Chapter 1

What is a business – an organizational unit that has a defined strategy and a

manager with sales and profit responsibility. Can be defined by any one dimension
– product line, country, segments, etc. A company can have multiple businesses in
order to hit as many segments and markets as possible. See P&G.

Strategy – in order to be strategic, a company must gather information about their

customers, competition, trends, and themselves. They must not focus on
operational excellence because it tends to lead to sameness, or a lack of innovation.
They must be willing to trade-off – chose not to do certain activities or address
certain markets (maybe less profitable or lacking in long-term growth). They must
be innovative in order to be different from competitors.
Why is innovation necessary – customers change, their expectation change,
substitutes become available, new competitors emerge, your product is copied,
advantages deteriorate over time.
The role of marketing in strategy is to be the primary driver of initiatives
(front line). Secondly, to drive growth strategy for the firm. Third is to deal with the
lack of communication/cohesion amongst siloed businesses in relation to the
strategy (front line). Fourth is to participate in the development of business
strategies.

Business strategy – made up of four dimensions – where to compete (product-

market investment decision), how to compete (value proposition, assets and
competencies, functional strategies and programs).

Where to compete
pushing existing products in existing markets (market penetration) existing
products to new markets (market expansion), bringing new products to existing
markets (product expansion), new products to new markets (diversification)
Sometimes, expansion is not the best direction. It can be risky and expensive. In this
case, companies may invest in what they currently are doing. In order to do so, they
must look at their set of products/current investments and decide a course of
action. They can invest to grow (stars), invest to improve (problem child), milk the
product (cash cows), or liquidate and move on (Dogs).

How to Compete
1. Customer Value Proposition – in the end, a product or offering needs to
appeal to customers, both new and existing. A product or offering is valuable
to the customer if it has functional, emotional, social, or self-expressive
benefits.
2. Strategic Assets and Competencies – help provide sustainable competitive
advantages.
Strategic Asset – a resource, such as a brand name or customer base,
that is strong in comparison to competitors.
Strategic Core Competency – a body of knowledge and skill that
creates integrated systems that reinforce a systemic advantage not easily
copied. Ex. Canon’s core competency was their expertise in imaging.
Must be specific!
3. Functional Strategies – competitive advantages that are derived from
proprietary or difficult to copy processes – manufacturing, distro channels,
etc.
Sustainable competitive advantages – a strategic advantage that can last. It is
essential to have these in order to create a product that competitors cannot copy
and to ensure long-term growth. Develop assets – brands, distro channels, or
customer bases.

Point of difference – something that you do different from everyone else. Maybe it’s
the same thing, but done differently, or at a lower cost than competition. Something
that is not easily copied.
Differentiation – a difference that people are willing to pay more for
Low Cost – refers to the cost to produce, not customer pricing, something
less than competitors.

Added value – net contribution of the product to the value chain. Book believes it’s
the monetary value of what was created from the supplier cost to the customer
value ($5.5 mil in this instance). Professor believes it is the monetary difference
between what product costs in comparison to the nearest alternative (ex. Another
competitor is able to create a similar product for $9 mil. The added value is $1.5 mil
because they have a similar product for $7.5, a $1.5 mil difference). Created by
doing the same thing for less.

Supplier Power – suppliers have power in negotiations dependent on:

Number of competitive suppliers
Competitiors prices, delivery time
Industry capacity

Customer Power – customer has power in negotiations dependent on:

Change/availability of suppliers
Changing components
Flexibility

Porters Five Forces that drive profitability

1) Middle – rivalry among existing competitors.
2) Threat of new entrants
3) Threat of substitutes
4) Bargaining power of buyers
5) Bargaining power of suppliers

Chapter 2 - Customers
External Analysis – looking at the outside influencers of how successful a business
can be – customers, competitors, markets, etc.
They can lead to strategic uncertainties – specific unknown elements that
will affect the outcome of a strategic decision. Ex. An insurance company asks,
“What are the potential loses from a major earthquake?”

Three steps in External Analysis

1) Define the market
2) Define the customer via segmentation. Understand customer motivations.
3) Define competition – potential vs current

Defining the Market – Broadly versus Narrow

Define the customer – segmentation – identification of customer groups that

respond differently than other groups to offering.
Should be judged on 3 dimensions – can it be done, can it be maintained, is it
profitable?
Customer Motivations – what makes a customer want to purchase something?
Understanding this can lead to Unmet Needs – represent opportunities and threats.

Chapter 3 – Competition
Identifying Competition – Current vs Potential
Current – research – customer surveys. Strategic Groups – which do you fit into?

Potential Competition
– Geographic expansion – a cookie company in NY moves to NJ.
 – Product Expansion – Rossignol begins selling ski clothing.
– Backward Integration – Cambells begins making their own cans
– Forward Integration – Apple opens retail stores.
– M&A – small company is bought by large company and weaknesses are
overcome
– Retaliatory or Defensive strategies – Microsoft doesn’t like other software
firms biting into windows, retaliates.

Assets vs Competencies

Chapter 4 – Market/Submarket Analysis

What is a market – a place where buyers and sellers come together. Where your
offering aligns with other customers needs better than the competition. Always
remember, MARKETS ARE FLUID!

What can alter a market?

– New competitors
– New technologies
– Changes in the cost structure
– Willingness to pay on buyers part
– Mature/declining demand

Submarket – segmented markets within a category – think hybrid in SUV market.

Market Structure
How a market is setup determines how much money you can make it in, how much
room there is for growth, and what the level of competition will be.

Market stability
How stable a market is will determine how much your company is willing to invest
in long-term, and how intense the competition will be. It also will determine how
much money available to be made and how much you can grow.

Porters Five Forces of Competition

Rivalry among current competitors – rate of growth, level of competition, height of
exit barriers, size/number of competitors.
New entries – entry barriers – economies of scale, capital requirements, switching
costs, regulatory restrictions
Substitutes – low switching costs, trade-offs
Power of Suppliers – no dependent on industry, supplier switching costs, threat of
forward integration
Power of Buyers – low switching costs, substitutes exist, buyers can integrate
downward, products not critical to buyers

Chapter 5 - Environmental Analysis and Strategic Uncertainty

Key sources of Uncertainty

1. Technology Trends – what new technology is coming to pass, what old
technology is maturing? BMG and napster.
2. Economic Trends – recessions, depressions. Other country’s and their
current situation.
3. Government trends – regulation and legislation? Chinas currency
manipulation undermining US economy.
4. Consumer trends - cultural, consumption, demographics, etc (baby boomers)
5. Innovations – incremental vs. substantial vs. transformational

Forms of Innovation
Transformational – changes what people buy, the value proposition, and the
assets/competencies needed
-tends to come from outside the industry. New assets/capabilities

Substantial – significant change. New offering. May upset the structure of the
compettive set or value chain

Incremental – makes the offering more attractive or less costly

-tends to be driven by incumbents. Doing better what they already do well.

Impact analysis – involves assessing the impact and immediacy of the trends and
events that are related to each strategic uncertainty. Putting them into this graph
can help:
Scenario Analysis – a method of exploring different assumptions about the future.
Then creating plausible scenarios, creating strategies for each, determining the
likelihood of those scenarios happening, and then evaluating the result of the
strategies across each scenario. The main purpose of this is to be ready for anything
that could happen to your firm.

Time/Industry Evolution
When you start an industry, there is a gap between consumer needs and what you
can provide. Over time, consumer needs remain relatively the same, while your
capabilities surpass the needs-state (line). After that, costs decrease bc
standardization becomes available.

Chapter 6 - Internal Analysis

Four aspects of internal analysis
1) Financial Performance
2) KPI’s
3) Strengths and Weaknesses
4) Opportunities and Threats

Financial Performance
The ultimate measure of a firms ability to prosper and survive is its profitability.

Return on Assets (ROA) = Profits/Sales X Sales/Assets

= Profit Margin x Asset Turnover

Example below:
KPI’s
Customer Satisfaction/Brand Loyalty – exit interviews, life time value,
Product/Service Quality – how good is the product/service
Brand/Firm Associations – what do consumers think about the brand/firm?
Relative Cost – how does product/service compare cost-wise to competition

Innovation – how often are new products introduced? Does company allow for
innovation?
Manager/Employee performance
Values/Heritage – corporate values and how they are spread across firm

Strengths and Weaknesses

Same as SWOT

Threats and Opportunities

Same as SWOT