Strategic Management

Module-1:

Strategic Thinking
and
Competitive Analysis
Strategy Exercise 1:
Strategy Visualisation

• Strategy Visualization
Exercise: Drawing What is
Strategy
 Introduction: Understanding the Context
Greatest inventions of the last century that changed our lives?

Combustion Engine Pharma Semiconductor

Internet Electricity Management

 Looking
Ahead
Management
Plan
Most Important
Forecast
Invention
Change
STRATEGY Management

How to organize How to innovation

Division of labour Scale
Hierarchy, Operations
Communication Standardisation
Coordination Market
Team Sales
Strategy Exercise 1:
Strategy Visualisation

• Strategy Visualization
Exercise: Drawing What is
Strategy
What Strategy is NOT?
1. Strategy: a vision

2. Strategy: a plan

3. Strategy: a long-term plan

4. Strategy: the optimization of the status quo

5. Strategy: following best practices

6. Strategy: as organizational effectiveness

 Case Analysis 1

Coffee Wars in India: Starbucks 2015

Five Ps of Strategy
 1. Strategy As Perspective

• Largest market in the World

• Deliver finest coffee
• India, largest market in world
• Aspiration of Global Brand
WTP (very high)
+ • National Chain
VOLUME (very high)

REVENUE WTP VOLUME

+
 2. Strategy As Positioning
Ambiance Collaborator Store Customer Service
• Internal design • Real state property • Store – high visibility • No advertisement
• Customized front • Market knowledge • Interesting locations / word of mouth
• Culture of the land • Working with • Café, store, kiosk • Digital payment
• Experience government • Organic growth – • Home delivery
• Hang around stores • 1-1 / customized
• Local culture relationships
• Greeting, name,
Destination complains
Supplier 3rd Place
• Vendors
• Property owned Brand
• Quality of coffee • Global Brand
beans • World’s largest
Food/Beverage Community
• Real state
• Food items • Sense of community coffee chain
knowledge • Environment
• New beverages • Employees as partners
• Backward integration friendly
 3. Strategy As Pattern

Where do enter? How to enter?

• Less entrenched market - Asia • Through local partnership –
first, Japan, China, India Tata Global Beverages in
• Later to matured markets – India, Sazaby in Japan
France, Spain, Latin America • Setup supplier relationship -
• High visibility, high traffic understand market conditions
locations; then smaller cities • Recruit local talent
• Certain of customer demand • Procuring retail locations
 4. Strategy As Plan

Market
Diversity Competitor
Right
TATA SB Analysis
Complex Partner • Delivering finest coffee Managing
Market • National Chain Stores
• Accelerated Growth
Regulatory
Issues

Success
Factors
 5. Strategy As Ploy

Difficult

Difficult to
Copy

Easy

Cheap Costly

Costly to Copy
Exercise 2: Can you say what is Strategy of Your Organization?

Hierarchy of Organizational Statement

MISSION: Why we exist

VALUES: What we believe in and how we will behave

VISION: What we want to be

STRATEGY: What are our objectives [Ends]; Scope

[Domain]; Strengths [Means]

PERFORMANCE SCORECARD: How we will

monitor and implement plan
 Stratēgia:
Art of troop leader; Know Win-Win Win-Lose
office of general, Know
command, generalship Yourself
Ignorant Lose-Win Lose-Lose

“It is pardonable to be defeated, but Know Ignorant

never to be surprised”
Know Your Enemy

“Those who win every battle are not Sun Tzu: Know Yourself and Your Enemy
really skillful…Those who render
others’ armies helpless without
fighting are the best of all”
The Corporate War

Indian Auto Sector

Indian Telecom Sector
Why Strategy Is Important…

Cross-Functional
Firms Level View Leadership
Integration
• firm level • cross-validity of • setting vision,
performance the functional giving direction,
measures decisions and setting goals,
actions; firm as a achieving results
network of
causal linkages
Strategic / Integrative Thinking
Why Business Strategy?
 Evolution of Strategy Thinking on Performance Differentials

Mid 19th Century 1960’s 1980’s

Classical Economics HBS’s Integrative Thinking; SWOT Portfolio Management

• Performance Differential = • Performance Differentials = • Performance Differentials =
Managing Production Function Integrating approach and Classify Strategic Business Unit
alignment with the (SBU) for further decision.
• Adam Smith, Jean-Baptiste environment
Say, David Ricardo • 1. Stars/Invest; 2. Cash
Cows/Take money; 3. Question
Marks/Analyze future; 4.
Dogs/Liquidate
“Synergy” in business units
Neoclassical Economics
• Performance Differentials =
• Performance Differentials = Related diversification to
Managing Market Forces outperform highly diversified
• Thorstein Veblen Alfred Marshall corporates.
19th Century 1970’s
 Case Analysis 2

Apple Inc. in 2020

Broad Posture and Dilemma
Interesting Questions:
• How was the initial journey of Apple, Steve Jobs and PC
industry?
• How the PC / mobile industry evolved over time?
• What key innovation were done by IBM, Microsoft, Intel, Apple
to be global players?
• Why and how Apple became the most valued company globally?

Dilemma:
• Would Apple be a hardware-first or service-first?
• If services were key, how would Apple differentiate those
services?
• What kind of leadership to take Apple to the next level?
 • Product Attributes • Internal Characteristics
• Ease of use • Intellectual Property
• Industrial design • R&D – Preparing
Bases of • Technical elegance IP
• Beauty with Brain • Secrecy –
Differentiation Protecting IP
• Customer Relationships
• Digital Hub Strategy • External Characteristics
• Loyalty • Control over Value
• Apple is Apple; Rest Chain
all are Fruits • Compatibility to
ensure Critical Mass
 Think
Differently

You can quote them, disagree

with them, glorify or vilify them

You can't ignore them.

Genius:
The people who are crazy
enough to think they can
change the world, are the ones
who do.
They push the human race forward
 Value Chain of PC Industry
Suppliers
OS: Microsoft, Apple, Others
Buying Criteria & WTP
Microprocessor: Intel, AMD, ARM Rivals Distributors/
Price
Other suppliers: Memory Chips, PC Assemblers: Compaq, Retailers/online
Features
Disk Drives and Keyboards IBM, Dell, HP, Lenovo Every nook and
Compatibility
Manufacturers MS: 70%; PS: 25% corner
Availability

Complementors
Application developers: Substitutes
Microsoft, Google, others) Cellphones, TV, Game
consoles, tablets
Suppliers Cannibalizing oneself
Buying Criteria &
OS: Apples
WTP
Microprocessor: Apple
Security
Other suppliers: Memory Chips, Distributors/ Design
Disk Drives and Keyboards Apple Retailers/online Compatibility
Manufacturers (Apple or local) MS: 8%; PS: 70% Apple store and Plugins
online store User experience
Complementors Smooth operation
Application developers: Status
Apple Features
 What is Strategy?
• Michel Porter (Competitive Strategy)*:

• Deliberately choosing a different set of activities to deliver unique value.. Making explicit
choices— to do some things and not others— and building a business around those
choices.

• A.G. Lafley (Former CEO of Procter & Gamble) and Roger Martin (Dean of the
Rotman School of Management)**.

• Strategy is an integrated set of choices (not sequential but simultaneous) that uniquely
positions the firm in its industry so as to create sustainable advantage and superior value
relative to the competition.

*Porter, M. E., & Strategy, C. (1980). Techniques for analyzing industries and competitors. Competitive Strategy. New York: Free.
**Lafley, A. G., & Martin, R. L. (2013). Playing to win: How strategy really works. Harvard Business Press.
 Hallmark of Strategic Choice

1 2
How tough the choice is : What is the counter choices:
Between Competing Good or How obvious is that
Bad Options
 What is Strategy?

Strategy is about what not to do

*Porter, M. E., & Strategy, C. (1980). Techniques for analyzing industries and competitors. Competitive Strategy. New York: Free.
Industrial Organization (IO) Model of
Above Average Return (AAR):

Strategic External Analysis:

Industry and Ecosystem Dynamics
 Defining Competitive Advantage
Value Created Value Captured
Wiliness-to-pay
Competitiveness and (WTP) By Buyers
Above Average Return
Price
1. Concentration Ratio of Market By Firm
Share
2. Concentration Ratio of Cost
Revenue By Suppliers
3. Concentration Ratio of Profit Wiliness-to-sell
(WTS)

Figure: Willing-to-pay and Willingness-to-sell

Business Strategy to Achieve Competitive Advantage

WTP

WTS

Competitor Dual
WTP Advantage WTS Advantage
Advantage
Figure: Different Types of Competitive Advantage
 Industry – Conduct – Performance Model
Industry Structure Industry (Un)Attractiveness

No. of competing firms

Homogeneity of products
Cost of entry and exit
Firm Conduct Competitive Advantage

Strategies firms peruse to gain

Firm Focus Strategic Thinking

To understand eternal environment to which firm needs to respond to.

• Where to compete: Attractive industry?
• How to compete: Positioning to tap opportunities and counter the threats
• When to compete: Entry, Exit and In-between
Performance Strategic Mapping
Firm Level: 1. Competitive Advantage, 2. Competitive Parity, 3. Temporary Competitive
Advantage, 4. Sustained Competitive Advantage
Society Level: People, Profit, Planet
 Five/Six Forces Model

• Analytical tool previously lacking in the field of strategy

• 5 Forces includes: Suppliers, buyers, competitive rivalry, product substitutes and
potential entrants
• Determines the nature/level of competition and profitability in an industry
• Interactions between 5 forces determine competition and profitability

Use of 5 Forces Model

1. Positioning the company (segmentation avail most value). Eg. Premium ice cream
2. Exploit changes in forces – evaluate forces and capitalize opportunities. Eg. I-tunes
3. Reshape industry to – Increase Market Share, Revenue, Net Profit
Five/Six Forces Model
Threat - New Entrant Supplier Threat - Substitute Buyer Bargaining Existing Rivalry
Bargaining Power power
Barriers to entry: •High Costs •Neflix-Multiplex; •Lowers Prices •A. Competition Intensity
1. Supply side EOS Local Cold Drinks 1. Numerous competitors
(Maruti) •Factors: •Customer negotiating 2. High exit barriers
2. Demand side EOS 1. Concentrates/ •Sources of force to leverage: 3. Slow industry growth
(LinkedIn) Monopoly change customer 1. Few buyers/ large 4. Rivals are highly
3. Customer Switching cost (Microsoft) preference: buyer committed
(asset specificity-B2B; 2. Supplier not 1. Lower prices 2. undifferentiated 5. Firms cannot read each
Tech products-B2C) dependent on 2. Low cost of product/ Commodity other
4. Capital requirement - industry (Battery) switching (Burger 3. Low switching cost
credit, inventory, 3. Switching costs of near Pizza store) 4. Backward integration •B1. Competition
advertisement (Automobile firm (Low Asset threat (Power Sector) Dimension - Price
industry; Soft Drink) Specificity). •Mitigation - Look 1. Identical product or low
5. Incumbency advantage - 4. Differentiated for tech switching cost
cumulative experience, product (Pharma) advancements •Customer Price 2. High fixed cost, Low
brand identity (B-Schools; 5. No substitute (Online food order; Sensitive: marginal cost
Health Sector) (Pilots; Top Fintech) 1. Significant fraction 3. Volume needed for EOS
6. Distribution access Institutes) of spend 4. Perishable product
(shelf space displacement) 2. Low profit/ low cash (newspaper, food)
7. Government policy 3. Quality indifferent
(Liquor license) 4. Low effect on buyer's •B2. Other Dimensions -
other costs. Service, Advertisement
 Steps in Industry Analysis
•What products / services
Define Industry
•Geographic Scope

•Buyers and buyer groups

•Supplier and supplier groups
Identify participants and
•competitors
segment into groups
•substitutes
•potential entrants

Assess force drivers •Drivers of each force - weak/strong: influence firms revenue / profit

•Why is industry profitability so?

Determine industry structure •What are profit controlling factors?
•Analysis consistent with actual ling run profitability?
•More profitable players better off in 5 forces?

•Analyse recent and future changes in forces

Force changes
•Change positive or negative?

•Aspects of industry influenceable?

Possible influences
•By competition, new entrants or by you?
 External Analysis: Analytical Tools / Techniques
Analytical Tool Primary Uses(s)
• To predict and prices and volume in the market with price taking firms that provide
Supply and Demand identical products
Analysis: Pricing • To understand dynamics of prices and volumes in such a market
• To estimate price below which a company will not produce
Marginal and Fixed • To construct supply curves
Costs • To understand how incremental changes in volume will affect the profitability of a
company
• To calculate what benefit must be derived from an expenditure in order to make the
Break-Even Analysis
expenditure just barely justifiable – that is, for it to break even
Quick and dirty • To size up, roughly, attractiveness of a proposed investment and to determine
investment assessment whether a more detailed financial analysis is worthwhile
• To understand which parties in an industry have bargaining power and can claim
Distribution of value
profits
• To understand the level of competition.
Herfindahl Index • Square the market share of each company, then add together each result.
• The HI ranges from 1/N to 1; N is the # of firms in the market
• To understand the degree of competition in the industry.
Concentration Ration
• Concentration of market share, profit and revenue among top 4-6 players
STRATEGIC THINKING

Strategic Organization
Analysis
Industrial Organization (IO) Model of Above
Average Return (AAR):

Strategic Internal Analysis: VRIO and Activity

Architecture Analysis
 The Resource-Based Model of AAR/CA

• Basic Premise: A firm's unique resources & capabilities, in combination, are the basis for
firm strategy and AAR
• Firm’s performance difference across time (vs industry’s structural characteristics)
• Combined uniqueness should define the firms’ strategic actions

• Resources & Capabilities

• Four categories of firm-specific resources: Financial; Physical; Human; Organizational.
• Basis for CA: When resources are Valuable, Rare, Inimitable, Non-Substitutable/Organizing

• Critical Assumptions: Firm’s resources & capabilities serves as sources of CA over the rival
if - Resource Heterogeneity and Resource Immobility

“Unique resources and capabilities and their combination makes firm different/better than their
competition – driving the competitive advantage”
 Indigo Airlines: Performance Indicators
Balanced Scorecard Approach to Strategic Performance Management

Financial Internal Operation

• 2012: Surpass all FSC • Highest load factor
and LC • 2nd Highest KM fly
• 50% market share • Ontime 96%
• Profit since 2008 • Cancellation 0.3%
• Profit within 3 years of • Complain 1/10000 • LCC: 1% (2003)
operation • Operating profit • Unique and – 69% (2011)
Innovative Strategy • Continuous
Best LCC • Winning confidence consolidation –
in of customer, easing
Asia 2012 investors, competition
employees, • Industry loss: 4%
government (2009) – 26%
Customer
HR/People (2011)
• Highest load factor
• Best place to work
• Customer happiness
• 0.01% attrition rate
• Repeat customer
• Working with
• Tier 2/3 customers
government
• Repeat customers
How Indigo Did it?

Organizing and
Operationalizing
Vision and Strategy
 Single Single
Configuration Fleet Plane
lease out
Direct Airbus Only
Booking Fleet H&S: Frequent
Point-to-point
Convenience network
Low Price
Low Cost On-time Avoid
Crowded
High
Hubs
High Load Least cancellation Utilization
Factor Fast Gate
Lean Air and Turnaround
Ground Crew High
Great Union Productivity
Relations Limited
Customer
Employees Service
Stocks Motivated
Employees No Meals
Options

Selective Compensation
Recruiting Friendly Hand Baggage
Services Internal Job
Salary & Job
Security & Promotion

Activity Map: Connecting Value Propositions to the Company’s Assets, Capabilities and Values
 Strategy Execution: Balanced Scorecard & Strategy Map
Strategy Map Performance Targets Initiatives
Measures
Financial Increased • Market value • 25% per year • Optimize routes
Profit Increase • Seat revenue • 20% per year • Standardise
Lower
Revenue • Plane lease cost • 5 % year planes
Costs
Increased
Customer • On-time arrival • 1st in industry • Quality
Profit
Ontime • Customer ranking • 98% management
Flight • No. of customers satisfaction • Customer loyalty
Increased
• % change
Profit
Internal Business • On ground time • < 25 minutes • Cycle time
Improved
Process • On time departure • 93% optimization
Turnaround
program
time

Learning • % of ground crew • Yr 1: 74% • Stock ownership

Align stock holders • Yr 4: 90% plan
ground • % of ground crew • Yr 6: 100% • Ground crew
crew trained training
 VRIO - Looking Inside For CA
“Environment analysis is half the story. Look inside for competitive advantage”

Value Rareness Imitability Organisation

•Is the firm able to exploit •Is control of the •Is it difficult/costly to •Is the firm organized,
an opportunity or resource/capability in obtain, develop, or duplicate ready, and able to
neutralize an external the hands of a relative the resource/capability? exploit the
threat with the few? •Either duplication or resource/capability to
resource/capability? •Valuable but substitution capture value?
•Changes in customer common resources - •Why costly to imitate? - •Complementary
tastes, industry or competitive parity Skills, abilities and resources resources - limited
technology can render •Rareness of picked up over time which ability of CA in
them more/less useful resources gives CA. are unique to organisation. isolation.
•Resources not valuable •Eg. Walmart’s point •Power of small decisions - •Reporting structure,
in vaccum, but only when of purchase data CA depends heavily on control systems,
they exploit opportunities collection thousands of decisions made compensation policies
•Eg. AT&T high quality + each day - Invisible to
R&D competition.
•Socially complex resources
- Reputation, trust, culture
 VRIO: Looking Inside For Competitive Advantage
1. Cola wars – Comp parity – similar resources, advertising, financial resources and
management. Diversifying – Diet coke, fast food, other businesses and geographies.

2. Macintosh – Responsiveness to market opportunity, in-house development team –

motivated and enthusiastic, different “fun” concept of PC.

Valuable? Rare? Costly to Exploited by Competitive Implication

imitate organisation
No Competitive Disadvantage
Yes No Competitive Parity
Yes Yes No Temporary Completive Advantage
Yes Yes Yes No Unexploited Completive Advantage
Yes Yes Yes Yes Sustained Completive Advantage
 Strategic Organizational Analysis:
Market and Competitive Superiority Tests
• Valuable:
• a) Test of WTP;
• b) Test of WTS

• Rare:
• a) Test of Substitutability;
• b) Test of Durability

• Inimitability:
• a) Test of Physical Uniqueness;
• b) Test of Path Dependency (cumulative);
• c) Test of Causal Ambiguity (Ontological)

• Organizing:
• a) Test of Economic Deterrence;
• b) Test of Appropriability (who capture more value)
 Assessing Competitive Strengths

High

Difficult Moderate
to
Copy
Low

High Moderate Low

Costly to Copy
 Key Takeaways: Strategic Thinking
Organizational Architecture-Industry Dynamics Alignment

BUSINESS
ENVIRONMENT

Alignment 5

Value Offerings: Strategy Activity Architecture

 Clarity of Strategy?
Answer Five Interrelated Questions
Source: Martin, R. L. (2017). Strategic choices need to be made simultaneously, not
sequentially. Harvard Business Review.

• What is your winning aspiration? The purpose of your enterprise, its

motivating aspiration.

• Where will you play? A playing field where you can achieve that aspiration.

• How will you win? The way you will win on the chosen playing field.

• What capabilities must be in place? The set and configuration of

capabilities required to win in the chosen way.

• What management systems are required? The systems and measures that
enable the capabilities and support the choices.
 Key Takeaways: Strategic Choice Cascade Framework

Source: Martin, R. L. (2017). Strategic choices need to be made simultaneously, not sequentially. Harvard Business Review, 5.
Experiencing and manage market forces that
influences competitiveness in an industry.

STRATEGY EXERCISE

Value Appropriation
and
Competitive Advantage
Industry Context: Sketch Pen Manufacturing
 Strategy Exercise
Value Appropriation and Competitive Advantage: Debriefing
Game
• How was your experience of playing this game?

Predicting Industry
• How the reality of the game was same/different from the ‘Five Forces Model’
• What is predictable and what is not in industry analysis
• Forecasting static data vs dynamic situation

Industry evolution
• Reducing information asymmetry
• From science (calculations) to emotional/chaotic – changes in industry dynamics
• Forecasting static data vs dynamic situation
 Key Learnings
Role of the Players
1. Who makes an industry vibrant? Buyers, Supplier, Assembler
• From science to shouting – how industry dynamics emerge
2. Focal firms (rivals) at the center of the industry analysis (five forces) - bigger the opportunity
and bigger the challenge.

Governance of Transaction
1. Relational vs formal mechanisms (professional vs personal approach)

Role of Regulator
1. Information Asymmetry
2. Calculations (initially) to emotions (once dynamics evolved) involved in transaction
 Key Learnings

Dilemma

1. Pressure to fast vs negotiate well

2. Inventory vs discount vs opportunity lost

3. Sold but sitting on the cash

4. Demand and supply side dynamics: Dilemma of securing revenue vs inputs

5. 1st mover versus late movers

BCG Classics: Strategic External Analysis - Rule of 3 & 4
Evolution of Industry & Competitive Leadership
• Evolution of Industry and Competitive Leadership (By Bruce Henderson (Mid 70’s)):

• A stable competitive industry will have no more than 3 substantive competitors and will find
equilibrium when their respective market shares are 4:2:1.

• Key Findings: At BCG’s 50th anniversary - BCG Strategy Institute studied industry data from
more than 10,000 companies dating back to 1975 to test the hypothesis and found:

• Three generalist configuration: the most common industry structure (3 generalist companies with
more than 10% market share).
• Industries with a three-generalist configuration produced a ROA a full 2.5% higher than those with
more than three generalists.
• In three generalist configurations, the largest player typically had 1.5-2.5x the market share of their
nearest rival – relatively close to Henderson’s original 4:2:1 hypothesis.
BCG Classics: Strategic External Analysis - Rule of 3 & 4
Evolution of Industry & Competitive Leadership
• Market Equilibrium and Market Share Optimization:
• A market share ratio of 2:1 between any two competitors seems to be the equilibrium point.
• At this point, it is neither practical nor advantageous for either competitor to increase or decrease its
share.

• Assessing Real Competitors and Competition:

• Any competitor which has less than one quarter the share of the largest competitor cannot be
considered as an effective competitor.

• Market Consolidation and Disruption:

• As markets mature there is an inevitability of market players consolidating into 2-4 major players.
• Given market share growth is generally limited, major changes in market share or industry
leadership are unlikely in mature markets, except under conditions of disruption or deregulation.
BCG Classics: Strategic External Analysis - Rule of 3 & 4
Evolution of Industry & Competitive Leadership
• Implication for Corporate Leaders

• Rule of 3&4 is a reliable predictor of industry structures’ evolution in stable industries.

• Though largest competitor is the most desirable position, 2nd & 3rd positions are also
maintainable.
• Any other position is likely to be unsustainable.

• Maintaining the Competitive Position

• If not among the top-three - should try to enhance position by shifting the competitive
landscape, through consolidation or even exit the industry (divestment).
• If the company operates in a setting where the rule of 3&4 does not apply - should use
adaptive strategies.
 BCG Classics: Strategic Organizational Analysis
The Experience Curve
• Origin (1966): BCG (Bruce Henderson) – A leading semi-conductor manufacturer
• A consistent relationship between the unit cost of production and the total volume produced.
• Unit Production Costs fall (20-30%) - ‘Experience’ or ‘Accumulated Production Volume’ double.
• Cost of production and cost advantage can be predicted.

• Cost of hard disk drives - 50% of experience curve - cost per GB $80,000/1984 to $6/2001
• Cost of laser diodes - 40–45% experience curve - $30,000 of fiber amplifiers in the early 1980s
to $1.30 for 0.8-micrometer CD lasers (unpackaged) in 1999.

Experience Curve: Cn = C1 X-a

C1: Direct cost of 1st unit of production; Cn: Direct cost of nth unit of production;
X: Cumulative volume of production;
a: % experience rate (the rate at which direct costs decrease when output increases)
 1st Order Experience:
Experience in Fulfilling Demand
• Definition: Classic experience curve - The ability of the firm to produce existing products at a
cheaper rate and delivering them to an ever-wider audience.

• Relevance: Industries which are competitive, production-intensive, cost-sensitive and

relatively stable.

• Application: Fulfilling demand and creating a greater market

• Analysis and Improvement Process: Experience at fulfilling demand is achieved through a

logical deductive process –

• capturing the cost data, analyzing them, determining opportunities for improvement, implementing
the changes and iterating
 BCG Classics: Strategic Organizational Analysis
The Experience Curve
• Market share leadership confer a decisive competitive edge - Cost Leadership Strategy.
• Accumulate valuable experience to achieve a self-perpetuating cost advantage over the rivals.
• A valuable descriptor/predictor of Com. Adv. in 1970s – guide investment and pricing decisions.
• Create a barrier for the new entrants to challenge.

But is EC relevant today?

• In some industries it is no longer sufficient by itself as a blueprint for competitive advantage.

• In contrast 1960s/70s, today’s business climate - higher volatility, less stable industry structures, and
frequent product launches in response to rapidly changing technologies and tastes.

• Most companies need an additional experience to create/sustain competitive advantage.

• New firms enter old industries mostly by leapfrogging over the experience curve through innovation
and invention.
 2nd Order Experience:
Experience in Shaping Demand
• The 2nd Order Experience comes from sharing experience across different areas and the ability
to forget past lessons when it is no longer relevant to the latest production generation.
• Apple, Netflix, Facebook etc. by effectively shaping demand with successful innovations.

• Experience in shaping demand - company’s ability to move from one product generation to
other repeatedly and successfully.
• achieved through an inductive process of sample consumer behaviors, formulating hypothesis on the
unmet needs, testing them with new offerings, formulating new ones based on the latest empirical
results and repeating the same.

• Ambidexterity, A Powerful Competitive Weapon: Ability to develop and leverage both

existing (meet demand) and new product knowledge (shape demand) concurrently, or to switch
between them effectively over time.
 Types of Experience:
Fulfilling Demand VS Shaping Demand

Relationship between the two types of experience: Board game Snakes & Ladders – for competitive advantage,
companies have to both “slide down snakes” (i.e., fulfill demand) and “climb ladders” (i.e., shape demand).
 Operationalizing the Strategic Thinking
Interpretation of Goals
The crisis faced in 2004 by ABC Limited, a leading maker of plywood in the western India.
Relentless expansion by global players had squeezed ABC’s market share in the western region
from 56% to 32% in a decade. Its factory, equipped with old machines and little automation, was
running at 30% capacity utilization. Channel players were unhappy with the quality of its
product and the timeliness of its deliveries. The return on assets (ROA) that ABC had registered
in 2004, –10%, was a far cry from the 15% goal set by its corporate parent. One option the
company was considering in 2005 was a $30 million investment in automation that would reduce
its cost per linear foot of plywood by 4 cents (or $0.04). The company held 32% share of the
western market for plywood, which had a total market size of 100 million linear feet per year.
The unit had an asset base of $10 million.

• ROA target set for ABC Limited is 15% in 2005 from its 2004 ROA of -10%.

• How will you explain the ROA goal to your team?

 Case: Interpretation of Goals

Meeting the ROA target requires an increase in operating profit of:

• $10 ml X (15% – -10%) = $2.5 ml

Achieving ROA target through cost saving alone:

• Target ROA increase from cost savings alone would require a decrease in unit costs of:
• $2.5 ml / (32% share x 100 ml linear feet) = 7.8¢ per linear foot

Achieving ROA target through revenue (price increase) alone:

• Target ROA increase from price increases alone would require an increase in unit price of:
• 7.8¢ (without a loss of volume)

Achieving ROA target through revenue (volume increase) alone:

• Target ROA increase would require volume increase of (revenue: $0.92; marginal costs: $0.78/linear
foot):
• $2.5 ml / ($0.92–$0.78) = 17.9 ml linear feet
 Case: Interpretation of Goals

• “How can I achieve a 15% ROA?” Vs

• 1. “What would it take to reduce unit cost by 7.8¢?” Vs

• 2. What would it take to increase price by 7.8¢; without a loss of volume?

• 3. What would it take to increase the volume (market share) by 17.9%; without
reducing price?

• 4. What would it take to increase the volume (market share) by 17.9% in the existing
region vs other region (which may require distribution and marketing costs)
 Module 1: Summary
Cases
1. Coffee Wars in India: Starbucks 2015 (Coffee Industry)
2. Apple Inc in 2021 (PC Industry)
3. Indigo Airlines (Aviation Industry)

Strategy Exercise
1. Strategy Exercise-1: Strategy Visualization Exercise: Drawing What is Strategy
2. Strategy Exercise-2: Value Appropriation and Competitive Advantage

Strategy As:
1. Art of war (competitive thinking)
2. Integrative thinking and cascading model
3. Firm level approach
4. Controlling the industry and ecosystem
 Module 1: Key Frameworks
Strategic Industry Analysis
1. Five Ps pf Strategy: Plan, Positioning, Pattern, Ploy, and Perspective (Mintzberg)
2. Hierarchy of Organizational Statement (CK Prahalad)
3. Strategy as art of war (competitive thinking): Know yourself and know your enemy (Sun Tzu)
4. Industry-performance-conduct model (industrial economics and game theorist)
5. Market Five/Six Forces (Porter)
6. Rule of 3 and 4 (Henderson)

Strategic Organizational Analysis

1. Resource-based model of AAR /Competitive Advantage (Barney)
2. Activities-Activities hub-Activity Architecture: Five Level of Alignment (Porter)
3. VRIO mapping and analysis of drivers of competitive advantage (Barney)
4. Balanced Scorecard Approach of performance management (Norton & Kaplan)
5. Strategy map of operationalizing the strategy (Norton & Kaplan)
6. Strategic Choice Cascade Framework (RL Martin)
7. Ambidextrous Organizations (Henderson)
 Module 2:

Formulating Business /
Competitive Strategies
 Module 2:
Formulating Business / Competitive Strategies
• Job of business strategists is to analyze:

• First, deciding where to compete:

• Better to compete in structurally attractive industries, which provide decent returns even to
average players in tough industries.

• Second, deciding how to compete:

• Great strategies tap the opportunities and counter the threats of the external environment
through ‘competitive positioning.

• Third, deciding when to compete:

• Industry conditions change and ability to anticipate those changes can be a source of
tremendous value – competitive dynamics.
 Competitive Analysis: Where to Compete
Strategic Industry Analysis
1. Five Ps pf Strategy: Plan, Positioning, Pattern, Ploy, and Perspective (Mintzberg)
2. Hierarchy of Organizational Statement (CK Prahalad)
3. Strategy as art of war (competitive thinking): Know yourself and know your enemy (Sun Tzu)
4. Industry-performance-conduct model (industrial economics and game theorist)
5. Market Five/Six Forces (Porter)
6. Rule of 3 and 4 (Henderson)

Strategic Organizational Analysis

1. Resource-based model of AAR /Competitive Advantage (Barney)
2. Activities-Activities hub-Activity Architecture: Five Level of Alignment (Porter)
3. VRIO mapping and analysis of drivers of competitive advantage (Barney)
4. Balanced Scorecard Approach of performance management (Norton & Kaplan)
5. Strategy map of operationalizing the strategy (Norton & Kaplan)
6. Strategic Choice Cascade Framework (RL Martin)
7. Ambidextrous Organizations (Henderson)
 Strategic Analysis of Competitive Positioning
How to compete: Tap opportunities and counter the threats

Quantitative Use(s)
Analytical Tool
Competitive Positioning
• To estimate the size of a company’s cost advantage or disadvantage
Relative Cost Analysis relative to the competition, or to understand the sources of such advantage
or disadvantage

Relative willing-to-pay • To understand why a company can or cannot command a price premium
analysis from customers
• To convert a company’s high-level goals into concrete, low-level targets
Interpretation of goals
that can be acted upon
Generic Business • Cost Leaders, Differentiators, Focus Firms, Product Life Cycle Appproach
Strategies
 Strategic Analysis of Competitive Dynamics
When to compete: Competitive dynamics

Quantitative Use(s)
Analytical Tools
Competitive Dynamics
To predict the likely reaction of a competitor to a potentially reactive
Economics of retaliation and
move (such as entry into competitor’s market)
accommodation
To assess the expected payoffs of alternative courses of actions, in
Decision Tree situations involving a single decision-making firm

To predict the consequence of events that is likely to unfold in a

Game Trees and Payoff situation involving handful of players, in order to choose courses of
Matrices actions
 The Strategic Management Process
External
Analysis

Strategic Strategy Competitive

Mission Objectives
Choice Implementation Advantage

Internal
Analysis

Business Level Corporate Level

Strategy Strategy

How to Position a Which Businesses

Business to Enter?
in the Market?
 How to Tell Which Decisions are Strategic?
Shivakumar, R. (2014). How to tell which decisions are strategic. California Management
Review, 56(3), 78-97

1. Degree of Commitment:

To what extent it is costly for a firm to reverse its decision.

• Assessing the level of commitment:

I. Firm-specific vs usage-specific commitments

• DOC: Firm to function level

II. Risk involved

• DOC: Extent of uncertainty in the business environment

III. Rarity and imitability

• DOC: Investment in kind of assets/capabilities
 How to Tell Which Decisions are Strategic?
How Firms Make Commitments
Category Generic Examples
Investments and Disinvestments Building a Factory, R&D, Exit

Relationships Joint Ventures, Franchises, Licensing

Public Proclamations Earnings Guidance, Advertising, Barnding

Business Policies and Procedures Business Models, Information Systems,

Organizational Architecture, Personnel
 How to Tell Which Decisions are Strategic?
2. The Scope of the Firm: Firm’s choice of products, services, activities, and markets across
singly or multiple value chain.

• Assessing the level of commitment:

• The combination of the firm’s market-creation and organizational activities

• SOP: Extent of diversity of product/services of the firm withing or across the industry value chain

• The firm’s market transactions

• SOP: Extent of diversity of transactions and players to deal with (suppliers, consumers, firms,
regulators, etc.)

• The business model

• SOP: Extent of diversity of cost & revenue structure, profit structure and resources/capabilities
 How to Tell Which Decisions are Strategic?
How Firms Manage their Scope

Manage Markets Manage Organizations

Business Models People
Products and Services Hierarchies: Authority and Responsibility
Relationships Routines: Policies and Processes
Culture: Values and Beliefs
 Categorizing Decisions
Commitment
Significant Insignificant
Changes Changes

Significant
Changes Strategic Neo-Strategic

Scope of the
Firm

Insignificant Tactical Operational

Changes
How
Much
Profit?
What Should be the Levers
/Drivers of Profit
 Sustaining Competitive Strategy: Above Average Return

Profit
Structure Costs Revenge (Q*P) Profit AAR/
Options (Revenue-Cost CA

1 Levers? CA
2 Levers? CA
3 Levers? CA
 Business / Competitive Strategies:
Financial Manifestation

Financial Characteristics of A Firm:

• Asset ownership (high vs low proportion of fixed assets)

• Gross margins (low vs high)
• Selling to maximum customers Vs selling to customers with maximum WTP

Drivers (Reasons) for Variation of Financial Characteristics of A Firm:

• The structured exploration of pairs of companies within an industry affords a number of

important insights into strategy and financial performance.

1. Industry economics
2. Firm strategy
 1. Industry Economics

• Economics of industries: account for significant variations in financial ratios because of

differences in technologies, product characteristics, or competitive structures.

• Uniqueness (industry-Specific) of Financial Statements: Because of each industry’s unique

economic features, average financial statements will vary from one industry to the next.

• Financial Norms: Each industry has a financial norm around which companies within the
industry operate.

• Airlines Firm: High Fixed Assets (airplanes)

• Consulting Firm: Low Fixed Assets
• Steel Manufacturer: Low Gross Margins - commodities (e.g., steel) are subject to strong price
competition
• Pharmaceutical Manufacturer: High Gross Margins - highly differentiated products like patented
drugs enjoy much more pricing freedom
 2. Firm Strategy

• Financial Performance and Managerial Choices: a wide variation in financial ratios

within industries - differences in corporate strategy in marketing, operations, and finance.

• Strategic Position: Executives choose strategies to position their company favorably in the
competitive jockeying within an industry.

• Strategic Choices: Strategies typically entail making important choices in:

• how a product is made (e.g., capital intensive versus labor intensive)

• a
• how it is marketed (e.g., direct sales versus the use of distributors)

• how the company is financed (e.g., the use of debt or equity)

How to Compete: ROI and Market Share
 Stuck in the
Middle
Return on
Investment

Market Share
 Generic Strategies
STRATEGIC ADVANTAGE

Low Cost Position: Uniqueness Perceived

CTC by the Customer: WTP
STRATEGIC TARGET (SCOPE)

Industrywide OVERALL COST OVERALL

LEADERSHIP DIFFERENTIATION

Particular
Segment FOCUS
Only
 Generic Competitive
Strategy
Generic Strategies:
‘Approaches to outperforming competitors in the industry’:
AAR

Six Generic Strategies

1. Broad cost leader (All segment)
2. Broad differentiator (All segment)
3. Niche cost leader (Mid and Low End)
4. Niche differentiator (High and Mid End)
5. Cost leader with product life cycle focus (High, Mid and
Low end with product life cycle)
6. Differentiator with product life cycle focus (High, Mid
and Low end with product life cycle)
 Generic Competitive Strategy
Generic Strategies: ‘Approaches to outperforming competitors in the industry’

• Archiving Unique Positioning

• Developing Unique Activity System (Architecture)

• Alignment between Positioning and the Activity System.

Lack of clear business strategy if any one of them missing

 Overall Cost Leadership
Hallmark:
Ability to continuously reduce the cost

Basic Requirements
• High market share: Serving all major customer groups in order to build volume
• Heavy up-front capital investment: in state-of-the-art equipment
• Aggressive pricing: and start-up losses to build market share

Functional Choices
• Related Range of Offerings: Maintaining a wide line of related products to spread cost
• Aggressive Operations: Aggressive construction of efficient scale facilities
• Managing people and Processes: Vigorous pursuit of cost reduction from experience
and tight cost and overhead control
• Financials: Cost optimization in areas like R&D, service, sales force, advertising
Overall Cost Leadership…
Don’t Ignore

• Quality, service, and other areas cannot be ignored !

Managing Industry Forces

• Buyers: Buyer can drive down prices to the level of next most efficient competitor.
• Suppliers: More flexibility to cope with input cost increase.
• Rivalry: The test of generating relatively more margins and developing next level ability of cost
reduction (Maruti).
• Entry Barriers: Scale economies / cost advantages.
• Substitutes: A low-cost position places the firm in a favourable position vis-à-vis substitutes
relative to its competitors in the industry.

Cost Leadership Strategy:

Less efficient competitors will suffer first in face of competitive pressure
 Overall Differentiation

• Hallmark:
• Ability to charge premium price for the product/service offered

• Basic Requirements and Functional Choices

• Customer Focus: Extensive research and customer centricity
• R&D: Product design and intensive customer support
• Operations: High quality materials and inherently costly activities
• Exclusivity: Incompatible with high market share

• Functional Choices
• Design or brand image
• Technology and Features
• Customer service
• Dealer network, etc.
 Overall Differentiation

Don’t Ignore
• Does not ignore costs ! Never pass on the inefficiencies to the customer!

Managing Industry Forces

• Buyer: Perception of exclusivity (so lack of alternatives) resulting lower sensitivity to
price and WTP.
• Supplier: Higher margins for suppliers; Suppliers as partners
• Rivalry: Creating Brand for customers’ loyalty – strongest lock-in; Control Value
Chain
• Entry Barriers: Customer loyalty; Challenges to Overcome Uniqueness
• Substitute: Better positioned vis-à-vis substitutes than its customers.

“Customer: Acknowledge the superiority of the firm Vs Willing/Ability to Pay”

 Focus Strategy

“Focusing on a particular buyer group, segment of the product line, or geographic market that
can not be served by broad cost leader and differentiators”

• Narrow Strategic market: Able to serve narrow strategic target more effectively or
efficiently than competitors who are competing more broadly.

• Focus with Low-Cost or Differentiators: The focus strategy does achieve one or both of
low-cost or differentiation positions vis-à-vis its narrow market target.

• Low Possibilities of Substitution: Focus may also be used to select targets that least
vulnerable to substitutes or where competitors are the weakest

• Different Management Requirements: Generic strategies require different operations, styles

of leadership etc leading to a very different corporate culture.
 Battery Manufacturers

Competitive Strategy:
Product Life Cycle
Approach
 Risks of the Generic Strategies
Overall Cost Leadership
• Technological change that nullifies past investments or learning
• Low-cost learning by newcomers/followers – By Imitation or Invest in state-of-the-art facilities
• Inflation - Maintaining enough Price Differential to offset Competitor’s brand
images/differentiation

Differentiation
• Image possessed by the differentiated firm should be good enough to offset for large cost
savings
• Buyer need for the differentiating factor falls - Buyer become more sophisticated
• Industry maturity - Imitation narrows perceived differentiation

Focus
• Cost differential (with broad-range competitors) need to widen to eliminate the cost advantages
• Differences in desired products/services between the strategic targets and the market as a whole
narrows
• Competitors find submarkets within the strategic target and outfocus the focuser
 Stuck in Middle
“Fail to develop strategy in at least one of three directions – cost, differentiation, focus”

• ROI and Market Share: U-shaped relationship between ROI and market share

• Profitability: Almost guaranteed low profitability

• Corporate identity: Blurred corporate culture and conflicting set of organizational

arrangements and motivation system

• Industry Structure: U-shape relationship does not hold in every industries (Commodities vs
Differentiated Products)
 Strategic Analysis of Competitive Dynamics
When to compete: Competitive dynamics

Analytical
Primary use(s)
Tool
1. Economics of
• To predict the likely reaction of a competitor to a potentially
retaliation and
provocative move (such as entry into the competitor’s market)
accommodation

2. Decision trees and • To assess the expected payoffs of alternative courses of actions,
payoff matrices in situations involving a single decision- making firm

• To predict the sequence of events that is likely to unfold in a

3. Game trees and
situation involving a handful of players, in order to choose
payoff matrices
among courses of actions
Strategic Analysis of Competitive Positioning
How to Compete: Competitive Response Cycle

Incumbent Entrant
Builds or inherits Attacks ‘soft’ market
entry barriers segment

Widens attack to
No response
adjacent segments

Starts
Reinforces barriers price war

Attacks entrant’s Restarts the cycle in

home market adjacent market
 Example of How to Compete:
Economics of Retaliation & Accommodation
A route on which Delta currently flies 700 Relative Cost Structure: Delta Air Lines vs. JetBlue in 2001
passengers and 1,000 seats per day (70% (dollars per available seat for Delta’s average-length flight)
capacity utilization). The marginal cost for Delta JetBlue
Cost item Delta JetBlue
is $8. Imagine that the current fare per passenger Advantage
Salary and benefits 32.2 18.07 14.13
is $100 and the cost structure matches the one Fuel 9.04 8.2 0.84
shown in Table. Services
Advertising & promotions 0.82 3.09 -2.27
JetBlue now considers entering the route with a Other services 13 9.7 3.3
single flight that has 100 available seats, and it Aircraft and facility rental
Depreciation & amortization 6.57 2.09 4.48
plans to offer a fare of $75. Rentals 5.75 9.7 -3.95
Food 2.17 0.42 1.75
What should Delta do? Maintenance and other materials 3.81 1.34 2.47
1. Accommodate – don’t reaction Landing fees 1.27 2.09 -0.82
2. Aggressive – reduce the price to Other 3.14 1.34 1.8
Total 77.76 55.96 21.81
1. $80; 2. $75; 3. $70
 Example of How to Compete:
Economics of Retaliation & Accommodation
• Accommodating Response by Delta would be to maintain its current fare of $100 and let
JetBlue fly its flight.
• Assuming JetBlue’s 100 passengers come from the Delta flights:
• this reduces Delta’s profitability on the route by:
• 100 passengers X (price of $100 – marginal cost of, say, $8) = $9,200.

• Aggressive response by Delta would be to drop its fares across the board below the fare
offered by JetBlue, to $70 for instance.
• This would keep all 700 passengers on Delta’s flights, but it would also reduce profitability by
• 700 passengers X ($100–$70) = $21,000.
• 700 passengers X ($100–$75) = $17,500.
• 700 passengers X ($100-$80) = $14,000.

Conclusion: Accommodating strategy look more attractive than an aggressive response

 Example of How to Compete:
Economics of Retaliation & Accommodation
Reaction Consequence Response

(No)Counter
No Reaction Favourable Not Favourable
Reaction

Aggressive (No)Counter
Favourable Not Favourable
Reaction Reaction

Accommodative (No)Counter
Favourable Not Favourable
Reaction Reaction
 How to Compete: Competitive Response Cycle
Attributes Characterizing Competitive Actions & Responses
• Likelihood or probability that a firm will initiate an attack or that a given defender will
retaliate.

• Speed and timing of the action or response, in terms of announcement speed and execution
speed.

• Type of action or response that can be dichotomized into strategic or tactical; they could also be
organized into general types such as pricing and new product/service offerings.

• Magnitude of the rival’s response (e.g., the percentage of a price cut or the number of products
or markets involved in a particular action or response).

• Location in which the action or response is taken, with special emphasis on whether a response
is offered in the same or different market(s) where the action is initiated.
AMC Framework to Predict Competitive Response
• Predicting competitive response: to understand how a competitive action affects the internal
behavior of the defending organization.

• Integrative understanding of the three key behavioral drivers that define a competitor’s response - a
competitor will not be able to respond to an action unless it is:

1. Aware of the action.

2. Motivated to react.
3. Capable of responding.

• The Attackers: For an attacker, the 3-behavioral drivers represent possible response barriers for
a given rival.

• The rivals (defenders) vary along 3-drivers – analyzing each individually can be insightful.
Maruti Suzuki India Limited

(OEM: Original Equipment

Manufacturer)
Maruti Suzuki: Image and Competitive Position

Perceived Image Strategic Position

1. First and Obvious Choice for 1. Consistently lowest price
Middle Class Mutual among competitors
2. Maruti as synonym for 2. Consistent signaling to
“Passenger Car” Reinforcement
competitors on pricing
3. Earning the reputation of 3. Indicate cost leadership
“People’s Car” position

Performance
1. 50% market share for decades
2. Leadership position by
volume
Maruti Suzuki: Image and Competitive Position:
Perceptual Map and Competitors

Buying Criteria Weightage Maruti Hyundai TATA

Price

Fuel Efficiency

After Sales Service

Models Innovation

Variety of Models

Resale Value

Safety

Total
 Competitive Positioning of Maruti

Competitive Positioning of the Rivals

20.00%
15.00%
10.00%
5.00%
0.00%
Price (20%) Fuel After Sales Models Variety of Resale Value Safety (18%)
Efficiency Service Innovation Models (10%)
(18%) (14%) (10%) (10%)
Maruti Hyundai TATA
 Should Cost/Cost or Price Breakdown
Analysis/Supplier Cost Analysis: VRIO TEST
Difficult 10
9
8
7
6
Difficult to 5
copy 4
3
2
Easy 1
1 2 3 4 5 6 7 8 9 10
Cheap Costly
Costly to copy

Building and understanding the elements that make up the cost of a product or service
 Maruti Suzuki:
Sources of Sustained Competitive Advantage
Sources of Cost Advantage neutralize the threat of Rivalry / Entrants / Substitutes / Buyers /
Suppliers

• Production Capacity
• Network of Sales and Service Centers
• True Value Stores
• R&D – Fuel Efficiency as unitary direction
• Marketing and Advertising
• First Mover in Capacity Building
• Managerial Knowhow
• Japanese connection
• Entry Segment
• HR Policies
 Price War Situation and Plant Expansion:
(Dis)Economies of Scale
• 1st Production Facility:
• 1981-82: Gurgaon (Haryana); Annual production: 1.5 million vehicle
• Land: 300 acre; 3 fully-integrated manufacturing plants

• 2nd Production Facility:

• 2007: Manesar (Haryana); Annual production: 800,000 vehicle
• Land: 600 acre-further expansion

• 3rd Production Facility: Total annual capacity: 750,000 units

• 2017: Gujarat: Suzuki Motor Gujarat facility

• 4rt Production Facility:

• 2021: Sonipat (Haryana)
• Land: 900 acres land
 Price War Situation and Plant Expansion:
(Dis)Economies of Scale

• Production capacity achieve EOS and become source of sustained competitive advantage – Is it
wise for Maruti to increase its production capacity further.

• What opportunity do they have by installing additional capacity? Market growth?

• What threat do they have from by installing additional capacity? diseconomies of scale?

• Evaluate the expected time by which the proposed plant would be running at maximum
capacity – build different scenario - 10%, 15% and 20% growth rates

• What should be the payback period for the investment in the new plant.
 Price MC1

Automobile MC

Sector: P3
MC2
P1
Price War
P2

Kinked Demand
Curve:
Oligopoly
Q3 Q1 Q2
Competition Output
 Shift of Indian Auto Market:
Small Car to Mid-Size Cars

Luxury cars Luxury cars

Compact, super Compact, super

‘ compact, mid-size car
compact, mid-size car
Small, entry- Small, entry-
level car level car
 Electric Vehicle Market: Early Vs Late Movers?
Buying Criteria Weightage Maruti: H/M/L Mahindra: H/M/L TATA: H/M/L
Levels of Activism
Infrastructural
Cost Implication
Issues
Revenue Implication
Levels of Activism
Product
Cost Implication
Issues
Revenue Implication

Levels of Activism
Pricing Cost Implication
Issues
Revenue Implication
 Maruti Suzuki: Sustaining Competitive Advantage
VRIO TEST

Difficult 10
9
8
7
6
Difficult to 5
copy 4
3
2
Easy 1
1 2 3 4 5 6 7 8 9 10
Cheap Costly
Costly to copy
Electric Vehicle Market: Early Vs Late Movers?

Infrastructural Product
Issues Features Issues
Cost Leader
Vs
Differentiators

International Indian
Conventional, Electric, Hybrid
Players Players
Market
Penetration
(pricing) Issues
 Ways to Fight a Price War

Ways to Fight a Price War

SN Tactic Example

Nonprice Responses

Reveal your strategic intentions Offer to match competitors’ prices, offer everyday low pricing, or
1
and capabilities reveal your cost advantage

Increase product differentiation by adding features to a product, or

2 Compete on quality build awareness of existing features and their benefits.
Emphasize the performance risks in low- priced options.

Form strategic partnerships by offering cooperative or exclusive

3 Co-opt contributors
deals with suppliers, resellers, or providers of related services
 Ways to Fight a Price War

Ways to Fight a Price War

SN Tactic Example
Price Responses
Offer bundled prices, quantity discounts, price
1 Use complex price actions
promotions, or loyalty programs for products

Introduce flanking brands that compete in customer

2 Introduce new products
segments that are being challenged by competitors

Adjust the product’s regular price in response to a

Deploy simple price
3 competitor’s price change or another potential entry into
actions
the market
Differentiation/Focus Strategy

Netflix
 Is Innovation Real ? 1
Rate Your Solution (1-10)

A1.1: Is there a need or desire for the product ?

A1: A1.2: Can the customer buy it ?
Is the Market
Real ?
A1.3: Is the size of potential market adequate ?
A1.4: Will consumer buy the product ?
A: Is it Real?

A2.1: Is there a clear concept ?

A2: A2.2: Can the product be made ?
Is the Product
Real ?
A2.3: Will the final product satisfy the market ?

1. Day, G.S. (2007). “Is Innovation Real? Can we win? Is it worth doing? Managing Risk and Rewards in an Innovation Portfolio”, Harvard
Business Review, December, p. 1-13.
 Can we win ? 1
Rate Your Solution (1-10)

B1.1: Does it have competitive advantage ?

B1: Can the B1.2: Can the advantage be sustained ?
product be
competitive ?
B1.3: How will competitors respond ?

B: Can we win?

B2.1: Do we have superior resources ?

B2: Can our B2.2: Do we have appropriate management ?
company be
competitive ?
B2.3: Can we understand and respond to the
market ?

1. Day, G.S. (2007). “Is Innovation Real? Can we win? Is it worth doing? Managing Risk and Rewards in an Innovation Portfolio”, Harvard
Business Review, December, p. 1-13.
 Is it worth doing ? 1
Rate Your Solution (1-10)

C1.1: Are forecasted returns greater than the costs

C1: Will the product ?
be profitable at an
acceptable risk ?
C1.2: Are the risk acceptable ?

C: Is it Worth Doing?

C2.1: Does the product fit our overall growth

C2: Does launching strategy ?
the product make
strategic sense ?
C2.2: Will top management support it?

1. Day, G.S. (2007). “Is Innovation Real? Can we win? Is it worth doing? Managing Risk and Rewards in an Innovation Portfolio”, Harvard
Business Review, December, p. 1-13.
 Is OTT Market in India attractive? Why (Not)?

Macro Socio-Economic Factors

(Current and Future)
• 5G technology
• Mobile Users
• Internet Users
Supply Potential Demand Potential
(Current and Future) (Current and Future)
• Video streaming fee OTT Market • Raw content
• Original Content (USP) Attractiveness • International content
• Affordable subscription • Big market
• Lower mobile and Micro-Industry Forces • Audience (20-35)
internet price (Current and Future) • Untapped market
• Alternative devices • Competitors • Convenience
• Regulators
• Suppliers
• Collaborators
How OTT Disrupted the Entertainment Industry
 How Disruptive Innovation Operates

“Disruption” is a process whereby a smaller company with fewer resources is able to successfully
challenge established incumbent business.

• Incumbent Focus: Improving products/ services for their most demanding (usually most
profitable) customers - Exceed the needs of some segments - Ignore the needs of others.

• Disrupter Focus: Begin by successfully targeting those overlooked segments, gaining a

foothold by delivering more-suitable functionality - frequently at a lower price.

• Disruption: When mainstream customers start adopting the entrants’ offerings in volume,
disruption has occurred.
 OTT Vs Cinema: The Economics of Bundling

• Hollywood / Bollywood studios - exclusive “windowing” model to release their films.

• Price-discrimination strategy - People pay $15 for a theater ticket if they could rent the same
movie for $4.99 a few weeks later?

• How can OTT be so successful while rejecting: exclusive theatrical release and offering free on
streaming?

• OTTs are not in the business of selling individual movies to many different customers.

• OTTs are in the business of selling many different movies to individual customers - in bundles.
 OTT Economics of Bundling

• The more products a seller can offer consumers in a bundle, the better that seller can predict the
average value of the bundle across different consumers.

• Not every consumer assigns the same values to the individual movies in the bundle, but in a
large bundle that doesn’t matter: the differences in the individual values average out.

• If a seller can accurately predict the average value a subscriber is willing to pay for all the
movies in the bundle, then it can set a price just slightly below that value.

• OTTs allow to make a film that would have never been made in a traditional theatrical release.

• Personalised and personal experience – dynamics of devices

• Cinema (city), TV (family), Laptop (limited friends/family), mobile (individual)

 Competitors, their Value Proposition &
Offerings?
OTT Platforms Plans
Netflix • Monthly plans: Mobile Plan: ₹199- only on smartphones and tablets;
• Basic Plan: ₹499 - Standard definition (SD) or 480p resolution;
• Standard Plan: ₹649 -HD streaming and access to two screens at the same time;
Premium Plan: ₹799 - HD and Ultra HD streaming & access to four screens at the same
time
Prime Video • ₹129/Month
• ₹999/ Year
• 3 per account, 2 if the same show is streamed on both screens
Disney’s Hotstar • Premium: ₹299/ Month & ₹999/ year;
• VIP: ₹365/ Month
VOOT • Free
SonyLIV • Free but Charges for Premium content: ₹29 for 7 days,
• ₹99 for 1 month,
• ₹299 for 6 months
• ₹499 for 12 months
MXPlayer • Free
 Business Model of Netflix, is it Unique?
Hotstar Netflix Amazon Prime MX Player VOOT
Video
Total 100 million+ 500 million+ 100 million+ 500 million+ 100 million+
downloads
Monthly 300 million+ - - 176 million+ 50 million+
active user
Revenue Freemium SVOD SVOD AVOD Freemium
model
Language English, Hindi, Hindi, Nepali, Hindi, English, Hindi, Malayalam, Hindi, Malayalam,
offered Malayalam, Tamil, Assamese, Bengali, Malayalam, Tamil, Tamil, Telegu, Tamil, Telegu,
Telegu, Marathi, English, Tamil, Telegu, Marathi, Marathi, Kannada, Marathi, Kannada,
Kannada, Gujrati, Urdu, Marathi, Kannada, Gujrati, Gujrati, Bengali, Gujrati, Bengali,
Bengali Malayalam, Telegu, Bengali, Punjabi English, Punjabi, English
Gujrati, Kannada Bhojpuri
Content TV Shows, TV shows, TV shows, TV Shows, TV shows, Movies,
library Movies, LiveTV, Movies, Kids, Movies, Kids, Movies, News, News, Sports,
Original Sports Originals Sports, Originals Music, Sports, Originals
News, Esports Originals
 PROFIT
FORMULA

KEY • Revenue model

RESOURCES • Cost structure
• People • Margin model
Customer Value • Technology, • Resource velocity
Proposition (CVP) products
• Target customer • Equipment
• Job to be done • Information
• Offering • Channels KEY PROCESSES
• Partnerships,
alliances • Processes
• Brand • Rules and metrics
• Norms

Elements of A Successful Business Model

 Business Strategy of Netflix?
Is it effective in India?

NTEFLIX Competition
Aggregator
(Mapping High, Average, Low)
• Subscription – High End,
• Sports
1. Exclusivity (H-A-L) Middle, Low
• Food
2. Reputation (H-A-L) • International Market (199
• Entertainment
3. 190 Countries (H-A-L) Countries)
• Fashion
4. Competitive Pricing (H-A-L) • Subscription – No. of
• Education
5. Original Content (H-A-L) Subscribers
• Infotainment
6. Local Responsiveness (H-A-L) • App Device
• Health
7. Adaptiveness of devices (TV, • Visibility
• Tourism and adventure
Laptop, Mobile) (H-A-L) • Video Quality – Normal,
• Others
HD, UHD