Full name: Phan Ngọc Thúy Vy

Student code: 1552445

Strategic Management

Individual Assignment 3

Case Illustrations:

1/ Illustration Capsule 5.1 discusses Amazon’s low-cost position in the electronic commerce industry. Based on
information provided in the capsule, explain how Amazon has built its low-cost advantage in the industry and
why a low-cost provider strategy is well suited to the industry.

Amazon's Business Model: The company's primary competitive advantages are the low prices that it is able to
offer, a wide variety of products on offer ranging from digital media to grocery, and convenience of shopping from
home or mobile devices with a "same day delivery" option. It also has a cost edge over brick and mortar retailers,
since it does not have to manage physical stores.

'Amazon’s consistently low prices on the highest viewed and best-selling items drive a perception among
consumers that Amazon has the best prices overall – even better than Walmart.'

Amazon was able to use the technology developed for Internet selling of books and other goods

Amazon’s Low Cost Structure

Average MC Retailer cost of Online Sales

Factory gatepricing/Direct supplier pickup

Optimize Inventory Control

Efficient Outbound fulfilment

Amazon’s cost of sale

Amazon has mobile shopping apps and has also ventured into making hardware, such as the Kindle tablets, and
plans to start making smartphones. The purpose of these hardware products is primarily to support the sale of
content that Amazon offers. This is one reason why margins are kept very low for hardware, and relatively high for
content.

Amazon provide greater value to customers by a combination of extraordinary convenience, instant access, and
comprehensive selection. These differences would have been sufficient to build a competitive advantage but Jeff
had one more idea. He decided to add a foremost valuable difference  —  Low Prices. Amazon would provide both
value and low price.

2/ Discuss the advantages Clinícas del Azúcar achieves from its focused low-cost provider strategy.

Through utilization of this type of strategy, CDA's cost structure allows it to keep its prices for diabetes treatment
very low, saving patients both time and money. These results have attracted investment from major funders
including Endeavor, Echoing Green, and the Clinton Global Initiative. As a result, CDA and oth- ers expect CDA to
grow from 5 clinics serving approxi- mately 5,000 patients to more than 50 clinics serving over 100,000 patients
throughout Mexico by 2020.

3/ How does Canada Goose’s choice of strategy differentiate it from other luxury outerwear companies in the
marketplace?
 - Canada Goose concentrates on a narrow buyer segment through the focused differentiation strategy,
selling high quality parkas that represent the heritage of the brand.
- Canada Goose has been able to differentiate itself from its competitors through smart decision-making in
regards to marketing the heritage of the brand, not outsourcing production, and by removing the private-
label and non-outerwear portion of the business.
- These decisions helped the business to be very successful in a highly competitive industry, attracting
upscale customers and great branding opportunities.
- The most distinctive difference to other luxury outerwear companies, is that Canada Goose only uses
down sourced from Canada which allows the company to have a strong branding position in regards to
providing warmth in temperatures of sub -25 Fahrenheit.
- The company has not only created a luxury fashion brand, but it has also outperformed its competitors by
providing the consumer with durability and effectiveness in extreme weather conditions.
- Through successful implementation of the focused differentiation strategy, Canada Goose set itself apart
from its competitors and has achieved a growth of over 4,000 percent over a time period of 10 years.

4/ Discuss how American Giant has been able to achieve its best-cost leadership status in the industry

He wanted it to have a more updated look with a tailored fit, and he wanted it produced cost-effectively so that it
could be sold at a great price.

He designed the sweat-shirt with the help of a former industrial engineer from Apple and an internationally
renowned pattern maker, rethinking every aspect of sweatshirt design and production along the way.

The result was a hoodie differentiated from others on the basis of extreme attention to fabric, fit, construction,
and durability.

American Giant disrupts the traditional, expensive distribution models by having no stores or resellers. Instead, it
sells directly to customers from its website, with free two-day shipping and returns.

Much of the company's growth comes from word of mouth and a strong public relations effort that promotes the
brand in magazines, newspapers, and key business-oriented television programs.

American Giant has a robust refer-a-friend of, and a credit to, current owners. Articles in popu- lar media
proclaiming its product "the greatest hoodie ever made" have made demand for its sweatshirts program that
offers a discount to friends skyrocket

5/ Did Bonobo’s pursue their Blue Ocean strategy in an industry with well-defined boundaries and competitive
rules or did they pioneer new industry? What was the fundamental nature of their competitive advantage?

Bonobos pioneered a new industry, he has focused on a new area of development to move to bluer waters in the
brick-and mortar space. The company's innovation is the Guide shop-a store where you can't actually buy anything
to take home. Instead, the Guideshop allows men to have a personalized shopping experience, where they can try
on clothing in any size or color, and then have it delivered the next day to their home or office.

The fundamental nature of their competitive advantage: A defender can introduce new features, add new models,
or broaden its product line to close off gaps and vacant niches to opportunity-seeking challengers. It can thwart
rivals' efforts to attack with a lower price by maintaining its own lineup of economy-priced options. It can
discourage buyers from trying competitors' brands by lengthening warranties, making early announcements about
impending new products or price changes, offering free training and support services, or providing coupons and
sample giveaways to buyers most prone to experiment
6/ Kaiser Permanente, a standout among managed health care systems, has become a model of how to deliver
good health care cost-effectively. Illustration Capsule 6.4 describes how Kaiser Permanente has made vertical
integration a central part of its strategy. What value chain segments has Kaiser Permanente chosen to enter and
perform internally? How has vertical integration aided the organization in building competitive advantage? Has
vertical integration strengthened its market position? Explain why or why not.

Vertical integration strategy: is one where firm expands its business into areas that are at different points of
production on the same production path or value chain system.

Vertical integration is of two types as follows:

Forward integration: It is a strategy whereby a firm gains ownership on its distributors.

Backward integration: It is a strategy in which firm gains ownership on its suppliers.

In the given case Company K choose vertical integration which enables him to deliver high-quality care to patients
at lower cost. Company K chose following value chain segment to enter and perform internally:

• It functions as a health insurance company.

• It provides health care services.

• It controls their prepaid financial models that help to incentivize the appropriate delivery of health care services.

• It diversified its activity by taking into account on health promotion, disease prevention and chronic disease
management.

• The company also concentrates on acquiring top talented physicians and surgeons who can treat the overall
health of the patients rather than individual health issues.

Vertical integration aided the organization to build competitive advantage in the following ways:

• It helped to improve the service to its customers.

• It provided more opportunities to differentiate by means of varied services offered less than one roof.

• It increased entry barriers for potential competitors.

• It facilitated investment in highly specialized assets.

• It provided opportunities for expansion of core competencies.

Vertical integration has strengthened the market position of Company K experienced a tremendous growth in its
revenue. Vertical integration helped the company to be a market leader that every other competitor wants to
imitate. Moreover, it increased entry barriers for potential competitors. This strategy enhanced its efficiency,
which helped the company to bag highest overall quality-of-care rating in California for consecutive 6 years.
Strategy Challenges:

1/ Use a strategic position and action evaluation matrix (SPACE) to objectively identify the appropriate strategic
posture (or position) for the company in your respective Case Study, which in turn helps to identify the
company’s generic competitive approaches.

Netflix’s Space Matrix:

Netflix’s appropriate strategic posture: Committing to remain at the top of the streaming business and hence has
structures that would keep it at the top. Changing its strategies to ensure that its customers are satisfied to
prevent competitors from eating on to its customer base. Its main strategy is to grow its streaming subscription
business locally and globally. Netflix aims to achieve this through improving customer experience, by expanding
streaming content, enhancing the user interface, and widening the streaming business to all feasible internet-
connected devices (Ani et al, 2016).

Netflix’s generic strategy ensures that its business model works through suitable competitive advantages. The
company’s business design and competitive position counteracts external forces involving Walmart, Amazon,
Google, Apple, HBO, Disney, and other firms. Netflix’s intensive growth strategies promote business development
while these competitive forces are addressed. Alignment of these growth strategies with the generic strategy and
business model ensures the operational effectiveness and benefits of the corporation’s competitive advantages.
 2/ Use the internal-external (IE) matrix and Ansoff matrix to define the appropriate strategic thrust for the
company, encompassing intensive growth strategies and strategic actions.

Ansoff Matrix of Netflix:

Market penetration Product Development

New releases
New subcribers due to interesting products
Aggressive international expansion
Push to reach 200 countries by the end of next year
Market development
Investigate optimum markets in North America (i.e:
Canada, and adjacent countries such as Mexico),
moving on to Argentina, Chile and Brazil and later – UK
Australasia, and India (Bollywood factor)
Netflix development of shows for streaming services
- Orange is the new black
- Narcos
- Black Mirror
Diversification
Netflix has concentrated on diversification rather than
focusing on one platform. And some programs
broadcasted in the Netflix are related to very
important Biographical real stories, Historical movies,
Inspirational stories etc.

Market Penetration is the main intensive growth strategy of Netflix Inc. Market Development supports Netflix’s
organizational development, but only as a secondary intensive growth strategy. Product Development is another
secondary intensive growth strategy that supports Netflix’s development and expansion. Diversification is rarely
applied to grow Netflix’s operations, arguably because of the high risks involved in this strategic direction.

3/ Use a quantitative strategic planning matrix (QSPM) to objectively evaluate the generic competitive
approaches, intensive growth strategies and strategic actions, and generate strategy options that will address
the strategic issues and support your proposed objectives for the company in your respective Case Study

Quantitative strategic planning matrix of Netflix

No. Opportunities Weight AS TA S AS TA S

1. 147 million people in the United States watch online videos. 0.08 3 0.24 1 0.08
2. Digital distribution of media is growing at a rate of 30% a year 0.06 4 0.24 3 0.18
3. International markets account for over 50% of spending in US filmed 0.07 1 0.07 4 0.28
entertainment.
4. US TV market accounts for less than 15% of the world’s TV households. 0.05 2 0.10 4 0.20
5. China’s box office annual growth rate continues to grow over 10% a year. 0.02 1 0.02 4 0.08
6. Rivals such as Blockbuster are struggling with their business models. 0.04 1 0.04 2 0.08
7. Consumers spent over $20 billion on home video purchases in 2010. 0.05 2 0.10 3 0.15
8. More people know English now than ever before. 0.03 1 0.03 3 0.09
9. High price of an outing at the movie theater. 0.04 3 0.12 2 0.08
10. Weak US dollar makes global markets more attractive. 0.03 1 0.03 3 0.09
No. Threats Weight AS TA S AS TA S
1. Poor global economy has reduced personal spending. 0.04 2 0.08 1 0.04
2. Youtube owns over 75% of the multimedia web market share. 0.10 0 0.00 0 0.00
3. Time Warner Cable’s movies on demand. 0.08 3 0.24 1 0.08
4. Hulu, and ad based streamer provides TV shows and movies for free. 0.10 0 0.00 0 0.00
5. DVRs are in 40% of US homes as of 2011. 0.03 3 0.09 1 0.03
6. Barriers to entry are low as startups can be launched for relatively low costs. 0.05 0 0.00 0 0.00
7. By law, Netflix cannot release new DVDs until 28 days after retair release. 0.03 0 0.00 0 0.00
8. Increase in US postal fees would reduce profit margins. 0.03 0 0.00 0 0.00
9. Infringements on Netflix patents, and other proprietary assets by decrease 0.04 0 0.00 0 0.00
 Netflix brand value.
10. Netflix is the object of complaints regarding collusion with Wal-Mart 0.03 0 0.00 0 0.00

4/ Propose, with compelling validated critical reasoning, changes to the current strategy that the company
could take to strengthen its competitive position, sustain competitive advantage and improve performance.

I take the view that Netflix is spending so much on content that it is eating up their profits. Though they have
already increased prices, they can not compete with Hollywood's Big 6 (who also happens to control the U.S. TV
production industry as well) in terms of content for US audiences. As Hollywood's Big 6 (i.e. Disney-Fox, Time
Warner's HBO, Hulu) focus on streaming they can take the US streaming market from Netflix. Though Netflix is
spending big money to get big name Hollywood talent (eg ABC's Shonda Rhines, Fox's Ryan Murphy), dependence
on Hollywood for content is unsustainable.

Netflix has shown they have the ability to be competitive by switching their model from mainly films to films and
television, with an emphasis on their own original shows, like House of Cards and Cuckoo. By being flexible in this
way, they were able to weather losing contracts for a lot of film content they previously had available. Assuming
they can continue to stay flexible like that and respond to whatever unpredictable challenges the market brings,
they will stay competitive.