Rothaermel Exercise 2
Jesse N. Reed
Liberty University
6.1. What are some drawbacks and risks to a broad generic business strategy?
To a focused strategy?
There are two different generic business strategies, a differentiation strategy and a
cost leadership strategy. These strategies are called generic because they can be
used by any organization. The drawback that exists in these strategies is inherent
trade-offs in different strategic positions.
A differentiation strategy tries to create higher value for customers than what
competitors can create by delivering products or services with special features while
keeping the cost the same. This allows the firm to charge higher prices to their
customers. The problem with this strategy is that you have to hope that the
additional features warrant the increase in cost. In addition this is a competitive
advantage that is easy to lose as competing companies will surely add or improve
upon the special features you offer.
A cost leadership strategy tries to offer the same value for customers by delivering
products or services at a lower cost than competitors enabling the firm to lower
prices to customers. The problem with this strategy is that you can only go so low
and when competitors discover ways to drop their prices you will no longer have an
advantage while remaining profitable.
The focused versions of the two business strategies, focused cost-leadership strategy
and focused differentiation strategy, are essentially the same as the broad generic
strategies except that the competitive scope is narrower.
A problem I see with the focused strategies is that while it is great at profiting on its
niche, it doesn’t look at other ways or profits and thus could be losing out on
substantial growth.
6.3. Create examples of value chains for three firms: one using cost leadership,
another using differentiation, and a third using value innovation business-
level strategy.
The cost leadership procedure is a methodology organizations take where the
objective is to be the most minimal cost maker or supplier or one or more items at a
specific level of value.
Cost Leadership
There is a store here in Germany call Primark. It is a clothing and household good
store with rock bottom prices. Their products are cheaper than their competitors
and thus give them a competitive advantage through cost leadership.
Inbound logistics- Primark had a very effective supply chain sourcing their products
directly from factories in China, India, Turkey, Bangladesh and other countries.
Operations- Primark has over 250 stores across Europe. They compete primarily
with other retailers such as H&M and other similar retailers that are less familiar in
the United States. They target most customers 35 and under.
Outbound logistics- Primark does not offer online shopping, all transactions occur in
one of its over 250 stores.
Marketing and Sales- Primark does not advertise on TV, magazines, billboards or
other traditional yet expensive methods. They are able to save on costs through
word of mouth marketing. They are known for their inexpensive prices and profit off
this common knowledge.
Service- Primark is never heavily manned; most employees are seen working
register to handle long lines. Fewer employees are working the floor mainly to keep
clothes tidy and presentable. This also adds to money saved.
Differentiation
A company that emphasizes product differentiation would focus on increasing the
value of their products by adding features. I will use Apple as an example.
Inbound logistics: Apple has a large number of suppliers and reduces costs by
forcing them to compete with each other for their business. Most of Apples products
are assembled in China allowing Apple to keep costs low while designing innovative
new features in the U.S to increase value.
Operations: Apple 90, 000 employees. Apple has received a lot of negative press over
the sourcing of some of its vital components. Still most operations take place in Asia
where costs are lower.
Outbound logistics: Apple has many outlets for product distribution. Apple has
online sales through their own website but also through many electronics retailers
across the world. The same applies for in store purchases. You can buy Apple
products through a physical apple store as well as over a hundred other retail
outlets.
Marketing and sales: Apples marketing budget of USD 1.1 billion is spent on
utilization of marketing communication mix that integrates advertising, public
relations, events and experiences and direct selling. No single customer accounted
for more than 10% of total sales for 2014, 2013 or 2012.
Service: Apple is famous for exceptional quality of customer services during all three
stages: pre-purchase, during the purchase and post-purchase. The company
maintains Apple experience centers in major cities around the globe where anyone
can use its products to become convinced about the quality.
Value innovation business-level strategy (VIBLS).
VIBLS combines differentiation and cost-leadership activities to reconcile the
inherent trade-offs in those two distinct strategic positions.
An example of this concept is a Belgian movie theater called Kinepolis. Kinepolis
innovated their movie going experience that set them apart from the competition. A
typical theater has 100 seats and minimal legroom for viewers to pass through the
aisle without interrupting those already seated. A Kinepolis theater has 700 seats
oversized chairs with ample legroom. Screens measure up to 29 meters by ten
meters and rest on their own foundations so that sound vibrations are not
transmitted among screens. Many viewing rooms have 70-millimeter projection
equipment and state-of-the-art sound equipment. prime, city-center real estate by
locating Kinepolis off the ring road circling Brussels, 15 minutes from downtown.
Patrons park for free in large, well-lit lots.
This radically superior cinema experience can be offered without increasing ticket
prices because the concept of the megaplex results in one of the lowest cost
structures in the industry. The average cost to build a seat at Kinepolis is about
70,000 Belgian francs, less than half the industry’s average in Brussels.
The reason why is because the megaplex’s location outside the city is cheaper; its
size gives it economies in purchasing, more leverage with film distributors, and
better overall margins; and with 25 screens served by a central ticketing and lobby
area, Kinepolis achieves economies in personnel and overhead. Furthermore, the
company spends very little on advertising because its value innovation generates a
lot of word-of-mouth praise (Mauborgne, 2014).
Select an industry and consider how the industry life cycle has affected
business strategy for the firms in that industry over time. Detail your answer
based on each stage: introduction, growth, shakeout, maturity, and decline.
Introduction
The advent of private newspaper in Botswana was not until the 1980s, following the
example set by the government at independence when it started the then Setswana
state-owned, Daily News. In the 1980s there were only four major newspapers
dominating the market. Daily News with a circulation of over 50000, Botswana
Guardian and Mmegi with 25000 and Botswana Gazette at 20 000 copies a week
(Media Law in Botswana). The market was not saturated and a demand for news
from other sources other than the government media was growing (Malobela,
2016).
Growth
At this stage entry barriers were very low. New entrants, threat of new entrants and
being substituted, bargaining power of supplier, industry rivalry booming; all this
was an indication that the industry had started to grow. From just four market
leaders to fifteen players in a space of 15 years was a sign that this was an attractive,
profitable industry and everyone wanted a piece of the pie. New technology, new
government financing policies and the upscaling of Botswana’s economy from low-
income to middle-income were all macro environmental factors contributing
towards the growth of this industry (Malobela, 2016).
Shakeout
The market became saturated. Advanced newspapers introduced more products
into the market as a way to defend their position. For example, Botswana Guardian
created a more relaxed newspaper that offered human interest stories as compared
to Botswana Guardian’s serious, business/politics news. This was a way to increase
revenue within the whole company, but at the same time this was just adding to the
already saturated market (Malobela, 2016).
Maturity
The market leaders continued to enjoy profits. Their brands and positioning won the
case for them when it came to consumers. The readership was not increasing or
declining, but the rate at which the papers converted to profits was stagnant. At this
stage, substitution had happened in the form of online newspapers, mobile
applications and social media. The possibility of attracting new customers was
becoming harder because of the technology (Malobela, 2016).
Decline
By 2011 the newspaper industry reached the decline stage. Revenue and sales
started to tumble. Circulation figures did not improve. Consumers stopped buying
newspapers. They turned to social media for news (Malobela, 2016).
Describe a firm you think has been highly innovative. Which of the four types
of innovation—radical, incremental, disruptive, or architectural—did it use?
Did the firm use different types over time?
When I think of being highly innovative I think of Tesla. Primarily with their line of
electric cars that they are most famous for, but also for their battery fueled power
plants and home battery/solar panel systems. Tesla has been a disruptive force. It
has invaded the automobile market as well as the energy market. Some of the
technology existed so they were partly architectural but much of it was new and
innovative. The concept definitely started off radical which is partly why is was so
disruptive however it is gradually growing more incremental as it builds upon it’s
technologies and improves them.
7.4. Think of other low-technology innovations that are/were novel, useful,
and successfully implemented so that the innovating firm gained a competitive
advantage. Find information about the entrepreneurial story behind the
innovation.
Bubble wrap, the addictive plastic packaging material that kids fight over in order to
enjoy the satisfying squeeze and annoying pop that drives parents crazy, was
invented by Al Fielding and Swiss inventor Marc Chavannes. Many people don’t
know that it was originally designed as wallpaper for homes. As you already guessed
this use did not go over well and the inventors were left stuck trying to find a new
purpose for this material. Later they tried with minimal success to use bubblewrap
as an insulating material for greenhouses. It wasn’t until 1959, when IBM had
announced their new 1401 variable word length computer, that Fielding and
Chavannes had an idea. They pitched bubble wrap as a packaging material for the
fragile new technologies, and IBM agreed to give it a try. From there, bubble wrap
found new purpose. Today bubble wrap has grown to annual sales of $4 billion, with
a net profit of around $255 million.
8.1. When Walmart decided to incorporate grocery stores into some locations
and created “supercenters,” was this business-level strategy of differentiation
or a corporate strategy of diversification? Why? Explain your answer.
According to Rothaemel in Strategic Management 3e, the goal of a differentiation
strategy is to add unique features that will increase the perceived value of goods and
services in the minds of consumers so they are willing to pay a higher price.
A firm that engages in diversification increases the variety of products and services
it offers or markets and the geographic regions in which it competes.
Wal-Mart did not change it’s product it diversified its offerings to attract more
business.
9.1. The chapter identifies three governing mechanisms for strategic alliances:
non-equity, equity, and joint venture. List the benefits and downsides for each
of these mechanisms.
A non-equity alliance is a contract dealing with supply, licensing and distribution
agreements. They are the most common type of alliance due to how fast and flexible
they are. They are easy to initiate as well as terminate. The cons are that they lack
trust and commitment and the tie created is weak.
An equity alliance is an alliance created by purchasing an equity stake or corporate
venture capital investment. Because you are invested the tie is stronger and trust
and commitment can emerge. It also opens a window into new technology. The cons
are that they are less flexible, slower and can entail significant investments.
A joint venture alliance is the least common alliance that is the creation of a new
entity by two or more parent firms. It creates the strongest tie, trust and
commitment is likely to emerge the cons are that is can entail long negotiations and
significant investments, long term solution and JV managers have two bosses to
report to.
10.1. Multinational enterprises (MNEs) have an impact far beyond their firm
boundaries. Assume you are working for a small firm that supplies a product
or service to an MNE. How might your relationship change as the MNE moves
from Globalization 2.0 to Globalization 3.0 operations?
There would definitely be an increase in the amount of goods need to be supplied.
But in addition to the amount you could possibly see changes in the types of goods,
areas delivered as well as language barriers on the packaging. The MNEs would have
more locations across the globe, which would increase the difficulty in logistics,
shipping times as well as possible customs issues. As far as the relationship, it is
possible that more competition could step in, however it is also an opportunity to
show your commitment and increase your trust by helping them expand across the
globe.
References
11 Successful Products Originally Invented for Something Else. (2015, October 08).
Retrieved January 28, 2018, from http://mentalfloss.com/article/57861/11-
successful-products-originally-invented-something-else
Malobela, N. (2016, July 6). Mature and Declining Markets - Industry Life Cycle of
Newspapers. Retrieved January 28, 2018, from
https://www.linkedin.com/pulse/mature-declining-markets-industry-life-cycle-
part-1-ngoni-malobela/
Mauborgne, W. C. (2014, July 31). Value Innovation: The Strategic Logic of High
Growth. Retrieved January 28, 2018, from https://hbr.org/2004/07/value-
innovation-the-strategic-logic-of-high-growth
