Comp Strategy Overview

Comp Strategy Overview - COMPETITIVE STRATEGY A Primer...

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COMPETITIVE STRATEGY A Primer
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Overarching Goal Above Normal Returns Strategic Competitiveness Sustainable/Renewable
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Sustainable/Renewable Above Normal Returns & Strategic Competitiveness Profits = Q (R-C) X Time Aggressive Competition (all 5 forces) Uncertain turbulent future Margin
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Willingness to Buy Q Quantity Fast food – Size of the ticket Discount Stores – volume purchasing Staples are at the back of the store Impulse buys ADVERTISING!!!/POINT OF PURCHASE
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Willingness to Pay R Price/Revenue Premium prices Branding Monopoly situations – broken arm Lifecycle costs of a product Customer loyalty – Harley Davidson tattoos
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Cost Minimization Scales Scope Location Experience Design Productivity Capacity Utilization HR Productivity C Costs
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Sustainability TIME Competitive imitation Substitution Technological Obsolescence Organizational Slack
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Business Models: The Core of a Strategy A firm’s choice of relationship among these variables is its business model Focus and tradeoffs among variables Two generic business models: Cost-based Differentiation-based
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Illustration of tradeoffs in Q*Margin Volume Margin Hi Hi Lo Lo M a d e i n H v
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Market Share (Quantity) Low High P r o f i t a b l y Low High Differentiation- based Strategies Low Cost Leadership Strategies Stuck-in-the-Middle Market Share-Profitability Relationship: “Porter’s Bucket”
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Business Models Volume Economies of Scale Low Unit Cost Increased Margins R&D Advertising Price Extra Profits Quality
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Business Models Loyal Consumers Premium Prices Increased Margins R&D Brand Mktg Reputation Extra Profits Quality Investments Uniqueness
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Strategic Advantage Uniqueness Perceived by the Customer Low Cost Position Industrywide Strategic Target DIFFERENTIATION OVERALL COST LEADERSHIP FOCUS Particular Segment Only Porter's Generic Strategies Source: Porter (1980)
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Firm A: Firm B: Firm C: Firm B: Price Price Price Price Total cost to buyer Firm A has a cost advantage Firm C has a differentiation advantage Producer’s cost Producer’s margin Buyer’s cost Value Chains for Cost Advantage and Differentiation Advantage
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Sources of Above Normal Return Great Strategies Great Industries
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0 10 20 30 40 50 60 70 80 90 100 2 % 4 6 8 1 0 3 Number of Industries First Quartile Average 22.2% Fourth Quartile Average 9.3% Note: Return on Equity = Net Income / Year End Shareholders’ Equity; Analysis based on sample of 593 industries Average = 14.7% Median = 13.8% . 7 5 Return on Equity (Percent) Average Return on Equity in US Industries, 1982-1993 Distribution of Industry Returns Source: Jan W. Rivkin’s Analysis Based on Dun and Bradstreet Data
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Source: Jan W. Rivkin based on Compustat Computer system design Operating Income / Assets, 1988-95 (%) 0 5 10 15 20 25 Scheduled airlines Motor vehicles Cable TV service Engineering services Trucking except local Race track operations Petroleum / natural gas Drug stores Eating places Dental equipment Women's clothing stores Semiconductors Prepackaged software Pharmaceuticals Profitability Differences Across Selected Industries WHY?
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Superior Profitability DELL COMMODORE WANG GATEWAY HP LENOVO???
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Comp Strategy Overview - COMPETITIVE STRATEGY A Primer...

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