Tag Archives: Competitive Advantage

Nintendo Business Strategy Analysis for 2017 and Beyond

The following is an analysis of Nintendo’s strategic position in the marketplace. What we’re looking at here is analyzing how they performed in the past, what are the strategic challenges? What is the challenges of their industries, because they are in several industries actually if you think about it, and how can they improve the performance? So hopefully, you enjoy.

Nintendo-Strategic-Analysis-for-2017-&-Beyond-Infographic

 

As I said, it’s a strategic analysis of the consoles and handheld devices industry with Nintendo and where it fits within that. So it’s a hardware dedicated video game platform that we’re interested in understanding. That means we’re not interested in necessarily at the core of the software, which is where Nintendo actually does really well and they sell quite a lot of licensing etc. around their products and characters. It’s not the core focus, it will be on consoles. So just give an introduction, the team here, this is the team that we had and their names are below. I’ve just kind of made everyone anonymous. Because I thought it was more appropriate to do so.

Anyway, so here we go, let’s talk about the first thing. Let’s get a bit of a business overview here. So there’s a $4.6 billion worldwide market for hardware and games and software and this industry is very competitive and it requires a lot of intensive research and development. So that’s just the general gist of the industry, so how does Nintendo fit into this? What is Nintendo, first of all? Well, if you remember maybe as a kid, at least I did on Christmas day, getting a Super Nintendo was probably the best Christmas present I ever got. It was I think 1992 and I was pretty excited about it. I didn’t really know what it was to a certain extent. Well, that’s not entirely true. I did know what it was because a buddy down the road, he had the original Nintendo system and we used to play Mario together.

nintendo-background

Anyway, so what makes Nintendo interesting is their core value proposition. What is it about Nintendo that makes them so strong in the marketplace? And I think there’s three or four, in a sense, core areas where they dominate, and its one is the plug-and-play. So here, much like Apple, it’s a user-friendly computer interface that you can use here and Nintendo allows young children to play video games interchangeably without any technical skill whatsoever. So you can swap in games easily done, and that was quite a significant initiative in the early ’80s. You also have this element of characters and trust. So you’ve got Mario, who’s basically a Disney-like Mickey Mouse and at the same time, you have parents who know that the video game content is tightly curated by Nintendo and it’s well-put-together. Everyone loves Nintendo products for this reason, right? And you also have this integrated closed sys, so like Apple or even we use in this sentence here, Amazon’s Kindle line of e-readers, Nintendo really needs to have cooperation from a whole ecosystem of publishers because it’s a closed system. They’re very controlling of the content that’s made and of course, this is the big revolution we’ll talk about later in terms of timing. They basically disrupted the arcade industry and video computer…computer games industries in the ’80s.

In terms of business units, we know Nintendo’s quite complex. It’s got quite a few subsidiaries and it really thrives on locking customers into their closed system through the appeal of flagship characters and obviously, we can think of Super Mario Brothers as that leading experience and software that everyone wanted to play. But we wanted to focus in on the console hardware itself because that is an area where we can parse and avoid talking about the App Store and Android stores in great depth which complicates our analysis quite a bit. So in essence, were treating Nintendo here as a manufacturer and in fact, they’re on the 8th generation of consoles at this point.

I think it’s important now to talk about the value chain that exists for Nintendo. So you’ve got this idea of a pretty well-established industry now. It’s about 25-30 years…35 years old actually. And it’s gone through quite a bit of change but there’s still some fundamentals. So you have publishers, they’re the people who are responsible for financing and managing the marketing titles. They’re very much a part of getting game developers to produce good content, and then launching it on various console platforms. So you can think, of course we’re talking about Sega historically, Sony, Xbox and Nintendo. Then you’ve got the actual developers, really a critical piece obviously, the people who actually create the games. Sometimes that’s third party, but sometimes Nintendo itself creates games in-house. But no matter what, you still have to have third-party developers to really give the ecosystem as it were, right? The array of potential games you can play. You want to give it the widest breadth as possible.

And then you’ve got at the core of it, what we care about here, is the console makers themselves and that’s Nintendo’s story directly. Certainly, consoles actually are a loss leader to a certain extent. That’s kind of built into the model and there’s a lot of in-house research and development that is undertaken to make the consoles effective and innovative, so you can think of when Wii came out there was a lot of R&D that must have been at play in order to make that major leap that they did in 2006. So you also have distributors, so those are obviously kind of connected to publishers in that they sell and get the video game software, part two and the consoles, to the various marketplaces. And of course, you’ve got your retailers, so you’ve got the classics, the major players like Walmart, but you also have these small boutique electronic stores like E&C Games on Spadina in Toronto, Canada. You know, these are enthusiasts who love Nintendo.

nintendo-industry-analysis

So you can actually see here then that… I’m just going to bring my cursor out, 1.87% is where they are and the industry is .84%. So the industry is unattractive but they actually are doing competitively well in an industry that is very unattractive. Still an unattractive industry, but they have a competitive advantage in an underperforming industry, interesting enough. You’ve got a 10%, so just giving a little more color to that, I don’t think it’s really worth getting into the nuance here. And again as I was saying, a return on sales is way more important than ROA. You could read that on your own time.

So looking at this in a more visual format, I’ve got this piston chart. You’ve got the industry average here… Sorry I can’t get this cursor out of the way. Maybe I’ll just remove the cursor. And then you’ve got industry average and you can see that Nintendo has a competitive advantage. If we look at just 2015 data… If you look at the ROS globally again, it’s 5% and then the industry is underperforming at -4.2% of less of the actual average there and you can see Nintendo has a disadvantage in the global economy but actually an advantage in the industry. A bit nuanced here, but basically the message is: “Stay out of consoles. Don’t go… If you’re going to start a new business, don’t try to build a plug-and-play console system for television sets”, that’s pretty much the message here.

But the console generation pressures is why arguably this is all happening. So the technology change makes every manufacturer of this hardware wary and probably weary as well because you have to basically start a new… Build a new console roughly every 2.5 to 5 years, and you’ve seen that. You’ve got your PS1, PS2, PS3, PS4, so clearly they have to generate new platforms regularly to stay relevant. And the ROS piston chart here, again just giving a little more flavor to this, it’s much like Macintosh’s 1984 situation with the Macintosh. What I mean by that is actually, the original Macintosh which was released in 1984 was actually not very successful. It wasn’t very powerful as a computer and as a result, of a lot of software developers really didn’t line up to build on the Apple Macintosh platform. Now, as a result, Apple struggled greatly. They even got rid of Steve Jobs, one of the founders of Apple in 1985 because of the struggles the company was under. So if you’re going to make a closed system, you better make sure your product is very very good. This is why consoles are just so unattractive if you’re unsuccessful in your product. Of course, Nintendo’s in this business because, you know, secretly if you can create a really great console and get lots of buy-in from software developers, you’re in the money as it were.

nintendo-five-forces

Expanding a bit on this, Michael Porter’s five forces are probably one of the most critical tools for analyzing any business, so we will just go through it really quickly here. Buyer power is medium… Sorry. As a Power of Suppliers’ medium, Buyers Power’s medium, Threat of Substitutes medium, Rivalry is high and Threats of Entry are low.

Let’s go through this quickly. So there’s a high dependency on outside manufacturers that produce key components or simple products. You also have the sort of everyone wants to work for the big three if you’re going to be producing software products or hardware, sorry. Again sorry, confusing… We’re working on the hardware suppliers issue here so the cables, the actual plastic casing and all this has to be accounted for, so they don’t necessarily have that much to pop supplier power, but another supplier would be the game developers themselves. So you might actually have a game that launches exclusively on the Wii U as is the case with Bayonetta 2. Here clearly they don’t have that much as a supplier power. They’re giving it up, they’re saying, “Nintendo you’re so great, we want to work with you”, so the relationship isn’t, you know, like Nintendo completely owns the suppliers that they work with. They can affect Nintendo’s success, and as I said earlier if they don’t want to play, if they don’t want to cooperate with you and build games for your platform, you’re in serious trouble.

On the buyer’s level, so buyer power, consumers are constantly looking for the next console, so they can kind of mess around with your goals, but at the same time they’re really loyal. A lot of people love Nintendo consoles, so it’s a bit of a mixed conversation here and sales of consoles are really all about the video games that are launched which are extremely popular. In fact, I remember when the Nintendo 64 came out, I was really excited about Goldeneye because that was an amazing game that my cousin had bought and was playing on his Nintendo 64, so I had to get a Nintendo 64 for that reason.

Threats of substitute is another key idea. Here it’s a… just to make sure you understand it, the threat to go do something else with your money, your time. So there’s obviously lots of substitutes now, particularly with smartphones and computers which we’ll talk about a bit. And then there’s the development of portal system,s which is good because you know, Gameboy and Nintendo DS actually really do well in this space, but there is always that threat. There’s so many other places and areas of activity that you can apply for entertainment and so as part of this, Nintendo’s responded by trying to create “a home entertainment centre” around their product.

Rivalry is really interesting. I mean, you can recall perhaps there was Sega company which eventually was disband. Basically, they in the 1990s were really competitive against Nintendo and really critical of Nintendo’s Super Nintendo and the Sega Genesis advertisements were really aggressive and even to this day, you can see a lot of game theory between the different players. So Sony and Xbox, they’ll try to time the release of their latest console in line with what their competitor is going to do. So it’s kind of a prisoner’s dilemma situation if you’re familiar with that theory.

And then you’ve got the Threats of Entry, it’s really not that high. People don’t want to go create consoles, particularly because of the fact that it is so difficult to do but an important point at the very bottom that I wanted to highlight is that entry is possible. In fact, that’s what Sony and Microsoft did in the ’90s. Of course, entry is possible when you’re a huge successful business already, when you look at Microsoft in particular and Sony as well. And I also want to point out at the bottom there, I don’t know if you can see that flashing thing there, okay.

So value creation, those three: the supplier, buyers, and substitutes. That’s the places, those are the ideas, factors that inhibit or allow for the creation of value. So and then if you look at the value capture side of things it’s the rivalry and entry that is really critical. So clearly the value capture area is a bit weak in this particular industry because of the intense rivalry when they’re competing to steal literally, take away customers or hopefully have customers buy both platforms or, you know, multiple platforms.

nintendo-competitive-position

So I think we need to dive a little deeper on Nintendo’s brand identity and so again, I’ve already emphasized it’s about beloved characters, child-friendly and plug-and-play components, but I wanna understand what they did recently that’s quite fascinating. They’ve kind of moved to broad differentiated and again, we have to give a little background around what Michael Porter talks about here. If you can see at the bottom here you have four quadrants, so you’ve got on the left, you got broad and narrow and at the top, you’ve got low cost and differentiated. These are different businesses or positions that you could take as a business, so you could see that the arcades were narrow and low-cost. So they were only focused on, you could only literally play one game on an arcade machine and it was relatively low cost. It’s not like customers had to buy an arcade to play it. No, you actually had arcades, literally the places where you could play these games and for the longest time, I’d say Nintendo was quite narrow and differentiated. When we see differentiated, we mean premium so more expensive, exudes premium characteristics like distinctiveness whereas low-cost is not as distinctive so, clearly they are… They were for the longest time narrowly differentiated and then 2006 they said, “Why don’t we include…expand our market”, “Let’s go after adults”, “Let’s go after seniors”, “Let’s try to have fun with that” and that’s exactly what they did.

So customer segments is really important, I think. As you can understand, with the introduction of the Wii, Nintendo was really targeting on non-gamers quite a bit and if you look on the right I’ve got a quote here from Miyamoto, the creator of Mario and other major successful characters from Nintendo, was basically saying, “We’re trying to make it from machine that everyone, parents can love” this is what the brand is. And I think earlier on, I think in the business overview section I had sort of the value propositions of Nintendo, and here I’m saying that we’ve actually added one.

So you’ve got the plug-and-play closed system, beloved characters, child-friendliness but then you also have the non-gamers casual gamer segment. That’s what Nintendo said, “We’re going to take over in 2006 with the Wii” and they were very very successful in doing so. And again, their philosophy is it’s a toy. They are very much a playful company in that sense and the Wii contributed to the idea of who they are rather than detracting from it. They actually made a lot of sense for them, so you’ve got…and this is a really tough market. You have to have, you know, strategic issues here.

 

So there are a lot of strategic issues that they have to deal with and I’ve mentioned it earlier. As mentioned, you know, this decision of the short life cycles of their platform. So you have a lot of other issues as well like excess and industry…inventory. So for example of your console’s really unsuccessful and you produce a million versions of this device and only half a million are actually sold, then you’re in serious trouble and you have too much inventory, and as we’ll discuss later, there’s a resource intensive console life cycle again, so you’re constantly propping up and preventing the industry from going into decline through releasing a new console or literally distracting yourself which is what they did with the Wii. And that was really a critical move, by the way. So the traditional gaming to new neo-gaming, this is kind of how they managed to keep themselves propped up, and you can read a little more on this on the bottom. I’m not gonna go through this in detail.

They have some obvious strategic challenges. You’ve got cannibalization I’ll just mention, where you have handheld devices and then now Nintendo is considering working a lot more with other platforms like smartphones, very similar to what Apple had to do with iTunes for the PC, and of course as I mentioned again and again, the closed system disadvantages, I should say closed by the way. Nintendo is a premium game developer with exclusive hardware and so if you people don’t buy into it then you really suffer and there’s a nice little quote at then end there just to round this whole section up.

nintendo-industry-trends

Industry trends, so Nintendo started multiple S-curves and I think it’s quite interesting just to see how they might have been…they might be about to be toppled by smartphone but it’s not totally clear what the future holds.

So here’s the story, you’ve got way back in 1980, you’ve got the PC revolution and arcades, the market is growing. And then the home entertainment games industry kind of explodes with Atari and Nintendo. Atari goes bankrupt pretty quickly but Mario Brothers and the Nintendo system is very successful and throughout the ’90s in 1995, you have a Nintendo 64 and you’ve got a lot of success. So that should be shifted over this thing here, probably should be over here but what… No worries. So you’ve got multi-dimensional games, 3D games, and then take a look at this. Basically they jump their own curve, their S-curve and bring in and reposition Nintendo radically with the Wii and that’s sort of been the curve they’re going on, and now we have… We are seeing further hybrids. Nintendo’s bringing out its own hybrid called Nintendo Switch, but smartphones are clearly disrupting them and this is in a very short period of time here, this is 2006 and 2007. So things are changing fast.

An interesting sort of look at what the consoles did. You had Nintendo, you had Super Nintendo, Nintendo 64, GameCube, the Wii, and the Wii U, you can clearly see the stock prices impacted by the success and innovativeness of a console. So clearly Nintendo’s Super Nintendo was I remember when I got it at Christmas like I mentioned earlier, it was a pretty big deal for me, and then Wii was also quite revolutionary because it was saying, “Let’s have casual gaming rather than hardcore gaming as the true value proposition of Nintendo.”

And I think the big challenge now is to understand, is this actually a glide path to history? Are the consoles as an industry in complete decline? And I think actually the answer is no, I think there’s still space here. But principally, I think also that the space is portable. People want to have the portability that a Nintendo DS or Gameboy allowed. Given that everyone is so used to smartphones now, the smartphone culture which has emerged in effect since 2007 since the release of the iPhone has been shaped by this drive towards portability. And actually, if you look at the performance of the consoles historically, Gameboy is actually one of the most well received consoles and Nintendo DS as well. So more so, than even the PlayStation Sony, the original CD-based PlayStation and PlayStation 2 was quite successful. So there’s a story here that people… The customers do like handheld devices and Nintendo needs to respond to that.

So now we want to look at sustainability. What is Nintendo going to need to do in the next couple years in order to remain relevant and grow as a business? Is it sustainable? Should they just abandon hardware, get rid of consoles and just focus on licensing their various characters? That’s a very legitimate question to ask, it’s a really legitimate question to ask because if you look at that industry as we already looked, at it’s not that great.

nintendo-sustainability

So we applied the VRIO approach here, so we’re asking the question is this valuable company? Obviously, they’re valuable. It’s a great manufacturer, well-known IP. Do they have the resources and capabilities? Yes, they’ve got the resources and capabilities, and is it easy to imitate them? No, it’s not easy to imitate Nintendo. They’ve got such a great reputation and style. I mean, I can imagine people could, it’s not that unbelievable to imagine but when it comes to the console, I don’t see that many big opportunities in the space. Although you could argue that with the Raspberry Pi anyone can build the console pretty quickly and do something cool with it. So I mean, I expect maybe the console industry to actually be disrupted independently of the software components, eroding of smartphones, eroding Nintendo’s profitability, but you also have the are they organized question? So is the firm organized? Nintendo is organized to succeed. I mean, they have had difficulties with CEOs not knowing where to go, being incredibly dependent on the success of consoles, the console that they launched, so those are also major issues but generally I think they’ve they focused on hardware which is has been a risk, but that’s their true identity. It’s a combination of software and hardware like an Apple. So, and as you can see with Apple, if you get things right the sky’s the limit in terms of profit.

Sustainability through innovation. So I just want to walk through these ideas about what Nintendo’s doing. They’re an industry where it’s a Red Queen industry, in a sense that you have to be running full speed at all times just to stay in place in the console industry because all these competitors, there they’re coming up with great new consoles to compete against you. And so I created sort of this quadrant system here. You’ve got on the vertical axis, you’ve got the real world to virtual and then to the left is ultra violent and the right as child-friendly. Clearly, Nintendo occupies that right side, the child-friendly side with Super Mario Maker and Pokemon Go which is augmented reality. So I can expect in the near future maybe they’ll do Mario Kart outdoors. I think that’d be hilarious, people running around in parks playing Mario Kart. And the competitors on the other side, there they’re just dominating in Halo, Battlefield, really graphic intensive games, high-resolution graphics.

So an interesting thought will be where do they go with this augmented reality? Do you think you can imagine people running around pretending to shoot each other? Probably not a good idea. But anyway… And then just to emphasize this is Mario’s Super Mario Run which is now available on Apple devices, so smartphones obviously. Big deal because for the longest time Nintendo refused to work with Apple’s platform, predominantly because of the terms and conditions and the commission that Apple gets for every company that has software on their platforms.

So I guess just to close off on this section, sustainability through new console adoption is critical. You need to get everyone on board and as I’m saying here, in order to succeed in 2016 everyone needs to switch to Nintendo Switch, and why I think Nintendo Switch is exciting because they are taking into account the revenue realities that, yes, Gameboy and Nintendo DS were the most successful Nintendo platforms. So if they’re the most successful Nintendo platforms then maybe we should make our console portable. That’s exactly what they’ve done here, so you’ve got plug-and-play, a closed system, as usual, beloved characters, child-friendly, casual gamer plus the new core proposition has to…core value proposition has to also take into account portability. So clearly, they’re making some great strides in the right direction. Of course, it all depends on execution. It depends on the execution for Mario Run, it depends on the execution for Nintendo Switch games, are the games any good? That has yet to be seen yet, so no judgment either way but that’s going to be critical. The actual customer experience has to be first and foremost.

nintendo-strategic-options

Finally, I just want to talk about strategic options. You’ve got the sort of, you know, general launching more hybrids, which is what they’re doing with the Switch, continue with the idea of the home entertainment center with the Wii Karaoke you can see here, you know, there’s potential areas that they could work on. They certainly have also done some work on past glories and they could look into virtual reality like everyone else is trying to do, just to introduce some additional value to a really challenging industry with consoles. So one framework that I’ve applied here is Roger Martin’s five questions framework. And we’ve positioned this as two options, so you’ve got remain as a game, toy company, or become a technology expert. This is sort of a throwaway thought about what Nintendo could do. And I think they generally seem to be doing the right things as you might have noticed with the sustainability section, they seem to be kind of doing exactly what we’re talking about.

But this section just all popped up at once. There’s a lot of words here but the questions you have to ask for any strategic decision is what are your aspirations as a company? What do you want to achieve? If you want to remain a toy then you want to be the preferred toy to play at all time and you want to make sure that Mario is marketed even to the level of theme park ride and create situations where you play Mario as a toy and he’s a fun character. If your aspiration is to be a technology expert, Nintendo would have to go and extend its expertise into retail channels and probably go build some Nintendo stores in every urban center and have intense video game parties or what not.

Where do you… Where we play? Which is important, but what areas does our company need to play to win? So with the option one, remain a toy, the current profit profitable niches and then also a family in senior homes and casual settings. Same thing with the option to how do we win? This is kind of a key question, the character awareness, creation of new characters, expand the fun to other dimensions.

Option two, if you want to be a technology expert, you’d want to specialize in stores and promote Nintendo expertise, become the industry technology champion for high-resolution graphics, which is not what they’re doing as you know. What capability do they need to make this happen? They need to attract more technology and creative talent, acquire more Miyamoto-style talent, you know, the creator of Mario. If they want to be a technology expert they should hire retailer management from existing tech examples, IE, you know, hire someone from Apple Store who runs the logistics around that and get some experts actually in those stores like the Apple Genius Bar. Get some Nintendo geniuses.

Finally, management systems. What management systems do they need to succeed? In option one, if you want to remain a toy company you want to have that horizontal diversification to create different plat…different areas of your marketing and that includes a theme park, for example. We’ll throw that idea out there because Nintendo is so similar to Disney, it’s kind of shocking. And finally option two for technology experts, what would you do with the management system? What management systems do you need? You need that vertical integration within the value chain, so actually try to absorb the publishers and developers a bit more. Don’t try to diversify, so don’t go into theme parks or cruise ships or whatever you want to do with your loved characters. Stay within your niche and focus on the technology, and own the value chain, thereby making it more difficult to imitate.

So, in conclusion, that’s the whole presentation. Thank you very much for listening to this. If you have any comments or questions, awesome. Please leave them below the video. If you liked this video please subscribe to Professor Nerdster and thank you very much for your time.

 

References

1.Nintendo Annual Report 2016. (2016, April). Retrieved November 30th, 2016, from

2.Shah, Nick. MBA Fellows Project: The Video Game Industry, And Industry Analysis from a VC Perspective. Tuck, Dartmouth. Center of Digital Strategies. (2005). Retrieved November 30th, 2016, from The Videohttp://digitalstrategies.tuck.dartmouth.edu/digital/assets/images/05_shah.pdf

3.Microsoft X-Box’s Gamble. Tuck, Dartmouth. Center of Digital Strategies. (2002). Retrieved November 28th, 2016, from http://digitalstrategies.tuck.dartmouth.edu/cds-uploads/case-studies/pdf/6-0011.pdf

4.Krishnan, Vijai. Gaming: Corporate Strategy in a Multi-Screen World. (April, 2013). Retrieved November 28th, 2016, from http://digitalstrategies.tuck.dartmouth.edu/digital/assets/images/Krishnan.pdf

5.Business Case: Nintendo’s disruptive strategy: implications for the video game industry. Harvard Business Review, 2008.

6.Game Industry Magazine. (2016, April). Retrieved November 30th, 2016, from http://www.gamesindustry.biz/articles/2014-09-08-the-end-of-the-console-era-as-we-know-it

7.Nintendo President Challenge. Fortune. (2016). Retrieved December 8th, 2016, from: http://fortune.com/2015/09/16/nintendo-president-challenges/

8.Pokémon Go. Fortune. (2016). Retrieved December 8th, 2016, from: http://fortune.com/2016/07/18/pokemon-go-may-force-nintendo-to-change-its-long-term-business-strategy/

9.List of Best Selling Game Consoles. (2015). Retrieved December 8th, 2016, from https://en.wikipedia.org/wiki/List_of_best-selling_game_consoles

10.Extensive Industry Analysis Interview with Erika Szobu: Youtube Personality (https://www.youtube.com/user/erikaszabo) at A&C Games on Spadina Ave, December 12th, 2016

Competitive Advantage ||| Michael Porter’s Five Forces; Everything You Ever Wanted to Know About Strategy But Were Afraid to Ask

Types of Competitive Advantage

You can be a cost leader (the cost leadership approach) or you can be differentiators in either the broad target or narrow targeted dynamic. Regardless, you will need to focus: a) cost focus or b) differentiation focus. The ultimate road to failure is to be “all things to all people”; that is the recipe for disaster.

Determinants of Industry Profitability

You need to understand these core-influencing factors before you dive into a potential product market.

The “Five Forces” are the following:

  • Rivalry among existing industry: rivalry can be cut throat some not so much.
  • Bargaining power of buyers: buyers might be price sensitive, might want more service they don’t pay for etc.
  • Threat of substitutes: a product that can do the same thing: if you do steal then plastic is a problem for you.
  • Threat of new entrants: if entry is easy than it will reduce value.
  • Bargaining power of suppliers: employees, machinery they can bid up their own prices. They can strip the profitability of an industry.

competitive advantage the five forces revealed

So success is a function of these strengths. You need to determine the industry success levels. Each of these competitive forces is shaped by the underlying determinants in that industry.

Intensity of Rivalry: are companies cutting prices or attacking competitors in ads?
Industry growth: how fast is it growing?
Product differences: is each product the same thing or are there value adds?
Brand Identity: does each company have a distinct brand strategy?
Switching Costs: are there switching costs from one to the other high or low?
Barriers to Exit: is there are lot of infrastructure required to realise profits?
Diversity of Competitors: are the competitors more different than the product?

Pharmaceutical Industry Case Study

Pharmaceutical Case StudiesThe pharmaceutical industry is highly profitable with the margin around the 20% mark in this industry. Why is this industry such a great game to be in?
Buyers: there are really 3 buyers: doctors, insurance folks and customers.
Entrants: It’s very hard to get into the industry; to get your drug accepted it needs sales man to persuade the doctors to use it. You need to have a sales force. Also, the average cost of a new drug development is 100 million dollar. 60% test to get government approval. Only when you have innovation like the pill does a new entrant change the landscape and a new player can enter the market.
Suppliers: not very strong. Commodities have little room..
Substitutes: very tough to get an alternative built up in a specific industry.
Rivalry: process is gentlemanly in pharmaceuticals; they don’t’ have to compete on price; the buyers aren’t price sensitive.

  • Therefore, every one of the Five Forces is favourable. The Pharmaceutical industry very evidently

Airlines Industry

American Airlines QualityGovernment regulation fundamentally effects this industry. Government IS not the included in the Five Forces as a Sixth Force. But it probably should be. The difference might be that government effects the other five forces in significant ways.

Buyers: prices are fixed.
Rivalry: limited new flights.
Entrants: no new airlines;

With the deregulation of the Airlines in the Reagan era:

Entrants: very low now as allowed by government.
Buyers: are price sensitive, very low, customers are willing to switch.
Rivalry: it’s intense, you might cut costs.
Suppliers: pilots can go on strike.

The underlying structure is not favourable therefore no very exciting.

Industries are not static. Industry structure can change for better or worse Changes;

1, technology causes the shift.

2, companies can shape industry structure.

Industry trend is significant for industry structure if it affects one or more of the Five Forces.

Pharmaceutical CompaniesPharmaceuticals are under threat

1, Buyers might start to care about price, government and insurance have tried to lower price. Costs have grown twice as fast.

2, Generic drugs has also been a huge problem. Once a drug goes off of patent, it’s legally possible get another prescription.

3, Biotechnology is reducing the cost of developing new drugs; lower the cost of entry. Genentech with the pill has innovated using none other than horse urine.

Some industries change can be positive. There is change.

  1. Hub and Spoke route system. Better marketing, airlines are competing as hubs thus this has raised a barrier. You need to get slots in those hubs.
  2. Information management system. Modern computers have allowed the sorting to be automated. It takes millions of dollars to develop this technology of managing technology.
  3.  There are these rewards programs which will keep you loyal. You need to differentiate and have started to change that equation.

Lessons from Industry Analysis

  • We have learned that industry analysis is the beginning strategy. You need to understand that industry and what that industry functions as it does. Which ever force is most significant, you need to focus your creative energies;
  • Focus on how the industry might change;
  • Watch out for industry change;
  • Companies can change their destiny;
  • Companies can actually destroy their industry: if you don’t think through your moves you might actually undermine your industry.

Swimming Pool

Competitive Positioning

How does a company achieve superior performance in an industry? To be superior you need to have a sustainable competitive advantage. Advantage is sustained in two ways:

  1. competitors can’t compare;
  2. continuous improvements before your competition catch up.

There are few companies in a position to catch up with Google in search for example. Bing is fast but even so, it still lacks the scale and user relationship that Google has created. Google has grown alongside the internet in an organic manner.

How Do You Get A Competitive Advantage

Kinds of Competitive AdvantageThere are 2 types of competitive advantage:

  1. Low Cost: lower cost in designing, marketing and producing.
  2. Differentiation: able to provide a unique benefit this is superior product and price.

It’s very important to determine which on these two a company is trying to achieve. Every company has a fundamental goal. Gain advantage in a narrow arena. You want to lead to generic strategies.

You could be broad & low cost. You can seek to be low cost or differentiated. The worst strategic error is to be stuck in the middle. If you aren’t willing to be designated then you will be stuck. These companies are always the below average in any industry.

Cost Leadership | How To Create Value On A Tight Budget

The low cost producer uses economist of scale to help lower costs. You want to basically amortize your research and development in order to focus in on the high value generation. They find ways to exploit cost advantage through resources.

Any company seeking to gain a cost advantage needs a good product. Acceptable in features, but the low costs doesn’t want the frills. You focus on a good basic product. Your advantage is about getting a cost gap over all competitors. You gain the low cost position, and then you can command prices and get a low cost performer.

Prices relative to competitors and the cost position relative to competitors.

You are being the low cost and get a low cost advantage. But if you get too low then you won’t get a cost advantage.

 

The standard no-frills product -> needs to command price near industry standards. Low cost – higher returns unless not comparable to the average, which leads to discounts. Proximity: cost advantage is already great or parity similar products / a different combination. You need to be the cost leader many firm miss this point but they end-up racing to the bottom > this needs preemption unless major technological change allows for radical position change.

Proctor & Gamble

1.6 Billion dollars in revenue every year in the mid-1980s. Ivory is not a mundane product, soap is an example about competitive positioning. Most soaps in the 19th century were producers of expensive of luxury soaps. The basic Ivory strategy was to produce a pure mild soap. The ivory bar actually floated. Consumers were interested in the floating element. Ivory have symbol of strategy. Most soap was brown. Ivory was the first white. Ivory was heavily advertised. Harley Proctor had his own idea. He developed 99 44/100% pure soap. Proctor created these comparison ads between ivory. Proctor also had testimonials.

Ivory also used babies to promote themselves. Ivory commanded a premium prices and then dominated.

  • 1950s and 60s challenged the Ivory strategy.
  • Dial was a deodorant bars.
  • The second was Dove: it makes your skin better 1956.

These new products had features that threatened them.

Ivory bar moved from the differentiated soap but moved to the low cost to being a cost leader in the industry. So this new ivory strategy. So you have a simple no frills soap. Ivory has a simple bar. Ivory goes for simplicity; basic approach.

Ivory also did a lot of bundling of six bars. So then Ivory could be used for the family.

Ivory doesn’t have demographic skew it’s well developed. That’s what makes Ivory unique. Ivory is always all purposes. Ivory set its prices are a low level. Ivory focused on a basic soap. Ivory cot less than  the other store. Four bars of Ivory lo cost. The new Ivory strategy is worked.

What makes it so cheap? Air bubble mean less bar? No additional flavours. The pac

kaging is inherently cheaper to product. Ivory controls advertising cost. The brand image is that ivory is a very effective trafficker.

You can add these features or strategically re-position Ivory. Moving from differentiator to cost leader. The Ivory packages is about simplicity. Ivory goes for simplicity.

Ivory bundled soap for the whole family. Ivory set its prices lower than the competitive market-place. Ivory costs less than the other soaps than the store. The simple packaging are inherently cheaper to produce and Ivory controls advertising costs. Ivory is an effective traffic builder. Proctor & Gamble get scale and distribution advantages. Ivory hangers a low price, but it cost is even lower. The cost saving is very much a virtue. LOW COST LOW PRICE.

Despite Ivory’s success, there is new soap Pure & Natural.

John Pepper @ Proctor & Gamble

Ivory became a giant brand in the 19th century. Pure, mild, floated, white. There is no product life cycle is totally an issue of the people managing the business.

First step, you need to understand what customers actually want. You need to talk to consumers, group testing is valid. Ivory’s histories central brand have changed.

We like continuity of management, promote from within, people know eachother well. Not all working on Ivory; continuity is related to the advertising agencies. Agency advertising has been with 67 years.

Brand at Proctor & Gamble: the brand becomes a person. It brings benefits to consumers; it assumes a personality or character to it. Proctor & Gamble has chosen to not change Ivory. Proctor & Gamble didn’t want to compromise the idea. We wanted to be consistent about Ivory. Consumers want consistency.

Lessons from Ivory

What lessons are there for strategy. Soaps all go after different.

  • Choose different strategy;
  • Implement, but don’t flip flop and the market place doesn’t know what to do;
  • Strategy must respond to market forces;

Cost Leadership II | Taking Cheapness To The Next Level Down

La Quinta: it’s a motel chain in the US. It has 200 locations, spread across the US. La Quintata results in 80s has been amazing. Profits have been modest in Texas. There is a dramatic expansion of competitors.

From a strategy point of view: customers, are satisfied, competitors can’t match them. La Quinta’s strategy is an example as an effective lodging companies; there are wide ranging needs; high rollers and the have a wide range of services. Room service for the tired executive. La Quinta has chosen to find a particular kind of customer.

They focused on the commercial man, sales, auditor (who has to travel to the same places) Spends 17 nights a year in a La Quinta organization.

Location: good access and excellent visibility; located where business people go a lot. La Quinta builds beside Kenny’s. But they don’t want to go into the motel business. Most lodging establishments loose money on their in-house restaurants.

Building: sound proofing; very quite rooms made out of concrete.

Cost of $40 very cheap. Why they stay here; it’s consistency. Simple no frills. I don’t care about room services; folks are travelling: I’m busy I keep myself moving. The operating costs are held down as well. The room is as large as the competition, but the costs are lower. There is a corporate fetish for cost control; construction costs are held down.

A La Quinta is managed by a husband and wife team. The employees live in the apartment on the premise. The couples are loyal to the company; they stay at the company. The final bonus is that the couple and the other employees provide a great deal of personal attention. There is extensive training 12 weeks of training. Makes simple repairs.

Sam Barshop: President of La Quinta

We are constantly updating our services. We started with TVs then we put in cable. Our customers are the boss not me. Marriot Hotels is great and it has the Courtyard concept: they going after. Marriot is the GM of hotels. Motel6 is a good company, they know what they are doing. We are working on minutes in cleaning a room, working on nickels and dimes. We build a building extremely cost effectively, we know what the land cost. We know our product really well. Wall Street should not run your business.

Lessons from La Quinta

Competing with a focused strategy. La Quinta illustrates that you should choose a particular target segment. It has to have unusual or distinctive needs.

  • Choose target segment with distinct needs.
  • Service target exclusivity.
  • Always under temptation to get a few more customers.
  • If your company starts to broaden strategy it will loss its base.
  • Fin a segment that has lower needs: non-luxury and then find those customers.
  • Invest where needed: All concrete construction, booking system that was simple, renovated the properties.
  • Cost leadership is part of the company; everyone is worrying about the cost.

Charles F. Knight – Emerson

The lowest cost producer is not the answers. Six key points to define what we do:

  • quality;
  • know competitor costs;
  • receptivity to change; going after productivity in your plants.
  • Formalized cost reduction program;
  • Strong communications related to those productions; the enemy isn’t management but the competition
  • Commitment of capital to make it happen.

http://en.wikipedia.org/wiki/Emerson_Electric_Co.

If you have the highest quality in the entire system, if you have the best quality, you also had the lowest cost. How do you understand the costs of our competitors? We learn about what the competitors product and cost. Emerson uses their competitors to keep minions in line in effect. People want to win: once they see who the target is and resources. This includes productivity & cap & spending. This is not something that you put in a box, Emerson has had half about 100 Fortune then it won’t work for you.

Conclusions: Cost Leadership

  • Create a good product; willing to make choices like frills and features;
  • Cost leaders draw advantage from many sources;
  • Study the Competition;
  • Cost is literally built into the organisation: everyone is worrying about costs;
  • Cost leaders manage costs downward.
  • Many managers have a misconception about cost strategies “real managers don’t compete on costs” but those misconceptions have to be minimized.

Differentiation Strategy

Find a need and find a unique value. You need to spend extra in R&D. The differentiator is trying to command superior prices.  Differentiation is premium price / unique USP meets unique needs of consumers. Kinds of differentiation include:

  1. the produce is different;
  2. the delivery system;
  3. marketing approach;
  4. broad range of factors.

Example is Caterpillar: durability, service, spare parts, excellent dealer networks.

Price Premium must be great than the cost of differentiation. You need to reduce cost in areas where they do not differentiate. Differentiation.

The balance is that the premium is greater than anything. The premium must be greater than the cost of being unique. You should cut costs to the bone if they refuse to pay for it. The differentiator only spends as much is necessary as to command the premium.

Often customers can’t tell how you are different; you need to make sure the customer knows that the customer is getting the benefits. Differentiation is about identifying what the buyer needs and then provide unique performance to meet those needs.

Differentiator is trying to command premium prices. You need to ensure that the relative price and relative cost.

American Airlines (Broad Differentiation)

How have they survived thanks to de-regulation. Most airlines have been pre-occupied with cost. American expanded internationally to Spain, France.

American Airline

On time and excellent service. Do you get you there in time: American Airline value. Overbooking is really upsetting for bumping. Now American Airline has fewer bumped passengers than any other airline. The Travel Agency was a crucial arm for the Airline and is a client. The distribution channel; effective differentiate.

Sabre has automated ticket but it got a preferable distribution channel. A successful differentiator must communicate to it’s competitors. America seeks to communicate its differentiation strategy. American Airlines is a major advertiser in newspapers. American Airline had Advantage with frequent traveller program: we would get award free travel. You have 60% seats are full so free seats aren’t a huge problem anyway. Differentiation is higher prices of course.

American Airline in traduced the supersaver program. It’s about controlling a larger control of the price for cheap-skates while also keeping the posh fliers happy with premium pricing for their foot massages. Low fare market and high fare market are being covered by the supersaver program and the Advantage programs.

Vital Steps

Measurement: message the standards. How long it takes for a bag to get to you. Tracking 21 areas of quality shoppers in their system. Recruiting: the people need the right skills and the right attitudes. Relationship with Emloyees: mutual respect, American had 2 tiered labour system. Newer employees are tied to market forces will senior staff aren’t.

Technology: Sabre is the largest realt time data tracking system int eh world. American Airlines has placed Sabre at the heart of seat booking. This all allows American to

R.L. Crandall CEO of American Airlines

The long-term coherence of American airlines has been committed to the shared throughout the management, we are more consistent at differentiating ourselves.

You tend to need to do this differentiation over a long period of time. Crandall we communicate with our people, we explained the plan. 33% of my time is spent in things in communication excercises.

We looked at the fleight in the airlines, got rid of whole fleets of airplanes. We used to fly point to point, moved to hub and spoke model. We seriously cut cost without having any effect on product quality you can’t really do. But you can make cuts in costs when there is pockets of cost that don’t make any real contribution to quality.

Do you need 3 pieces of lining or just 2 pieces of linin. We looked at the weight of the airplanes: so you can eliminate costs that don’t make any sense, anything that doesn’t add value should be thrown out that weight.

America Airline: you can find out any price of any airline ticket with a phone call. You need a quality score for those hotels. These are the kinds of adds that we would run. Finally we sold that to the department of transportation.

Lesson from American Airlines

  • Challenge of creating value for the buyer;
  • Value readily perceives the value: American was interested in onboard and arrival times were of high value.
  • Communicate value: you need to let people know about that. That’s why they wanted the government to publish statistics on travel performance.
  • Differentiations is costly: American was willing to differentiate via cost. They were trying to minimize extra cost of services; so they are trying to reduce the extra cost.
  • Differentiators Worry About Cost: they are constantly looking to cutting out bad fleets of planes and remove heavy objects that don’t matter for quality. So they have to make a tradeoff between cost and.
  • Be a moving target: competitors will be constantly trying to emulate what you do.

Differentiation (Narrow/Focused Strategy)

Cost focus: seeks focus on cost for a subgroup OR differentiation focus: a firm seeks differentiation in its target segment. Cost focused looks at the behavior of consumers based on segment of iPhone users.

“Stuck in the Middle”: fails to achieve any strategy. Not making choices about competition. Laker Airways had a clear cost focus shift to some frills. A firm is better off finding new industries in which to grow where it can use its generic strategy again or exploit interrelationship.

A firm must make a choice: among them or it be stuck in the middle. Three conditions for meeting both cost leadership and differentiation.

  • Compeitotr are stuck in the middle.
  • Cost is strongly Affected by share or internatliosnhip.
  • A firm pioneers a major innovation like Apple computer Ince new machines forging compeative relation with suppliers.

Ford wenf to a low-cost streaty in the 1920. GM differentiate strategy based a wide line, features, premium prices.

Smirnoff produces new brand due to eroding competitive advantage.

Cray Research: http://en.wikipedia.org/wiki/Cray_Research

Founded in 1972 in 1976. Cray sales are on the rise and they have had an equity increase of 25% year on year. Has doubled the average of an unstable system. Has been differentiating in IBM. Pundits have been predicting Cray Researchers demise. IBM and Japanese Companies product a wide range.

Cray Research: only builds the most power. They are a differentiated super computer in the world because they build supercomputers and they believe that their product makes sense. It turns out to be absurd now, but at the time Michael Porter rated their strategy highly without thinking much about mainframes were shrinking to desktop computers to mobile phones and that was the high order bid.

CEO thought: scientists what more robust technology and the need to create an addiction for the engines. Super computers + a proprietary operating system and the Cray is designed to interface without computer equipment (except Apple computers).

The sales process is tough: a supercomputer costs 15 million dollars! They have a highly trained sales force in 85 sales-force.

They also have R&D to prove how effective the machine actually might be. It take 9 months to build a Cray, these computers are building computer error free. The computers are hand made. Along with every Cray goes 5 employees who manage the machine inhouse. Most problems are then dealt with on the spot. This means Cray has remarkable uptime. They are running 99% of the time.

Cray’s Pricing Strategy: they place it on the value: they are the most expensive computer, it creates so much value. They use this technology to manage the design of airplanes, cars and oil rig.

They are over 100 million dollars in R&D every year. R&D 15% of revenue is research and development. This comes off the top. Cray demands superior people.

They interview wildly win the organization. Cray is looking for people who can work across lines. Not a hierarchy and flat. There is a Cray machine year book actually details the construction with picture of engineers building the computer.

Chipawaha Falls; there is this constant dialogue: we have no secrets from our employees. Customers call the engineers directly: they don’t want to have .

The Customers Sell for Cray

The referrals they get from other customers. What about the competition? Cray Researchers: their engineers talk to our engineers so it’s a long-term relationship. When Cray Researchers are asked about performance, we disclose the plans openly: unless they know where we are going then they aren’t happy. The customer goes behind the scenes. There are no impediments between customer and engineer. IBM has ignored the super computer market. Japanese super computers in the US is really weak.

Mini-Super Computers

The mini-super computers is a challenging segment. It could be a billion dollar market by 1990. The size of the customer base for Cray Research has gone from 90 companies to 1000 companies so they will not be entering the mini-super computer.

John Rollwagen: Cray Research CEO & Chairman

There is a vast computer industry: why are you focused on this one objective? Historically, Seymour Cray has been the dominant figure. The strategic reason for focus is that we think that we should continue the specialization in this one field.

Why didn’t Cray Research not enter the mini-super computers?

It’s always better to have a broader market. Cray Research was even asked by partners to look. They called the product Quarter Horse in 1984, they fleshed out the business plan and reduce the cost and maintain performance. The final analysis was that we shouldn’t do it. If we do this we will lose our focus and it takes all our attention to stay focused. It’s always easy to see that you add products to the main product until you lost the essence of the product.

We want to have the most powerful computer in the world: The first risk is that if we don’t make the super power then we are screwed. The second risk is that people don’t want to buy super computer. The rational thing to do is to spread. Rollwagen believes in just do this thing focused on the high end.

The Cray Research Strategy:

  • Differentiation creates value for the customer to justify the premium price, but it’s cheap the unique benefit that Cray Research buys.
  • More than physical product: it’s the ability of the customer to use the product: insight customer engineers.
  • Communicate differentiation: credibly improve;
  • Be A Moving Target.
  • Sharp focus on target segment.
  • Find segment with greater needs.
  • Stay focused: Cray has kept their advantage.

Cray Research built its strategy around the super computer. Period.

Broad Lesson

  • Successful strategy must worry about their own position and industry structure.
  • Don’t ignore industry structure!
  • Choose a different strategy!
  • Dare to make trade-offs

Competitive Strategy in Practice

Culture effects competitive advantage it is a means of achieving competitive advantage. Build, Hold, Harvests. There are risk of the generic strategies.

Risk of cost leadership not sustain because

  • competitors imitate;
  • technology changes;
  • other bases for cost leadership erode;

Risk of Differentiation is not sustained:

  • competitors imitate;
  • ase for differnetiaiton becomes less important to buyers.
  • Cost proximity is lost / differentiation focuses achieve greater differentiation in segments.

Risk of Focus: the focus strategy imitated the target segment becomes structurally unattractive.

Case Study: Skil Corporation

Practical tools industry, had a wide product line and a global market position. It was faced with Black&Decker. Also having to deal with new and severe competitors. Skill Corporation was deteriorating.

Emerson Electric were going to turn Skil Corporation….Harvard Class Room Notes

  • Black & Deck has lower prices & better brand and aggressive marketing strategy. Black & Decker is across the board.
  • Skill Corporation was very much not a cost oriented company or a marketing specialist. They don’t have a brand name.
  • Might want to trim the product line, build the advertising budget; differentiate from the consumer tool.
  • Skill might lose hardware stores. It’s key to look at the distribution channels that is difficult for hardware. Hardware store is dependent on high margins.
  • No chance to be strong at 7% market share. If you focus exclusively on circular saws.
  • Skill Corporation showed try to drop with a channel that is more powerful because they have K.Marts and other distribution.

What Skil Corporation Did…

  • Distribution Channels: reduce the number of distribution channels it wanted to serve. Skill decided to de-emphasis those channels. Skill chose not to sell to mass merchandisers.
  • They streamlined the product line and sales force. They were able to keep their product out of the mass markets.
  • Black&Decker sold to all the channels which meant the mass merchandisers could also get that saw down the street for cheaper.
  • Skil also cut 50% of the products and that meant lost revenue by 20%.
  • Skil tried to fundamentally re-design the product line. Circular Saws; there were once 7 different housing: 6 encaps. But today they only do one of each.
  • Skil also reduced the number of parts from 69 costs to 30 parts the cost reduction was substantial.
  • Skill also went global with the product.
  • Dramatic change 10 of the 13 plants were closed and then 3 factories became the world source for each of the product lines. They reduced the number of products and product families. Skill was able to dramatically improve the automation.
  • Skil made the automation flexible. Able to produce any of Skils product within 15 minutes.
  • There was also Just-In-Time to reduce the inventory space. So the space to process the inventory was repurposed.

Lessons from Skil Corporation

  • Market share has increased profitability. Then it’s also on the highest levels of any of its competitors.
  • Don’t imitate, you should choose new positioning going after consumers and industrial.
  • Focus on the target, serving the target market: dare to trade-off! Stop producing certain products and certain distribution. Need to exploit the sub-optimisation of their competitors.

The Process of Developing Strategy

  • Practical actions are the toughest part.
  • Know what you are and be the best version of yourself.

Conclusion for Competitive Advantage

  • Create a formal strategy;
  • Use a multi-functional team;
  • The organization must understand the strategy;
  • Be consistent over time;
  • You won’t get competitive advantage if you change strategies.
  • Use proper measurement; find underlying measures;
  • Don’t look at financials alone to measure;
  • Test strategy continually.
  • Strategic thinking is a scares resource; many companies follow and have a tendency to follow. No company ever masters this skill you can always learn more about themselves and their competitors.

competitive analysis by Michael PorterThe above is a synopsis of Competitive Advantage by Michael Porter complete with analysis and criticism.

Lessons from a Masters In Business Administration: What Is Strategy?

What Is Strategy? Michael Porter’s five forces have shaped business strategy since his theory was published in 1980. Five Aspects of Business Strategy: 1) barriers to entry, 2) supplier powers; 3) customer power; 4) substitutes, 5) rivalry. An example of the application of this model would be a London kebab shop: barriers are relatively low, does not require highly skilled labour, and anyone can buy a kebab shop with a bank loan. That is why so many immigrants run kebab shops in London UK, for example. If you speak bad English, have little money, and are prepared to work hard, kebab shops are a great first entrepreneurial endeavor. The suppliers to a kebab shop are those who make meat rotator machines and the variable costs like the Halal meat. There is plenty of both, so prices are lowered, and there are options to change suppliers at any time. The bad news is customers, as there are 100s of kebab shops in central London. If they don’t like your kebabs, they can go to another. Competition is fierce, and stoked by low barriers to entry, weak suppliers, powerful customers, and substitutes in the market where the business is located. In addition to the five forces is “6) complements”: Complement are for example, PCs you could get the software, and printers. The better software, and computers make the PC more desirable. Nurturing complementary businesses can have a positive effect on your business.

Competitive Advantage: either you have a cost advantage where you can make things cheaper and sell them cheaper OR you differentiated your product somehow either by making it better than your rivals or by designing it differently to appeal to a different group of people. There two forms of differentiation were known as vertical or horizontal. Vertical is meant to be better or worse; horizontal means different. Vertically differentiators would mean for example that you have two cars, one with better brakes, and steering. That car is better therefore they are vertically differentiated. If you have identical cars but one has been painted pink they are horizontally differentiated. One nightmare for a business is to have no advantage, to be neither the cheapest produce nor clearly differentiated. Bill Gates has a picture of Henry Ford in his office because it reminds him that success breads complacency. Ford was over taken by General Motors overtime. When the iPad came out, Amazon introduced the kindle fire…

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]