Growth Strategies

Meeting 10
 Perceived Value Pricing

Low Premium
High Relative Value Position
alue
a l V
u
Price ($) Eq
High
Relative Value
Discount
Low Position
Low High
Perceived Performance
 Relative Value Drives Market Share
Low Value
Sales Lag
Inventory Builds Premium
High Discount Price Position
alue
a l V
u
Price ($) Eq
High Value
Sales Build
Discount Stockouts
Low Position Shortage Pricing
Low High
Perceived Performance
 Measure Market Price
Sensitivity
Differentiated
Market

Relative
Price

Commodity
Market

Relative Performance
Reading_M9.pdf

Price-Performance Calculations

QuickTime™ and a
decompressor
are needed to see this picture.
 Competitor Rankings 7=Great 1= Poor
Relative
Attributes Importanc A B C D
e
1 Little wait 30.00% 6 4 5 3
2 Will run Pr 40.00% 4 4 6 3
3 Not Obsol 20.00% 6 4 3 4
4 Serv 10.00% 7 5 3 0
5
6

Total = 100.00%
Weighted Ratings
Competitor Rankings 7=Great 1= Poor
Relative
Attributes Importanc A B C D
e
1 Little wait 0.3 1.8 1.2 1.5 0.9
2 Will run Pr 0.4 1.6 1.6 2.4 1.2
3 Not Obsol 0.2 1.2 0.8 0.6 0.8
4 Serv 0.1 0.7 0.5 0.3 0
5 0 0 0 0 0
6 0 0 0 0 0

Relative Performance = 5.3 4.1 4.8 2.9

Enter Price= 0 0 0 0
Expected Price 0 0 0 0
 Price - Performance
Competitor Price Performance

A 1295 5.3

B 1495 4.1

C 995 4.8

D 1149 2.9
 Price Performance

1500
1400
1300
Price

1200
1100
1000
900
1 2 3 4 5 6 7
Performance
 Goal = Customer Satisfaction
• Product and Price = Performance
• Price: Customer wants at bottom of range
• MTBF: Customer wants at top of range
• Age: Customer wants near Ideal
• Positioning: Customer wants near ideal
• Satisfaction Index = Total Performance *
Awareness Adjustment * Accessibility Adjustment
• Awareness Adjustment = TotalPerf * (1-(100% -Awareness%)/2)li
• Accessibility Adjustment = Sat*AwAdj* (1-(100-Asses))
Modes of Growth

Strategic
Acquisitions
Alliances

Internal
Development

Product Diversification
Development

Market Market
Penetration Development
 Growth Options

New
Product
Development Diversification

Products

Market Market
Penetration Development

Existing

Existing New

Markets
Market Penetration Process
Advertising Fuller Utilization Intensive
Of Excess Capacity Distribution

Economies
Of Scale

Lower
Prices

Increase in
Market Share

Lower Variable
Operating Costs

Increase in
Profit Margin

Investment in Plant
And Equipment
 Market Development

International expansion using existing products.

Existing Utilization of any additional excess capacity in

Products international markets.

Creating economies of scale resulting from developing

new markets.

New Markets

Examples: (1) Gillette’s expansion into international wet shaving market.

(2) Sony’s expansion into European and North American electronics markets.
 Market Development Strategy

High
Do Not
?
Invest

Competitors
Strength
?

Develop
Market
Low
Low High
Market Attractiveness
 Product Development

Meeting emerging needs of customers

New Obtain economies of scope

Products
Product R&D

Existing Markets

Examples: (1) Multi-media cell phones (e.g. iPhone)

(2) Playstation 3 (Sony)
Product Development Strategy
Product Line Profitability
Low Medium High

High ? New
Product
Development
R&D Consider
Expense Product
Medium Revise Products
Line
Elimination

Revise Products
Low
 Diversification

Product R&D is required

New
Obtain economies of scope in new markets
Products
Establish a presence in several global markets

New Markets

Examples: (1) Introducing Venus Divine in international markets

(2) Louis Vuitton Moet Hennessy (LVMH) in Japan
 Factors Impacting Internal Development

Technology Competition

New
Product Diversification
Development
Products

Market Market
Existing Penetration Development

Existing New

Markets
 Two Strategic Logics
Conventional Logic
• Industry’s conditions are given
• A company should build competitive
advantages. The aim is to beat the
competition
• A company should retain and expand
its customer base through further
segmentation and customization.
• A company should leverage its existing
assets and capabilities.
• An industry’s traditional boundaries
determine the products and services a
company offers. The goal is to
maximize the value of those offerings.
Value Innovation Logic
• Industry’s conditions can be shaped
• Competition is not the benchmark The
company should pursue a quantum leap
in value to dominate the market.
• A value innovator targets the mass of
buyers and willingly lets some existing
customers go. It focuses on the key
commonalities in what customers value.
• A company must not be constrained by
existing assets and capabilities. It must
ask, What would we do if we were
starting anew?
• A value innovator thinks in terms of
the total solution customers seek, even
if that takes the company beyond its
industry’s traditional offerings.
 Red vs. Blue Ocean Strategy
Red ocean strategy
• Compete in existing market space.
• Beat the competition.
• Exploit existing demand.
• Make the value/cost trade-off.
• Align the whole system of a
company’s activities with its
strategic choice of differentiation
or low cost.
Blue ocean strategy
• Create uncontested market space.
• Make the competition irrelevant.
• Create and capture new demand.
• Break the value/cost trade-off.
• Align the whole system of a
company’s activities in pursuit of
differentiation and low cost.
 Examples of Blue Ocean
CRT Calculator >IBM 360 > Apple PC > Compac PC Server > Dell Built to Order

Ford Model T > GM Variety > Japanese Fuel Efficient > Chrysler Minivan
 Structure of Markets

Market Share
Log e

K ratio

1 2 3

Market Share Rank

 Structure of Markets over Time
Markets Form Equilibriums

Share
1

Time To Change Share You

Must Disrupt Equilibrium
 Structure of Markets over Time
Markets Form Equilibriums
Constant Tremors via Constant Innovation

Share
1

Time
 Structure of Markets over Time
Markets Form Equilibriums

Long Stability Strong Forces

Share
1
Big
Earthquake
2

Time To Change Share You

Must Disrupt Equilibrium
 Strategy As Revolution
• Strategic Planning Isn’t Strategic
– Ritual vs. Revolution
• Strategy must be Subversive (Rule
Breaking)
• Perspective is worth 50 IQ points
– Corp>SBU>Competencies>????
• You can’t see the end from the beginning!
 Internal Development and Capstone Simulation
Year 8 Total Year 8 Revenue Internal Development
Segment Revenue Share of Industry Decisions
($ 000) (Percent)
Traditional 313,656 23.5 Product R&D,
Process R&D (TQM)

Low End 347,424 26.2 Process R&D (TQM),

Automation

High End 263,128 19.7 Product R&D,

New Product Creation,
TQM Initiatives to Reduce
R&D Cycle Time
Performance 211,276 15.8 Product R&D,
TQM Initiatives to Reduce
R&D Cycle Time
Size 197,834 14.8 Product R&D,
TQM Initiatives to Reduce
R&D Cycle Time