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Lecture 5 Competitive Strategy

Lecture 5 Competitive Strategy - Lecture 5 Lecture...

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Lecture 5 Lecture 5 Competitive Competitive Strategy Strategy
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Mutual interdependence “Counting on your competitors to be slow and stupid for a long time is a heck of a way to build a business model.” S. Finkelstein Strategic competitiveness and above-average returns result only when companies recognize that their strategies are not implemented in isolation from their competitors’ actions and responses. Pricing, advertising, R&D, new product introduction, new market entry Wal-Mart (pricing, local monopoly) ING Bank of Canada (how will bricks and mortar banks react)
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Game-theoretical thinking What are our payoffs (profits) in relation to the alternative actions the competitor could take? What prior strategic commitments has the competitor made? Does the potential market fit with the competitor’s existing strategy? How “reversible” is your action or the competitor’s potential response?
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Sources of First Mover Advantages First movers allocate funds for innovation, aggressive advertising, and advanced R&D Economies of Scale 1 st to market can achieve higher volumes and spread fixed costs over larger volume and achieve a low cost structure VW in China: 53% of the market in 2000. Experience or Learning Curve Effects (if proprietary) Toyota-Hybrid cars – Licensed it to Nissan and Ford Brand loyalty-reputation (e.g., Am azon) Network effects -- Setting technological standards Developing favorable links with suppliers or distributors Coke-international markets
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Sources of Second Mover Advantages A firms that responds to a first mover’s competitive action Avoid costs of early adoption Japanese car makers in the U.S. (non-unionized) Saturn (clean sheet approach) Dell (bypassed the channels) Learn from market’s reaction to the first mover Changing technology
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Network Effects Establishing a technological standard Linked to market share availability of the product (distribution channels) availability of co-specialized products Matsushita’s VHS vs. Sony’s Beta (availability of tapes) IBM PCs vs. Apple (availability of parts, software, and compatibility) Internet Explorer vs. Netscape (bundling, monopoly power)
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