group c report chapter 6 hill and jones

7/29/2019 Group C Report Chapter 6 Hill and Jones

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BUSINESS LEVEL STRATEGYINDUSTRY ENVIRONMENT



DIFFERENT

INDUSTRY

ENVIRONMENT

OPPORTUNITIES THREATS

BUSINESS

MODEL

BUSINESS

STRATEGY

SUSTAINABLE ENVIRONMENT



THE INDUSTRYENVIRONMENT



COMPANIES MUST FACE THE CHALLENGES OF DEVELOPING

AND MAINTAINING A COMPETITIVE STRATEGY IN:

• FRAGMENTED INDUSTRIES

• EMBRYONIC INDUSTRIES

• GROWTH INDUSTRIES

• MATURE INDUSTRIES

• DECLINING INDUSTRIES



FRAGMENTEDINDUSTRIES



LARGE NUMBER OF SMALL ANDMEDIUM-SIZED INDUSTRIES



CAUSES FOR FRAGMENTED ENTRIES:

• Low barriers to entry: lack of economies of scale

• Low entry barriers > constant entry by new companies

• Specialized customer needs - require small job lots of

products no room for a mass-production

• Diseconomies of scale



FRAGMENTED INDSUTRIES - STRATEGIES:

CHAINING

linked outlets form networks to achieve cost

leadership

FRANCHISING

for rapid growth (proven business concepts, reputation,management skills, and economies of scale)



FRAGMENTED INDSUTRIES - STRATEGIES:

HORIZONTAL MERGER

acquisition to obtain economies and growth

IT AND INTERNET

to develop new business models



CAUSES FOR FRAGMENTED ENTRIES:

• Low barriers to entry: lack of economies of scale

• Low entry barriers > constant entry by new companies

• Specialized customer needs - require small job lots of

products no room for a mass-production

• Diseconomies of scale



EMBRYONICINDUSTRIES



JUST BEGINNING TO DEVELOP WHEN TECHNOLOGICALINNOVATION CREATES NEW MARKET OR PRODUCT

OPPORTUNITIES.



GROWTHINDUSTRIES



WHEREIN DEMAND IS EXPANDING RAPIDLY AS MANY NEWCUSTOMERS ENTER THE MARKET.



REASONS FOR SLOW GROWTH IN MARKET DEMAND:

• Limited performance and poor quality of first

products

• Customer unfamiliarity

• Poor distribution channels

• Lack of complementary products

• High production costs



DEVELOPMENT OF MASS MARKETS:

TECHNOLOGICAL PROGRESS

product is easier to use; customer value is increased

DEVELOPMENT OF KEY COMPLEMENTARY PRODUCTS

REDUCTION OF PRODUCTION COSTSlower prices.



MARKET DEVELOPMENTAND CUSTOMER GROUPS



BOTH INNOVATORS AND EARLY ADOPTERS ENTER THE MARKETWHILE THE INDUSTRY IS IN ITS EMBRYONIC STATE.



MARKET SHARE OF DIFFERENTCUSTOMER SEGMENTS



MOST MARKET DEMAND AND INDUSTRY PROFITS ARISE DURINGTHE EARLY AND LATE MAJORITY CUSTOMER SEGMENTS.



INNOVATORS AND EARLY ADOPTERS

• Technologically sophisticated

•Tolerant of engineering imperfections

• Reached through specialized distribution channels

• Relatively few in number

• Not particularly price-sensitive



STRATEGICIMPLICATIONS



CROSSING THE CHASM (EARLY ADAPTERS & EARLY MAJORITY)

Identify correctly the needs of the first wave

of early majority users.

Alter the business model in response.

Alter the value chain and distribution channels

to reach the early majority.



CROSSING THE CHASM (EARLY ADAPTERS & EARLY MAJORITY)

Design the product to meet the needs of the

early majority so that the product can be

modified and produced or provided at low cost.

Anticipate the moves of competitors.



AMERICAN ONLINE (AOL) VS.PRODIGY COMMUNICATIONS



WHY PRODIGY FAILED:

Target Customers: Typical middle-class

Americans; not computer-oriented

They did not understand the full range of needs

customers were trying to satisfy by using the internet



STRATEGIES OF AOL

• Unlimited email

• Chatrooms

• Quickly redesigned its software to fit the

Microsoft Windows Systems



THE COMPANY CORRECTLY SENSED THE WAY CUSTOMER

NEEDS WERE CHANGING AND THEY PROVIDED A

DIFFERENTIATED PRODUCT THAT MET THOSE NEEDS.

STRATEGIC IMPLICATIONSOF GROWTH RATES



DIFFERENT MARKETS DEVELOP AT DIFFERENT RATES



NEW PRODUCT GROWTH-RATE ACCELERATION

• Use of mass media

•Low-cost mass production



FACTORS AFFECTING MARKET GROWTH RATES:

• Relative advantage

• Complexity

• Observability

•Compatibility

• Trialability



Navigating Through the LifeCycle to Maturity

2 Crucial Factors in Choosing anInvestment Strategy:

1. Competitive advantage of company’s

bus iness model 2. Stage of the industry l ife cyc le



EMBRYONIC STAGES:

IMPLICATIONSshare-building strategies

-Development of distinctive competencies and competitiveadvantage

-Weak companies requires capital to develop R&D andsales/service competencies



GROWTH STAGES:

IMPLICATIONSmaintain relative competitive position

-Strengthen business model to prepare to survive industryshakeout

-Requires investment to keep up with rapid growth of the

market



SHAKEOUT STAGE:

IMPLICATIONSincrease share during fierce competition

- Invest in share-increasing strategies at expense of weakcompetitors

- Weak companies should exit the industry during theharvest stage



MATURITY STAGE:

IMPLICATIONShold-and-maintain to defend business model

- Dominant companies want to reap the reward of priorinvestments

- Company’s investment depends on the level of competition

and source of the company’s competitive advantage



MATURE INDUSTRIES



SMALL NUMBER OF LARGE COMPANIES DOMINATE THEINDUSTRY AND DETERMINE THE NATURE OF COMPETITION



ABOUT MATURE INDUSTRIES:

BUSINESS LEVEL STRATEGY

Based on how established companies collectively

try to reduce strength of competition.

INTERDEPENDENT COMPANIES

Try to protect industry profitability.



SOME STRATEGIES

DETER ENTRY INTO INDUSTRYProduct Proliferation, Maintaining Excess Capacity , PriceCutting,

MANAGE INDUSTRY RIVALRYPrice signaling, Price Leadership, Capacity Control,Nonprice Competition



RESTAURANT INDUSTRY:PRODUCT PROLIFERATION



PRODUCT PROLIFERATION IN THERESTAURANT INDUSTRY

“FILLED SPACES”

•Difficult for

companies togain foothold

•Difficult for companies todifferentiate itself



FOUR NON-PRICE COMPETITIVE STRATEGIES



The Game Theory



Basic Principles

Look forward, reason backanticipate what rivals will do, then let it guide youDecision trees: think 3 steps ahead

Know your rivalput yourself in their shoes: what would you do?

Dominateuse the most advantageous strategypay-off matrix: if-then situations

Strategy dictates the structure of payoff



Decision Trees

Adidas gets D. Rose asan endorser

Adidas doesn’t get D. Rose

as an endorser

Probability: 80%

Probability: 20%

Profit: $200M

Profit: $100M

Profit: $400M



Payoff Matrix

5, 5 10, 0

0, 10 0, 0

Offer rewards

O f f e r r e

w a r d s

No rewards

N o r e w a r d s

C

I

T

I

B

A

NK

BDO



Declining Industries



MARKET DEMAND HAS PLATEAUED AND TOTAL MARKETSIZE IS DECREASING



Causes of intense competition

Speed of declinerapid spike in decrease vs gradual

High fixed costsfrom fixtures and furniture assets, etc

Height of exit barriers

when it’s hard to pull out of the industry

Commodity nature of productsif there are lots of substitutes



Possible Strategies

Leadershipseek to become the biggest player

Nichefocus on pockets of demand falling more slowly

Harvest

analyze expenses and income

Divestiture sell the business



STRATEGY SELECTION FOR DECLINING INDUSTRIES

group c report chapter 6 hill and jones

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