Sesssion_8_Business-level_strategies_Spring2009

Sesssion_8_Business-level_strategies_Spring2009 -...

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Session 8: Business-level  Strategies
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Session 8: Agenda Maximize the spread (Price – Cost) Recognize tradeoffs Cost focused vs. Price focused Historically separate – “Don’t be stuck in the middle” Increasingly combined
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A snapshot of some key issues and  analytical tools VRIO Strategic Coherence Appraisal Matrix Value Chain Environmental Analysis Structure-Conduct-Performance  framework Five Forces Model Strategic Choices Use of value chain for competitive  positioning (cost vs. differentiation) Segmentation analysis TWOS matrix Strategic Choices under uncertainty Scenario Analysis Real Options Analysis Strategic (game theoretic) analysis
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Sources of Competitive Advantage Profit = Revenue - Costs Price Cost Profit
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Competitive Advantage Differentiation Advantage Cost Advantage Price Premium From Unique Product Similar Product At Lower Cost
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Cost advantage
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Cost Advantage in Short-Haul Passenger  Air Transport Costs per Available Seat-Mile (1993) Southwest Airlines United Airlines (cents) (cents) Wages and benefits 2.4 3.5 Fuel and oil 1.1 1.1 Aircraft ownership 0.7 0.8 Aircraft maintenance 0.6 0.3 Commisions on ticket sales 0.5 1.0 Advertising 0.2 0.2 Food and beverage 0.0 0.5 Other 1.7 3.1 Total 7.2 10.5
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ECONOMIES OF SCALE Indivisiblities Specialization and division of labor ECONOMIES OF LEARNING Increased dexterity Improved coordination/ organization PRODUCTION TECHNIQUES PRODUCT DESIGN INPUT COSTS Location advantages Ownership of low-cost inputs Bargaining power Supplier cooperation Design for automation Designs to economize on materials Mechanization and automation Efficient utilization of materials Increased precision Drivers of Cost Advantage
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Units of output per period Minimum Efficient Plant Size Cost per unit of output Sources of scale economies: - technical input/output relationships - indivisibilities - specialization Economies of Scale: The Long- Run Cost Curve for a Plant
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Despite the massive advertising budgets of brand leaders Coke and Pepsi, smaller brands incur the highest advertising costs per unit of sales 10 20 50 100 200 500 1,000 Annual sales volume (millions of cases) Advertising Expenditure ($ per case) 0.02 0.05 0.10 0.15 0.20 Coke Pepsi Seven up Dr. Pepper Sprite Diet Pepsi Tab Fresca Diet Rite Diet 7-Up Schweppes SF Dr. Pepper Scale Economies in Advertising:  U.S. Soft Drinks
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Learning curve Basic idea – you get better at doing something  the more you do it Less time to instruct workers Machines and tooling are improved Rejections and reworks are reduced Engineering changes become less frequent Cost-effective improvements made in design
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Sustainable  Competitive Advantage
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This note was uploaded on 02/25/2011 for the course MGT 3830 taught by Professor Unknown during the Spring '06 term at LSU.

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Sesssion_8_Business-level_strategies_Spring2009 -...

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