1

TEAM PRODUCT – Sections A & B

• DESCRIBE AREA SELECTED AND WHY– Political, economic, social-culture, technological,

geographical, demographics, etc. as relates to your business

• COMPANY NAME AND WHY– Descriptive, suggestive, or non-sensical

– Office Max, Home Depot, Florist Creations

– Perfection Solutions, Excel Landscaping

– Radio Shack or Nordstrom

– Why did you select that name

2

TEAM PRODUCT – Section C

• LEGAL FORM– Sole proprietorship

– Partnership

– Corporation

– Limited liability

• WHY YOU SELECTED THAT FORM

3

TEAM PRODUCT – Section D

• ORGANIZATIONAL FORM– Simple

– Functional

– Divisional

– Matrix

– Other

• NUMBERS OF EMPLOYEES NEEDED

• TYPES – SKILLED, UN-SKILLED, ETC

4

BASIC ORGANIZATIONAL STRUCTURES: SIMPLE AND FUNCTIONAL

I. Simple Structure

II. Functional Structure

Owner-Manager

Workers

Top Management

Manufacturing Sales Finance Personnel

5

TEAM PRODUCT – Section E

• NAME OF PRODUCT AND VALUE (WHY SHOULD CONSUMERS PURCHASE IT – DOES IT SATISFY A NEED OR WANT THAT THEY HAVE)

• NAME OF THE PRODUCT IS IMPORTANT

6

PRODUCT NAME CONSIDERATIONS

• NAME SHOULD BE APPEALING

• HELPS TO BE TRADEMARKED

• GREAT CARE IN:– Creating/developing the name

– Pre-testing the name

– Managing the name

7

GOALS OF THE NAME

• FOUNDATION FOR COMMUNICATION

• HELPS IDENTIFY THE PRODUCT

• TAKES ON MEANING

• LENDS STREGTH TO THE PRODUCT

8

BRAND NAME STRATEGIES

• GENERIC

• DESCRIPTIVE

• SUGGESTIVE

• ARBITRARY

• COINED OR FANCIFUL

9

TRADEMARK PROTECTION

• GENERIC BRAND NAMES:– Difficult to obtain protection

– Some examples: Bakery, aspirin, flower, automobile, la

boulangerie

– Not conducive for your protection and promotion

10

PROTECTION 1

• DESCRIPTIVE BRAND NAMES– They describe the product– Some examples:

“Laser jet” printers “Flu relief” cold/flu medicine “Solid head” thumb tacks “Invisible tape” “Color brite” detergent “Clean all” cleaners

11

PROTECTION 2

• SUGGESTIVE BRAND NAMES

• EVOKES A PRODUCT’S BENEFITS

• SOME EXAMPLES: “Ever-ready” batteries “Sleepeezy” cold/flu medicine “Sparkle” cleaner “Vanish” toilet bowl cleaner

12

PROTECTION 3

• ARBITRARY BRAND NAMES• COMMON WORD WITH NO APPARENT

RELATION TO THE PRODUCT CATEGORY

• SOME EXAMPLES: “Camels” cigarettes “Sequence” cold/flu medicine “Jump” detergent “Horizon” cleaner

13

PROTECTION 4

• COINED OR FANCIFUL NAMES

• FICTIONAL WORDS UNRELATED TO THE PRODUCT AND PRODUCT CATEGORY

• SOME EXAMPLES: “Exxon” gasoline “Sucrets” throat lozenges “Robitussin” cough medicine “Mylanta” for stomach

14

IMPLICATIONS

• DESCRIPTIVE AND SUGGESTIVE NAMES A BETTER OVERALL CHOICE

• SURVEY RESULTS SHOWED THAT RECALL AND LIKING WERE HIGHEST

• HARDER TO REGISTER FOR PROTECTION

15

TEAM PRODUCT – Section F

• VISION – A FIRM’S FUTURE BUSINESS PATH – WHERE WE ARE GOING

• MISSION – FOCUSES ON CURRENT BUSINESS ACTIVITIES – WHO WE ARE AND WHAT WE DO

16

TEAM PRODUCT – Section G

STRATEGIC & FINANCIAL OBJECTIVES

• CONVERTS VISION AND MISSION TO PERFORMANCE TARGETS

• CREATES A YARDSTICK TO TRACK PERFORMANCE

• PUSHES FIRM TO BE INVENTIVE AND FOCUSED ON RESULTS – NOT ACITIVIES

17

TEAM PRODUCT – Section G

• FINANCIAL OBJECTIVES – OUTCOMES FOCUSED ON IMPROVING FINANCIAL PERFORMANCE

• STRATEGIC OBJECTIVES – OUTCOMES FOCUSED ON IMPROVING LONG-TERM, COMPETITIVE BUSINESS POSITION

18

TEAM PRODUCT – Section G1

STRATEGIC OBJECTIVES– Higher product quality than rivals

– Lower costs relative to key competitors

– Broader product line than rivals

– Better e-commerce and internet sales capabilities than rivals

– Better customer service than rivals

– Recognition as a leader in technology

– Wider geographic coverage than rivals

19

TEAM PRODUCT – Section G2

FINANCIAL OBJECTIVES– Achieve revenue growth of 10% per year– Increase earnings by 15% annually– Increase dividends per share by 5% per year– Increase net profit margins from 2% to 4%– A rising stock price (outperform the S&P 500)

20

EXAMPLE: GE CORPORATE OBJECTIVES

– Become the most competitive enterprise in the world.

– Be number one or number two in each business we are in.

– Globalize every activity in the company.

– Embrace the internet and become a global e-business.

21

EXAMPLE: MOTOROLA CORPORATE OBJECTIVES

– Self-funding revenue growth of 15% annually.

– An average return on assets of 13 to 15%.

– An average return on shareholders’ equity investment of 16 to 18%.

22

TEAM PRODUCT – Section H

TARGET MARKET – DESCRIBE:

• TOTAL POPULATION AND ITS CHARACTERISTICS:– Gender, income, etc. – Things relevant to your product

• SAMPLE – WHO, WHEN, WHERE, HOW– Results from sampling – match population?

23

SURVEY INSTRUMENT• OBTAIN DEMOGRAPHICS OF YOUR SAMPLE• ASK TWO KEY QUESTIONS?

– Would you buy this product Definitely Probably Maybe No

– How much would you pay?

• GIVE ME PRODUCT COST AND EXPECTED SALES

24

Sample Size Calculation for Opinions/Preferences

(1) For unknown population

(p) (q)n = --------------

Sp2

(2) For known population

(p) (q)n = ------------------------- (e)2 (p) (q)

-------- + ---------- (z)2 N

n = sample sizep = probability of a positive response to the questionq = difference from p to 100 or .1e = confidence interval - your + or - estimatez = confidence level - for 95%, z converts to 1.96Sp2 = standard error of the proportion: e/z

25

Examples:

For unknown: Assume you want to know how many graduate business majorslook forward to taking Management 210, with a CI of = or - 6%, and a CL of95%, and you did a brief survey and found that 32% look forward. P,therefore, is 32 and Q is 68.

32 x 68 2176 ------------------- = ---------- = 232 samples needed (6/1.96)2 = 9.36 9.36

You don’t do a survey, and go with 50% will look forward and 50% will not.

50 x 50 2500 ------------------ = ------------ = 266 samples needed (6/1.96)2 = 9.36 9.36

For known population of 500 graduate students at 50-50.

50 x 50 2500 --------------------------------- = ------------------------ = 174 (6)2 50 x 50 ----------- + ---------------- 9.36 + 5 = 14.36 (1,96)2 N (500)

For a known population based on survey of 32 and 68:

2176/14.36 = 152

NOTE: If you increase the CI, you’ll need less surveys, but you lose precision.

For example - at 10% CI:

For unknown at 32-68, it’s 2176/26 = 84 neededFor unknown at 50-50, it’s 2500/26 = 96 needed

For known at 32-68, it’s 2176/31 = 70 neededFor known at 50-50, it’s 2500/31 = 81 needed

26

TEAM PRODUCT – Section I

COMPETITORS (TOP FIVE) DIRECT OR IN-DIRECT

• DESCRIBE THEIR SIMILAR PRODUCTS

• THE PRICES THEY CHARGE

• HOW THEY PROMOTE THEIR PRODUCTS

• WHERE THEY SELL THEIR PRODUCTS

27

AN UNWEIGHTED COMPETITIVE STRENGTH ASSESSMENT

Rating Scale: 1 = very weak; 5 = average; 10 = very strong

Reputation/image

Manufacturing capability

Technological skills

Dealer network/distribution

New product innovation

Financial resources

Relative cost position

Customer service capability

Overall strength rating

8 7 10

2 10 4

10 1 7

9 4 10

9 4 10

5 10 7

5 10 3

5 7 10

61 58 71

1

5

3

5

5

3

1

1

25

KSF/Strength Measure

Quality/product performance

ABC Co. Rival 1 Rival 2

8 5 10

Rival 3

1

Rival 4

6

6

1

8

1

1

1

4

4

32

28

A WEIGHTED COMPETITIVE STRENGTH ASSESSMENT

Rating Scale: 1 = very weak; 5 = average; 10 = very strong

KSF/Strength Measure

Quality/product performance

Reputation/image

Manufacturing capability

Technological skills

Dealer network/distribution

New product innovation

Financial resources

Rival 1 Rival 2

5/0.50 10/1.00

7/0.70 10/1.00

10/1.00 4/0.40

1/0.05 7/0.35

4/0.20 10/0.50

4/0.20 10/0.50

10/1.00 7/0.70

ABC Co.

8/0.80

8/0.80

2/0.20

10/0.50

9/0.45

9/0.45

5/0.50

Rival 3

1/0.10

1/0.10

5/0.50

3/0.15

5/0.25

5/0.25

3/0.30

Rival 4

6/0.60

6/0.60

1/0.10

8/0.40

1/0.05

1/0.05

1/0.10

Weight

0.10

0.10

0.10

0.05

0.05

0.05

0.10

Relative cost position

Customer service capability

10/3.50 3/1.05

7/1.05 10/1.50

5/1.75

5/0.75

1/0.35

1/0.15

4/1.40

4/1.60

0.35

0.15

Sum of weights 1.00

Overall strength rating 6.20 8.20 7.00 2.10 2.90

29

WHICH COMPANIES ARE IN STRONGEST / WEAKEST POSITIONS

VERSUS YOUR COMPANY

• ONE TECHNIQUE FOR REVEALING THE DIFFERENT COMPETITIVE POSITIONS OF INDUSTRY RIVALS IS STRATEGIC GROUP MAPPING

• A STRATEGIC GROUP CONSISTS OF THOSE RIVALS WITH SIMILAR COMPETITIVE APPROACHES IN AN INDUSTRY

30

STRATEGIC GROUP MAPPING

• FIRMS IN SAME STRATEGIC GROUP HAVE TWO OR MORE COMPETITIVE CHARACTERISTICS IN COMMON

– Sell in same price/quality range

– Cover same geographic areas

– Be vertically integrated to same degree

– Have comparable product line breadth

– Emphasize same types of distribution channels

– Offer buyers similar services

– Use identical technological approaches

31

CONSTRUCTING A GROUP MAP

• Identify competitive characteristics that differentiate firms in an industry from one another

• Plot firms on a two-variable map using pairs of these differentiating characteristics

• Assign firms that fall in about the same strategy space to same strategic group

• Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales

32

TEAM PRODUCT – Section J

• ACQUISITION SOURCES AND COSTS (IN TABLE FORM)

– Name of supplier

– Quantities

– Costs

33

TEAM PRODUCT – Section K

BUSINESS-LEVEL OR COMPETITIVE STRATEGIES

• CONVINCE CUSTOMERS YOUR FIRM’S PRODUCT/SERVICES OFFERS SUPERIOR VALUE– Offer a good product at lower prices– Use differentiation to provide a better product buyers think is

worth a premium price

34

FIVE GENERIC COMPETITIVE STRATEGIES

Mar

ket

Tar

get

Type of Advantage Sought

Overall Low-CostProviderStrategy

BroadDifferentiation

Strategy

FocusedLow-CostStrategy

FocusedDifferentiation

Strategy

Best-CostProviderStrategy

Lower Cost Differentiation

BroadRange of Buyers

Narrow Buyer

Segmentor Niche

35

LOW-COST LEADERSHIP

• Make achievement of low-cost relative to rivals the theme of firm’s business strategy

• Find ways to drive costs out of business year-after-year

Low-cost leadership means lowOVERALL costs, not just lowmanufacturing or production costs!

Low-cost leadership means lowoverall costs, not just low

manufacturing or production costs!

Keys to Success

36

WHEN DOES A LOW-COST STRATEGY WORK BEST?

• Price competition is vigorous• Product is standardized or readily available from many

suppliers• There are few ways to achieve differentiation that have

value to buyers• Most buyers use product in same ways• Buyers incur low switching costs • Buyers are large and have significant bargaining power• Industry newcomers use introductory low prices to

attract buyers and build customer base

37

DIFFERENTIATION STRATEGIES

• Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals

• Find ways to differentiate that create value for buyers and that are not easily matched or cheaply copied by rivals

• Not spending more to achieve differentiation than the price premium that can be charged

Keys to Success

Objective

38

APPEAL OF DIFFERENTIATION STRATEGIES

• A powerful competitive approach when uniqueness can be achieved in ways that

– Buyers perceive as valuable and are willing to pay for

– Rivals find hard to match or copy

– Can be incorporated at a cost well below the price premium that buyers will pay

39

TYPES OF DIFFERENTIATION THEMES

• Unique taste -- Dr. Pepper• Multiple features -- Microsoft Windows and Office• Wide selection and one-stop shopping -- Home Depot

and Amazon.com• Superior service -- FedEx, Ritz-Carlton• Spare parts availability -- Caterpillar• More for your money -- McDonald’s, Wal-Mart• Prestige -- Rolex• Quality manufacture -- Honda, Toyota• Technological leadership -- 3M Corporation, Intel• Top-of-the-line image -- Ralph Lauren, Chanel

40

COMPETITIVE STRATEGY PRINCIPLE

A low-cost producer strategy can defeat a

differentiation strategy when buyers are

satisfied with a standard product and do not

see extra attributes as worth paying

additional money to obtain!

41

BEST COST PROVIDER STRATEGIES

• Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation– Make an upscale product at a lower cost– Give customers more value for the money

• Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations

• Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to under-price comparable brands

Objectives

42

FOCUS / NICHE STRATEGIES

• Concentrated attention on a narrow piece of the total market - Serve niche buyers better than rivals

• Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs

• Develop unique capabilities to serve needs of target buyer segment

Objective

Keys to Success

43

FOCUS / NICHE STRATEGIES AND COMPETITIVE ADVANTAGE

Achieve lower costs than rivals in serving the segment -- A low-cost strategy

Offer niche buyers something different from rivals -- A differentiation strategy

Approach 1

Approach 2

44

EXAMPLES OF FOCUS STRATEGIES

• eBay

– Online auctions

• Porsche

– Sports cars

• Horizon and Comair (commuter airlines)

– Link major airports with small cities

• Jiffy Lube International

– Maintenance for motor vehicles

• Bandag

– Specialist in truck tire recapping

45

TEAM PRODUCT – Section L

FUNCTIONAL STRATEGIES– Production– Logistics– Marketing– Accounting– Research and development– Management information system– Finance

46

FUNCTIONAL STRATEGIES

• PRODUCTION– What strategy – batch, assembly, etc.?

– Detailed step-by-step explanation of the manufacturing process

– Include tools and equipment needed

– Location of the production site

47

FUNCTIONAL STRATEGIES

• LOGISTICS – Process to acquire raw materials – Channels of distribution of finished product

Direct, agent, wholesaler, retailer, etc.

48

FUNCTIONAL STRATEGIES

• MARKETING (PRICE) – Pricing strategy (penetration or skimming)– Include the cost of the finished product– Wholesale or retail price

49

FUNCTIONAL STRATEGIES

• MARKETING (PROMOTION)– Advertisement (media selected)– Personal selling– Coupons, discounts, contests, samples, etc.

50

FUNCTIONAL STRATEGIES

• MARKETING (PLACE)– Where will you offer the product to the

consumer?– Direct, retail store, on-line, etc.?

51

MARKETING STRATEGIES

PRODUCT

Current New

M

A

R

K

E

T

Current Penetration Product Development

New

Market Development Diversification

52

FUNCTIONAL STRATEGIES

• ACCOUNTING SYSTEM STRATEGY– Traditional?– Activity-base?– Outsource, in-house?– Software packages?

53

ACTIVITY-BASED COSTING: A KEY TOOL IN STRATEGIC COST ANALYSIS

• Determining whether a company’s costs are in line with those of rivals requires measuring how a company’s costs compare with those of rivals activity-by-activity--from one end of the value chain to the other

• Requires having accounting data that measures the cost of each value chain activity

• Activity-based accounting systems provide the data for determining the costs for each relevant value chain activity

54

TRADITIONAL COST ACCOUNTING VS. ACTIVITY BASED COSTING

Traditional Cost Accounting Categories in Department Budget

Wages & Salaries $350,000Employee Benefits 115,000Supplies 6,500Travel 2,400Depreciation 17,000Other Fixed Charges 124,000Miscellaneous Operating Expenses 25,520

$640,150

$135,75082,10023,50015,84094,300

48,450110,000130,210

$640,150

Departmental ActivitiesUsing Activity-BasedCost Accounting

Evaluate SuppliersProcess Purchase OrdersExpedite DeliveriesExpedite Internal ProcessCheck Item QualityCheck Deliveries Against Purchase OrdersResolve ProblemsInternal Administration

55

FUNCTIONAL STRATEGIES

• RESEARCH AND DEVELOPMENT– For the next production cycle, cite what:– Changes you can make to the product– Changes you can make to the process

56

FUNCTIONAL STRATEGIES

• FINANCIAL STRATEGY– Detail expenses needed– Source of the funds (no make-believe)

57

FUNCTIONAL STRATEGIES

• MANAGEMENT INFORMATION SYSTEM STRATEGY– Manually – Outsource– In-house– Off-the-shelf

58

TEAM PRODUCT – Section M

• CHARTS REQUIRED:– Organizational chart– Value chain – Start-up categories and costs

Licenses, attorney, incorporation, phone installation (one-time expenses)

Other costs – see syllabus– Pro-forma (p/l) two years by quarters

• COPY OF SURVEY AND RESULTS• BIBLIOGRAPHY

59

WHAT IS STRATEGIC COST ANALYSIS?

• Focuses on a firm’s costs relative to its rivals

• Compares a firm’s costs activity by activity against costs of key rivals

– From raw materials purchase to

– Price paid by ultimate customer

• Pinpoints which internal activities are a source of cost advantage or disadvantage

60

THE CONCEPT OF A COMPANY VALUE CHAIN

• A company’s value chain shows the linked set of activities, functions, and business processes that it performs in the course of designing, producing, marketing, delivering, and supporting its product / service.

• A company’s value chain consists of two types of activities

– Primary activities (where most of the value for customers is created)

– Support activities that are undertaken to aid the individuals and groups engaged in doing the primary activities

61

TYPICAL COMPANY VALUE CHAIN

DistributionAnd

OutboundLogistics

Operations

PurchasedSupplies

andInboundLogistics

Sales and Marketing

ServiceProfit

Margin

Product R&D, Technology, Systems Development

Human Resources Management

General Administration

Primary Activities and Costs

Support Activities and Costs

62

TEAM PRODUCT – Section M3

COSTS INVOLVED IN THE VALUE CHAIN:– Raw materials– Transportation to factory– Storage/inventory cost– Tools/equipment/and labor– Factory location costs– All overhead

63

TEAM PRODUCT – Section M3 Continued

COSTS INVOLVED IN THE VALUE CHAIN: – Packaging costs– All marketing costs– Transportation to consumer– Warranties/service costs

64

UNBUNDLING AND OUTSOURCING STRATEGIES

De-Integration or unbundling involves narrowing the scope of the firm’s operations, focusing on performing certain “core” value chain activities and relying on outsiders to perform the remaining value chain activities

Concept

InternallyPerformedActivitiesSuppliers

Support Services

Functional Activities

Distributors or Retailers

65

WHEN DOES OUTSOURCING MAKE STRATEGIC SENSE?

• Activity can be performed better or more cheaply by outside specialists

• Activity is not crucial to achieve a sustainable competitive advantage

• Risk exposure to changing technology and/or changing buyer preferences is reduced

• Operations are streamlined to– Cut cycle time– Speed decision-making– Reduce coordination costs

• Firm can concentrate on doing those “core” value chain activities that best suit its resource strengths and capabilities