 6-10
9 Part III: Strategic interaction • “Zooming in” on specific strategic interactions...
10 Part III: Strategic interaction • American Airlines Week 7: Dynamic pricing rivalry Competitors Suppliers Buyers Potential Entrants Substitutes & Complements
11 Part III: Strategic interaction • Ryanair Week 8: Entry & Entry Deterrence Competitors Suppliers Buyers Potential Entrants Substitutes & Complements
12 Part III: Strategic interaction • Nintendo Week 9: Network Effects I: Creating and Capturing Value Competitors Suppliers Buyers Potential Entrants Substitutes & Complements
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