Strategy

Strategy and Marketing Primer (version 3.0)

This set of "crib notes" is a review of marketing and strategy tools and concepts that you may find useful for your project in EES&OR 483. The intention is not to give you more work or reading material, but rather to provide you with an aid and reference in formulating and analyzing your problem.

All of the concepts covered in lecture and the assigned readings are reviewed here. You might find the summaries a helpful reminder of what the concepts are and how they can be valuable in your project. Also, some topics found here are not covered in lectures or assigned readings (specifically, Sections 2.2, 2.4, and 5.1-5.5). These are additional topics on conceptual (i.e. MBA) marketing and strategy. Since lectures in this project course are limited and emphasize quantitative models for strategy, we do not have the time to cover all the topics in class. However, if you are not already familiar with basic marketing and strategy frameworks, we want to offer you more exposure to them. You may find this broader exposure helpful for several reasons:

* understand the context of what is covered in lecture

* properly frame your project

* find leads to other concepts that may be particularly relevant to your project

CONTENTS

1 GENERIC STRATEGY: TYPES OF COMPETITIVE ADVANTAGE 1

2 CONCEPTUAL STRATEGY FRAMEWORKS: HOW COMPETITIVE ADVANTAGE IS CREATED 2

2.1 PORTER'S 5 FORCES & INDUSTRY STRUCTURE 2

2.2 CORE COMPETENCE AND CAPABILITIES 5

2.3 RESOURCE-BASED VIEW OF THE FIRM (RBV) 6

2.4 ALTERNATIVE FRAMEWORKS: EVOLUTIONARY CHANGE AND HYPERCOMPETITION 7

3 ADDITIONAL TOOLS FOR STRATEGIC THINKING AND ANALYSIS 9

3.1 GAME THEORY 9

3.2 OPTIONS 10

3.3 STRATEGIC SCENARIOS 12

3.4 OTHER PARTICULARLY RELEVANT EES&OR CORE CONCEPTS 13

4 MARKETING MODELS FOR PRODUCT STRATEGY 14

4.1 NEW PRODUCT DIFFUSION MODELS 14

4.2 CONJOINT ANALYSIS 15

5 CONCEPTUAL MARKETING FRAMEWORKS 18

5.1 THE FOUR P'S OF THE MARKETING MIX 18

5.2 MARKET-ORIENTED STRATEGIC PLANNING 18

5.3 MARKET SEGMENTATION, TARGETING, AND POSITIONING 20

5.4 ANALYZING INDUSTRIES AND COMPETITORS 22

5.5 THE TECHNOLOGY ADOPTION LIFE CYCLE: DISCONTINUOUS INNOVATIONS 23

1 Generic Strategy: Types of Competitive Advantage

Basically, strategy is about two things: deciding where you want your business to go, and deciding how to get there. A more complete definition is based on competitive advantage, the object of most corporate strategy:

Competitive advantage grows out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. There are two basic types of competitive advantage: cost leadership and differentiation.

-- Michael Porter, Competitive Advantage, 1985, p.3

The figure below defines the choices of "generic strategy" a firm can follow. A firm's relative position within an industry is given by its choice of competitive advantage (cost leadership vs. differentiation) and its choice of competitive scope. Competitive scope distinguishes between firms targeting broad industry segments and firms focusing on a narrow segment. Generic strategies are useful because they characterize strategic positions at the simplest and broadest level. Porter maintains that achieving competitive advantage requires a firm to make a choice about the type and scope of its competitive advantage. There are different risks inherent in each generic strategy, but being "all things to all people" is a sure recipe for mediocrity - getting "stuck in the middle".

Treacy and Wiersema (1995) offer another popular generic framework for gaining competitive advantage. In their framework, a firm typically will choose to emphasize one of three "value disciplines": product leadership, operational excellence, and customer intimacy.

Porter's Generic Strategies (source: Porter, 1985, p.12)

References:

* Porter, Michael, Competitive Advantage, The Free Press, NY, 1985.

* Porter, Michael, "What is strategy?" Harvard Business Review v74, n6 (Nov-Dec, 1996):61 (18 pages).

* Treacy, M., F. Wiersema, The Discipline of Market Leaders, Addison-Wesley, 1995.

2 Conceptual Strategy Frameworks: How Competitive Advantage is Created

Frameworks vs. Models

We distinguish here between strategy frameworks and strategy models. Strategy models have been used in theory building in economics to understand industrial organization. However, the models are difficult to apply to specific company situations. Instead, qualitative frameworks have been developed with the specific goal of better informing business practice. In another sense, we may also talk about "frameworks" in this class as referring to the guiding analytical approach you take to your project (i.e. decision analysis, economics, finance, etc.).

Some Perspective on Strategy Frameworks: Internal and External Framing for Strategic Decisions

It may be helpful to think of strategy frameworks as having two components: internal and external analysis. The external analysis builds on an economics perspective of industry