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Week 5 Notes Business Policy

by: Whitney Smith

Week 5 Notes Business Policy BUS 4853

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Whitney Smith

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Week Five Notes on Chapter 5 in Business Policy
Business Policy
Hanqing Fang
Class Notes
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This 7 page Class Notes was uploaded by Whitney Smith on Thursday February 18, 2016. The Class Notes belongs to BUS 4853 at Mississippi State University taught by Hanqing Fang in Spring 2016. Since its upload, it has received 93 views. For similar materials see Business Policy in Business at Mississippi State University.

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Date Created: 02/18/16
2/18/16 The Strategic Management Process External Chapter 5 Analysis Mission Objectives Strategic Strategy Competitive Product Choice Implementation Advantage Differentiation Internal Analysis Business Level Corporate Level Strategy Strategy How to Position a Which Businesses Business in the Market? to Enter? Strategic Management & Competitive Advantage – Barney 2 Hesterly Product Differentiation Business Level Strategies Two Generic Business Level Strategies A business level strategy intended to: Cost Leadership: • increase the perceived value of the focal • generate economic value by having lower costs firm’s products and/or services relative than competitors to the value of competitor’s products and/or Example: Wal-Mart services • create a customer preference for the focal firm’s Product Differentiation: products and/or services • generate economic value by offering a product that customers prefer over competitors’ product Example: Apple Strategic Management & Competitive Advantage – Barney 3 Hesterly Strategic Management & Competitive Advantage – Barney 4 Hesterly 1 2/18/16 Bases of Differentiation A base of differentiation must fill some customer need: • image • beauty • safety • furthering a cause • hunger • status • quality • reliability in use • comfort • style • service • nostalgia • cleanliness • taste • accuracy • belonging A differentiated product fills one or more needs better than the products of competitors Strategic Management & Competitive Advantage – Barney5& Hesterly Strategic Management & Competitive Advantage – Barney6& Hesterly Capsim Simulation Bases of Differentiation zPerformance Almost anything can be a base of differentiation zSize zReliability • the wide range of customer needs can be filled zAge by a wide range of bases of differentiation zPrice • tangible thing (product features, location, etc.) • intangible concept (reputation, a cause, an ideal, etc.) • limited only by managerial creativity Example: FedEx Strategic Management & Competitive Advantage – Barney7& Hesterly Strategic Management & Competitive Advantage – Barney8& Hesterly 2 2/18/16 Bases of Differentiation Bases of Differentiation Three Categories Product Attributes 1) Product Attributes • exploiting the actual product • Product Features – the shape of a golf club head 2) Firm—Customer Relationships • Product Complexity – multiple functions on a watch • exploiting relationships with customers • Timing of Introduction – being the first to market 3) Firm Linkages • exploiting relationships within the firm • Location – locating next to a freeway exit and/or relationships with other firms Strategic Management & Competitive Advantage – Barn9y & Hesterly Strategic Management & Competitive Advantage – Barn10 & Hesterly Bases of Differentiation Bases of Differentiation Firm Linkages Firm-Customer Relationships • Linkages among functions in the Firm – using a • Customization – creating a unique diamond bracelet circuit board designed in one division in other for a customer divisions • Consumer Marketing – creating brand loyalty to a soap • Linkages with other Firms – a sporting goods store through image advertising sponsors a benefit race by donating running shoes and receives free radio advertising in return • Reputation – sponsoring the local homeless shelter to engender positive community response • Product Mix – a furniture store begins to sell home gym equipment, computers, and lawn mowers Strategic Management & Competitive Advantage – Barn11 & Hesterly Strategic Management & Competitive Advantage – Barn12 & Hesterly 3 2/18/16 Competitive Advantage Bases of Differentiation Firm Linkages A product differentiation strategy must meet the VRIO criteria… • Distribution Channels – a doughnut shop begins to sell its doughnuts through gas stations Is it Valuable? Is it Rare? • Service and Support – an oil change shop begins to offer pick up and delivery of cars in an Is it costly to Imitate? office building’s parking garage Is the firm Organized to exploit it? …if it is to create competitive advantage. Strategic Management & Competitive Advantage – Barney & 13sterly Strategic Management & Competitive Advantage – Barney &14esterly The Value of Product Differentiation The Value of Product Differentiation Neutralizing Threats Focal Firm with No Focal Firm with Differentiated Product Differentiated Product Toyota protected from Hyundai MC ff Entry ATC Pff ind ATC ff Lock-up Industry Benz versus BMW Buyers Rivalry Pind D ind Focal D ff Firm Home vs. Photo MR ff Ruth’s Chris Threat Steak House Suppliers Substitutes Shop Printing of Q Q Digital Pictures ind ff Above Normal Profits Strategic Management & Competitive Advantage – Barney & 15sterly Strategic Management & Competitive Advantage – Barney &16esterly 4 2/18/16 The Value of Product Differentiation The Value of Product Differentiation Exploiting Industry-type Opportunities Exploiting Industry-type Opportunities Fragmented Industry Mature Industry Branding: commodity differentiated product Refining product or adding services Example: Kellogg’s Corn Flakes Example: Ford’s emphasis on service Emerging Industry Declining Industry First mover advantages: captures market share Exploiting niches: serving those with strong needs Example: Motorola Cell Phones Example: NEWT at the Royal Hawaiian Strategic Management & Competitive Advantage – B17ney & Hesterly Strategic Management & Competitive Advantage – B18ney & Hesterly The Value of Product Differentiation Exploiting Other Opportunities Rareness of Product Differentiation By definition, we assume rareness Trends or Fads Social Causes • if a product is differentiated, it is rare • spinners • themed credit cards enough • surf clothing • animal safe clothing • customer preferences are evidence of a differentiated product • increased volume of purchases Government Policy Economic Conditions • and/or a premium price • Toyota Prius • outplacement agencies • airport x-ray machines • check cashing services Strategic Management & Competitive Advantage – B19ney & Hesterly Strategic Management & Competitive Advantage – B20ney & Hesterly 5 2/18/16 Imitability of Product Differentiation Imitability of Product Differentiation Downplay of imitation: fake product Product Features Logic of costs of imitation Easy • if would-be imitators face a cost disadvantage of imitation, they will rationally choose not to Duplication imitate of Bases Timing Usually May be Product Mix Sources of costs of imitation Location Costly Costly Product complexity Reputation • historical uniqueness Links with other firms Links between functions Product customization • causal ambiguity Distribution Channels Consumer marketing • social complexity Service and Support Strategic Management & Competitive Advantage – Bar21y & Hesterly Strategic Management & Competitive Advantage – Bar22y & Hesterly Imitability of Product Differentiation Organizing for Product Differentiation Organizational Management Compensation Substitutes • some substitutes may be obvious Structure Controls Policies Reward: • some substitutes may not be obvious • U-Form with • flexibility cross-functional • cross- • if no substitutes are obvious, then we would teams • broad guidelines functional conclude that imitation through substitution cooperation will be costly—at least for the present time • creativity encouraged • creativity • if a base of differentiation is valuable, others will attempt to imitate it through duplication • risk taking and/or substitution Example: Ford Taurus Cross-Functional Teams Strategic Management & Competitive Advantage – Bar23y & Hesterly Strategic Management & Competitive Advantage – Bar24y & Hesterly 6 2/18/16 Cost Leadership and Product Differentiation Summary Can a firm pursue both simultaneously? • product differentiation creates customer preferences No Yes • preferences allow firms to make above normal profits • use of structure, • firms can do both • almost anything can be a base of differentiation management control, because some bases and compensation of differentiation also • bases of product differentiation that meet the policies are nearly lend themselves to VRIO criteria may generate competitive advantage opposites low cost • a product differentiation strategy is only as good • structure, controls, & as its implementation policies are not opposites Product differentiation principles can be Example: Rolex Example: Toyota applied to your personal and professional lives. Strategic Management & Competitive Advantage – B25ney & Hesterly Strategic Management & Competitive Advantage – B26ney & Hesterly 7


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