M A R C U S
4 -2 4 TIMING AND POSITIONING Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -3 Chapter Learning Objectives Understanding strategy as a series of moves and countermoves. Being aware of the importance of timing in making these moves. Gaining an elementary comprehension of game theory and its contribution to strategy. Being aware of four generic positions: (I) low cost to a narrow group; (ii) premium product to a narrow group; (iii) low cost to a broad group; and (iv) premium product to a broad group. Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -4 Chapter Learning Objectives (Continued) Understanding the increasing importance of a best-value position, which combines low cost and differentiation. Recognizing examples of company repositioning. Explaining strategic groups and the variety of ways a product or service can be segmented. Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -5 Ex. 4. 1 Timing Matters Advantages for Early Movers Head start on competitors Large percent of valuable early adopters Customer loyalty Mc. Graw-Hill/Irwin Late Starters Reverse engineering Less risk Lower development costs Fewer mistakes © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -6 Ex. 4. 2 Innovators Versus Followers (Selected) Product Innovator Follower Winner 35 mm camera Commercial jets Ballpoint pen Light beer CAT scanner Float glass Instant photos Fiber optics VCRs Leica De Havilland Reynolds Rheingold EMI Pilkington Polaroid Corning Sony Canon Boeing/Airbus Bic Miller GE Corning Kodak Many Matsushita Followers Follower Innovator Follower Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -7 Ex. 4. 3 Competitive Landscape Fundamental changes • Globalization • Deregulation • Technological advances • Importance of knowledge Keys to Success • Flexibility • Innovation • Speed Mc. Graw-Hill/Irwin RELENTLESS & UNCEASING PACE Blurring of traditional industry boundaries, e. g. • Computers • Telecoms A“Dynamic Capability” © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -8 Ex. 4. 4 Simultaneous Game: Payoff Matrix My Company Old product Old Product Old and New Product $100/ $100 $250/ $-30 $ -30/ $250 $0/ $0 My Rival Old and New Product Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -9 Ex. 4. 5 Prisoner’s Dilemma: Payoff Matrix Prisoner 1 Quiet Squeal 1 year sentence/ 1 year sentence free 6 year sentence Prisoner 2 Squeal Mc. Graw-Hill/Irwin 6 year sentence/ free 3 year sentence/ 3 year sentence © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -10 Ex. 4. 6 Sequential Game Decision Tree My Company old & new (1 st) My Rival old 01 old & new (1 st) 02 My Company old 05 Mc. Graw-Hill/Irwin old 03 old & old st ) new (1 06 07 old & new (2 nd) 04 old & new (2 nd) 08 © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -11 Learning From Game Theory • Identify all the competitors in a game • Try to understand all of their options • Try to compute the payoffs from the various decisions that can be made by combining options • Try to understand the sequence of possible moves Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -12 Arguments for Being a First Mover The lags in time it will take a second mover to catch up, during which the first mover can earn substantial profits The ability during these lags to erect learning and scale barriers to entry The ability to establish a reputation and to erect switching costs that make it hard for customers to abandon the firm The preemption of scarce assets and resources, such as raw materials and distribution channels, which a second mover cannot obtain Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -13 Ex. 4. 8 Porter’s Sources of Competitive Advantage COST ADVANTAGE Similar product at low cost COMPETITIVE ADVANTAGE DIFFERENTIATION ADVANTAGE Mc. Graw-Hill/Irwin Unique product at premium price © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -14 Ex. 4. 9 Porter’s Generic Strategies Narrow (One Group of Customers) Low Cost Differentiated Mc. Graw-Hill/Irwin Broad (Many kinds of Customers) Focused Cost Leadership Broad Cost Leadership Focused Differentiation Broad Differentiation © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -15 Ex. 4. 10 Mc. Graw-Hill/Irwin Positioning in Retail © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -16 Ex. 4. 12 Low-Cost and Differentiation Strategies: Resources and Capabilities Generic Strategy Cost Leadership Differentiation Scale-efficient plants Access to capital Control of overheads and R&D Avoidance of marginal customer accounts Branding/brand advertg. Custom design Special services Unique quality features Resources Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -17 Ex. 4. 12 (Continued) Generic Strategy Cost Leadership Differentiation Design for manufacturing skills Process engineering skills Frequent reports Tight cost control Specialization of jobs/functions Marketing product Engineering creativity Product R&D Qual. measure/incentives Strong cross-func. coord. Capabilities Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -18 Ex. 4. 13 Best Buy: From a Differentiated to a Best-Value Strategy Narrow Low-Cost Narrow Differentiated Mc. Graw-Hill/Irwin Best Buy superstore format Best Buy – ‘Sound of Music” specialty store Best Buy – Mass market commodities plus specialty items/myths (a hybrid) Best Value © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -19 Ex. 4. 14 Schwab and Morgan Stanley: From Polar Opposites to the Middle Low-Cost Schwab- Responding to threat after emergence of Online brokers The Middle Differentiated Mc. Graw-Hill/Irwin Morgan Stanley – Responding to opportunity after purchase of Dean Witter © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -20 Ex. 4. 15 Ivory: From a Differentiated to a Low-Cost Strategy Low-Cost Ivory – After Dial and Dove Challenges Differentiated Ivory – Before Dial and Dove Challenges Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
4 -21 Ex. 4. 16 Forest Labs Changes Strategic Groups in the Pharmaceutical Industry Low-Priced Generics Forest Labs – Before Celexa competes with: Barr Labs, Biovall, Mylan Labs, and Watson Pharmaceuticals High-Priced, Patented Drugs Based on a High Level of R&D Forest Labs – After Celexa competes with: Pfizer, Merck, Abbot Labs, Glaxo. Smith. Kline, and Eli Lilly Mc. Graw-Hill/Irwin © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.