Strategy identification of Tiktok and Instagram
“What are the strategies of the two firms? Are they similar or different – and how?
a.
To answer this question, first identify the firms’ current business level strategies
(Chapter 5). For a multi-business firm, first identify the corporate level strategy (Chapter 6), and then explain the business level strategy (Chapter 5) of the particular business unit you focus your analysis on. If the firm is only competing in this industry, then you can start with its international strategy (Chapter 7).
b.
Identify the key strategic issues (problems) with each firm’s current strategy.
c.
Overall, what aspects of their strategies help to explain their performance differences?
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PowerPoint Presentation Business-Level Strategy: Creating and Sustaining Competitive Advantages Chapter Five McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Strategy.. 5-* “All men can see these tactics whereby I conquer but what none can see is the strategy out of which victory evolves.” - Sun Tzu Learning Objectives Section 1: Porter’s framework of generic strategies Pitfalls to avoid Combining generic strategies Section 2: Industry life cycles Implications for value-creating activities Turnaround strategies 5-* Generic Strategies 5-* No advantage over rivals Advantage over rivals Low-cost Differentiation Produce an essentially equivalent product at a lower cost Produce a differentiated product and charge sufficiently higher prices to more than off-set the added costs of differentiation Example: Harley Davidson, Rolex Example: Wal-Mart, Timex Generic Strategies Low-cost Differentiation Strategic advantage Strategic target Narrow (i.e., particular segment only) Broad (i.e., industry-wide) Broad differentiation Focused differentiation Focused cost leadership Broad low-cost leadership Generic Strategies 5-* Examples Benefits Low-cost leadership Differentiation Earn higher margins by maintaining price parity - Earn higher margins by raising prices over competitors - Capture market share by offering lower-price or - Capture market share by offering higher quality at same price or Why Cost Leadership Matters It allows the cost leader to have average total costs that are less than its competitors in the industry In a market where competitive pressures do not allow one firm to charge higher prices than other firms, the firm with a cost advantage will be able to generate more value than competitors BUT cost leadership is not necessarily synonymous with low price. It can enjoy a wider margin than competitors. Firms in the same market have a strong incentive not to compete on price with the low cost leader 5-* * Overall Cost Leadership Tight set of interrelated tactics that includes: Aggressive construction of efficient-scale facilities Vigorous pursuit of cost reductions from experience Tight cost and overhead control Avoidance of marginal customer accounts Cost minimization in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising 5-* Sources / Drivers of Cost Advantage Economies of Scale: Average cost per unit falls as quantity increases until the minimum efficient scale is reached With higher production volume firms can: spread overhead costs across more units produced.. use specialized machinery.. exercise purchasing power (bargaining power over suppliers).. Economies of scale is a cost advantage because competitors may not be able to match the scale due to capital requirements (barriers to entry) Learning curve A firm gets more efficient at a process with experience The more complicated / technical the process, the greater the experience advantage 5-* Economies of Scale, Learning Curve.. 5-* Sources / Drivers of Cost Advantage 5-* Economies of Scope: If a firm produces two or more products and can share resources among these products (e.g., share manufacturing machines) – thereby lowering the costs of each product – it benefits from economies of scope Example: Apple share significant resources (i.e. technology, software, hardware) while producing iPhones & iPads, and more.. New entrants may also try to introduce new production technology (subject to different economics) or new product designs to challenge incumbents Example: To beat the incumbent Xerox, new entrant Canon redesigned the photocopier, resulting in fewer parts and easier assembly. New design saved Canon costs, allowing it to make higher margins and gain market share at the expense of Xerox. Other examples: Uber, Redbox, etc. Cost Leadership: Improving Competitive Position 5-* Cost Leadership strategy improves competition vis a vis Porter’s Five Forces: Protects a firm against rivalry from competitors Protects a firm against powerful buyers Provides more flexibility to cope with demands from powerful suppliers for input cost increases Provides substantial entry barriers from economies of scale and cost advantages Puts the firm in a favorable position with respect to substitute products (improves p/p ratio) Pitfalls of Overall Cost Leadership Strategies Threats: New technology Learning or imitation by competitors Competitors may lower costs Too low-quality (lack of parity in differentiation) Inability to see changes (focus on cost limits necessary changes in product mix) Choices: Cost leader does not try to be the industry innovator Positions products to appeal “average” customer Overriding goal is to increase efficiency and lower costs relative to rivals 5-* Differentiation Strategy Increase the perceived value of the focal firm’s products and services relative to competition Create products/services that are unique and valued Non-price attributes for which customers will pay a premium Forms of differentiation: Prestige or brand image; Technology; Innovation; Features; Customer service; Dealer network, etc. Value chain activities Firms achieve and sustain differentiation and above-average profits when price premiums exceed extra costs of being unique Successful differentiation requires integration with all parts of a firm’s value chain An important aspect of differentiation is speed or quick response http://www.youtube.com/watch?v=-X9ZT0iLcOM Sources / Drivers of Differentiation 5-* Key Drivers Purpose Premium brand image Customization Unique styling Speed More convenient access Unusually high-quality To drive up customer’s willingness to pay and generate demand sufficient to: Recoup added costs and Generate enough profits to make strategy worthwhile Differentiation: Improving Competitive Position Differentiation strategy improves competition vis a vis Porter’s Five Forces: Creates higher entry barriers due to customer loyalty Provides higher margins that enable the firm to deal with supplier power (also prestige effect) Establishes customer loyalty and hence less threat from substitutes Reduces buyer power because buyers lack suitable alternative Reduces the possibility of head-to-head rivalry (customer loyalty, less price sensitive customers, high switching costs..) 5-* Potential Pitfalls of Differentiation Strategies Uniqueness that is not valuable Too much differentiation Too high a price premium Differentiation that is easily imitated Dilution of brand identification through product-line extensions Perceptions of differentiation may vary between buyers and sellers Underestimating the cost of differentiation Failure to increase buyer’s willingness to pay premium price 5-* * Would Your Shave be better with a $100,000 Razor? How much are you willing to pay for a stylish razor? More than a new car? As much as a college education? That’s what Oregon-based firm Zafirro is asking buyers of its new Zafirro Iridium to pay—$100,000 to be exact. The handle of the razor is hand crafted and made with iridium and platinum. The blade is made of solid white sapphire. Zafirro asserts that the edge is “5,000 times thinner than a human hair.” But for the $100K, you don’t just get the razor. It includes cleaning and servicing of the razor for ten years. Buyers better act fast. Zafirro plans to manufacture and sell only 99 of the Iridium razors. However, if the Iridium is a bit out of your price range, Zafirro also offers some more affordable razor options. The Zafirro Gold is only $18,000 while the Zafirro Platinum is a “very affordable” $2,000. Source: Tschorn, A. 2011. All the rage: Zafirro debuts a $100,000 Iridium Razor with sapphire blades. Latimesblogs.latimes.com: np; zafirro.com. Extreme Differentiation? http://live.wsj.com/video/the-six-figure-shave-iridium-100000-razor/EB1A8DDB-A8B1-450A-87B1-2F09E1CA00A7.html#!EB1A8DDB-A8B1-450A-87B1-2F09E1CA00A7 Discussion Question 1: Do you think these offerings will be successful? Why? Why not? Discussion Question 2: In general, what are the pros and cons of marketing high-end luxury products? Are strategies based on the sale of such products sustainable? Discussion Question 3: What are some examples of other companies that have successfully implemented a strategy of extreme differentiation? * QUESTION High product differentiation is generally accompanied by Higher market share Decreased emphasis on competition based on price Higher profit margins thanks to lower costs Significant economies of scale 5-* * B. Decreased emphasis on competition based on price Porsche: Niche Differentiator or Broad? Up next: Lamborghini? 5-* Lamborghini looks to expand.. 5-* Question 1: Who are Lamborghini’s target market? What is their main selling point? Question 2: Does it make sense for Lamborghini to come out with a sport-utility vehicle? In general, does Lamborghini require a growth strategy in order to survive and prosper? Is "grow or die" the right strategy maxim for Lamborghini to follow? Question 3: Who owns the Lamborghini brand now? Where are the synergies? What does Lamborghini contribute to its owner? What does this big owner contribute to Lamborghini? http://www.wsj.com/article_email/SB10001424052702304899704579388861799022236-lMyQjAxMTA1MDIwNjEyNDYyWj * Luxury carmakers expand model lineup.. 5-* Cost Leadership or Differentiation? Do they have to choose? Question 1: What are city cars? Who wants them and why are they especially adapted to European conditions? How much do they cost and how high are the profit margins? Question 2: According to the article, what are the components of the business model for making city cars profitably? How can automakers overcome the commodity aspect of these vehicles? Question 3: Thinking in the longer term, what do you think the key is to not only making short-term profit, but also creating a longer-term competitive advantage and a sustainable profit stream? How can automakers transform commodity buyers into profitable customers? Question 4: Highlight the issues raised in the article that relates to the concepts we discuss in class. (generic strategies, external and internal analysis, etc). Be specific, and take notes on the print-outs. 5-* Opposite trend in luxury: http://www.bloomberg.com/news/articles/2016-02-25/why-mercedes-is-halting-robots-reign-on-the-production-line * Hybrid Strategies 5-* Integrating overall low cost and differentiation Primary benefit: the difficulty it poses for competitors to duplicate or imitate strategy Goal of combination strategy is to provide unique value in an efficient manner (not easy) https://www.youtube.com/watch?v=I07xDdFMdgw * Hybrid Strategies Automated and flexible manufacturing systems Exploiting the profit pool concept for competitive advantage Using advanced information technology and different business models Coordinating the value chain in a way to manage costs in certain activities while differentiating in others Watch out: Avoid “being stuck in the middle” – attaining neither strategy. Do not underestimate the challenges and expenses associated with coordinating value chain activities in the value chain Do not miscalculate sources of revenue & profit pools in the industry. 5-* * B - C In-store amenities (child care, Swedish Cafes) Theme park like stores One-stop shopping Modern-minimalist looking trendy products, Scandinavian design Self-service shopping (distribution, assembly) Low reliance on staff Unique experience self-service purchasing Distribution concept Flat Pack (Large space) 5-* Industry Life-Cycle Stages: Strategic Implications Life cycle of an industry Introduction Growth Maturity Decline Emphasis on strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle Industry Life-Cycle Strategies Introduction Stage: Products are unfamiliar to consumers Market segments not well defined Product features not clearly specified Competition tends to be limited Strategies: Develop product and get users to try it Generate exposure so product becomes “standard” Growth Stage: Characterized by strong increases in sales Attractive to potential competitors Primary key to success is to build consumer preferences for specific brands Strategies: Brand recognition Differentiated products Financial resources to support value-chain activities Industry Life-Cycle Strategies Maturity stage: Aggregate industry demand slows Market becomes saturated, few new adopters Direct competition becomes predominant Marginal competitors begin to exit Strategies Efficient manufacturing operations and process engineering Low costs (customers become price sensitive) Decline Stage: Industry