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Type:

Solution Manual

Resource:

Strategic Management Concepts and Cases

Edition:

4th Edition

Author(s):

Jeffrey H. Dyer Paul C. Godfrey Robert J. Jensen David J. Bryce

Chapter 1 – What is Business Strategy? Class Exercise – Marketing Strategy at Delta

Teaching Note Source for this exercise is in the Chapter 1 PowerPoint deck and textbook. (Mini Case: Marketing Strategy at Delta. See slide notes for additional information.) Comments from the slide notes are adapted for small group discussion and large group debrief. The students are instructed to read the chapter before coming to class. An option is to give students advance notice of an upcoming in-class exercise. Students are given approximately 15 minutes to discuss the questions and document answers in small groups (Bloom Comprehension and Application). A debrief is then conducted with the entire class. The debrief takes approximately 20-25 minutes. Strategies are more likely to be successful when the plan explicitly takes into account four factors: 1. The attractiveness of a market 2. How to offer unique value relative to the competition 3. What resources or capabilities are necessary 4. How to sustain a competitive advantage once it has been achieved (i.e. How to create barriers to imitation to prevent other companies from offering that same value.) This exercise focuses on “barriers to imitation”, but could also include a discussion of how Delta addressed the other three factors: market, value proposition, resources & capabilities. Mini Case In the mid-1980s, Delta’s market researchers found out that customers (particularly business customers) were strongly influenced to choose a particular airline by the airline’s frequent flyer program. Consequently, to motivate customers to choose Delta, they teamed up with American Express (an exclusive arrangement) to offer a special program: customers could receive triple miles if they would fly on Delta and purchase the tickets using the American Express card. How would you evaluate Delta’s strategy? (Good or Bad?) Consider the following questions: 1.

Average Load Factor (# passengers vs available seats) = 78%. Why is this relevant?

Unless demand (passenger #s) decreases significantly, the plane is flying whether it’s 70% or 100% full. The marginal additional cost for more passengers is near zero. Same # of people to fly plane, fuel, etc., don’t have to hire more people to manage the additional business. 1 more passenger = all profit.

On what does this new strategy depend in order for it to succeed? AND….how does it help me get the additional 22% load factor?

Have to consider: • Will people use their Am Ex to fly w/ us? • Will some people switch from another airline? (Don’t have to fly more – just need to get them to switch). • What if they don’t switch? Are we just giving more perks to existing customers? • How does this strategy help me get the additional 22% LF? Other aspects of the program: • Am Exp gives Delta lower card rate. • They split promotional expenses for the marketing. • Am Exp has large market share especially among business travelers (65-70%) but…… Delta doesn’t have 65-70% of air travelers….this is a Big Opportunity for Delta to gain more customers.

If you were running other airlines, how would you respond to Delta’s strategy?

Team with another credit card company: • United Airlines – Visa • Northwest Airlines – MasterCard • Southwest Airlines – Visa. Delta has AmEx – the dominant card used by business travelers – they typically pay higher fares, pay a yearly fee and fly during week. These are the target customers. What if you don’t match the triple miles? Will you lose customers?

Do you think this strategy led to more customers for Delta? Explain.

Probably not once competition kicks in with their programs. Because you wouldn’t necessarily attract more customers as business people are the ones paying – they or their company pays the yearly fee for Am Ex. The casual traveler probably isn’t going to pay yearly fee to get triple miles. So the program is attracting the same people who are already attracted to it: 1. Am Ex 2. Delta 3. Am Ex and fly other airlines. Some people might go get the Am Ex and now they can get triple miles if they fly Delta. 2

5. In the end – as a result of Delta’s strategy, who were the biggest winners? The Customers. See Class Debrief Notes below.

What actually happened? (Class debrief) 1. Within a week every other major carrier announced they would offer triple miles AND they didn’t care how you paid. 2. Now all of a sudden the Am Ex requirement was a weakness. With that in mind, what is the big issue with Delta’s approach? There was NO BARRIER TO IMITATION. 3. When you take a strategic action, you have to ask, what’s the barrier to imitation? a. If there is none, it can be imitated the next day by dropping price and there goes any advantage you had. b. If it can be quickly imitated, then there is no Cost Advantage. c. That was the case with the “triple mileage” program. d. Since all airlines matched the triple miles strategy, who was the big winner? CUSTOMERS! Conclusion: • This continued for about 2 years. • The federal government stepped in and said: “you know what – this looks like a pretty big liability you are building up. You need to estimate and calculate the liability and put it on your balance sheet” • Airlines started to calculate the liability – it was big so they changed the frequent flyer programs: 1. Grandfathered you on your old miles. 2. Got rid of triple miles. 3. Increased # of miles needed to earn free trips. • • • •

In the end, none of those companies were better off. Airlines thought these were strategic moves they had to make but in the end it didn’t help any of them. These partnerships / relationships led to the co-branded credit cards we see today. You probably could argue that Delta was even a little worse off because they teamed up with Am Ex…and their fliers had to use Am Ex to get the triple miles. o And….could say that Delta did get some benefit of Am Ex who helped to fund the program…..so they did get some visibility.

References: 1. Dyer, J., Godfrey, P., Jensen, R., & Bryce, D. (2016). Strategic Management Concepts and Tools for Creating Real World Strategy. Hoboken, NJ: John Wiley & Sons, Inc. 3

Chapter 2 – Analysis of External Environment: Opportunities and Threats Class Exercise – Porter’s Five Forces Teaching Note Source for this exercise is textbook Chapter 2. Two slides are included in the student handout for quick reference. Students will be analyzing companies later in the semester using Porter’s Five Forces. The purpose of this exercise is to enhance student knowledge and comprehension (Bloom’s Taxonomy) of each of the five forces and other aspects that influence the external environment. It also requires the students to actively engage with the textbook to find the answers. Students are given approximately 30 minutes to research and document their responses during class in small groups. You may assign select topics to groups OR have all groups complete the entire exercise depending on available time. A large group debrief follows for the balance of class time. Where student responses are insufficient, the instructor can “fill in the blanks” or ask another group to complete the thought. This exercise occurs early in the semester and it sets the stage for the type of engagement, dialog and contribution that is expected during this course.

Exercise Porter (2007) pointed out that “the arena in which competition takes place is the industry in which a company and its rivals vie for business. Each industry has a distinctive structure that shapes the nature of competitive interaction that unfolds there. Understanding the underlying structure of a company’s industry, now and in the future, is a core discipline in strategy formation” (Porter, p. 1-2). Porter argues that “to understand industry competition and profitability, one must look beyond their differences and view industries at a deeper level. In any industry, there are five basic forces whose collective strength determines the long-run profit potential of the industry. Understanding competitive forces, and their causes, gives a strategist a way to size up any industry, regardless of whether it is a product or a service, emerging or mature, high tech or low tech. An analysis of industry structure reveals the roots of an industry’s profitability at any point in time while providing a framework for anticipating and influencing changes in industry competition (and profitability) over time. As you will see, defending against the competitive forces or shaping them in a company’s favor becomes an important component of strategy” (Porter, p.1-2). The purpose of this exercise is to enhance your knowledge and comprehension of Porter’s Five Forces Model and other aspects that influence the external environment. Everyone is expected to contribute. For this assignment please do the following: 1. Assign discussion leader, recorder (takes notes), reporter (role may be shared for large group debrief) and timekeeper (monitor time remaining, keep team informed) 2. Use textbook as your primary resource. 1

3. Discuss as a group those concepts and ideas related to your assignment. 4. Fine tune the information you plan to share with the larger group. (You may use notes, but don’t read them to us when you report out.) 5. Use your time efficiently for good discussion, documentation and a report out practice, i.e. what will you say? Groups Assignment 1&2 Buyer Power: (1) Explain the 2 situations when buyers have higher power. (2) Provide at least 2 ways that a firm can neutralize buyer power. Two situations when buyers have higher power are when buyers hold a stronger bargaining position than sellers and when buyers are price-sensitive. 1. Buyer bargaining power – 4 factors influence the degree to which buyers have bargaining power over their suppliers: Switching costs, demand, number or concentration and size of buyers, credible threat of backward integration (buyer can make the product itself). 2. Buyers are price-sensitive – if buyers are more price sensitive, they will exert pressure on suppliers to keep prices low. They will exert pressure through price negotiation and comparison shopping. Buyer price sensitivity tends to increase in the following situations: buyers are struggling financially, product is a significant proportion of buyer’s cost, buyers purchase in large volumes and expect price breaks, product doesn’t affect buyers’ performance very much, product doesn’t save buyers money. Two ways that a firm can neutralize buyer power include: 1. Differentiate your offering so that it uniquely responds to only certain buyer needs. Buyers have less power when something you offer is unique.) 2. Narrow the options of the buyer through market consolidation or exclusive alliances. Buyers have less power when there are fewer choices.

Supplier Power: (1) Explain the 2 factors that give suppliers power. (2) Provide at least 2 ways that a firm can neutralize supplier power. When supplier industries have strong bargaining power, they can charge higher prices, which tend to decrease average profitability for any industry. Two factors that give suppliers power are the number or concentration and size of suppliers and credible threat of forward integration. 1. Number or concentration and size of suppliers – follows the law of supply and demand. Few sellers, but lots of buyers, then the buyers have to compete to get the products that they want, often paying higher price. 2. Credible threat of forward integration – Supplier can threaten forward integration; that is, do what the buyers do, if the buyers don’t offer concessions. (See Google example in textbook.) 2

Groups Assignment

3&4

Ways a firm can neutralize supplier power include: 1. Narrow the sell options of the supplier through market consolidations, merger or alliances. 2. Develop alternative sources of supply. 3. Create a partnership with a supplier and encourage that supplier to make transactionspecific investments to provide inputs to you as the customer at lowest possible cost. 4. Diversify your product offerings (or expand capabilities) to diminish dependence of your business on any particular supplier (e.g. Buyer has a private fleet and is therefore not solely dependent on less-than-truckload or truckload carriers (supplier) for transportation of goods.) Threats of New Entrants: (1) Explain barriers to entry. (2) Provide at least 4 examples or ways to increase barriers to entry.

Barriers to entry is the way organizations make it more difficult for potential entrants to get a foot hold in the industry. Examples include: 1. Economies of Scale, Experience or Learning – occurs when cost/unit of production decreases as the firm produces more. Economies can come from mass manufacturing methods, purchasing discounts for high volumes, employees who are better at their work (experience, learning), ability to spread fixed costs such as cost of machinery, R&D, advertising and marketing across more units. New firms would be at a cost disadvantage. 2. Other costs not related to scale include: patents or proprietary technology, better locations, economies of scope (less expensive costs per unit created by bundling different types of products), preferential access to critical resources 3. Capital Requirements (R&D, equipment, access) 4. Network Effects – greater number of people using products from a given firm, the greater demand grows for that firm’s product. Trying to compete with Facebook would put a New Entrant at a disadvantage. 5. Government Policy Restrictions – Governments may increase the cost of entry by requiring bonding, licenses, insurance or environmental studies before a firm can enter an industry. Substitute Products: (1) What are substitute products? (2) Explain the factors that determine the intensity of a threat of substitutes. (3) Provide examples(s) Substitute products are fundamentally different but serve the same basic function or purpose as another product. Factors that determine the intensity of a threat of substitutes include:

Groups Assignment 1. Awareness and Availability – Threat increases when substitute products are well known. 2. Price and Performance - Customers more likely to switch if costs of switching are low. The price of the substitute itself will also factor into the decision. Example(s): 1. Fruit juice is a substitute for any number of other drink products: coffee, soda, wine. All do essentially the same thing; that is, quench your thirst. 2. Apple iPhones and Samsung smart phones. 5&6

Apply the Five Forces Model: (1) Select a company and conduct a high level Five Forces Analysis. (2) Explain aspects of the Five Forces and examples from your company example in your report out. This is an optional exercise. Time permitting, it is helpful to have students select a company in which they are interested or in which they have some knowledge and work through the Five Forces.

7&8

General Environment: 1. Explain the concept of the General Environment 2. Describe and use examples for all 8 components of the General Environment. Classification of Industries: 3. Briefly describe how the US government classifies industries. General Environment – can affect firms in a variety of ways, including affecting the shape of each of the five industry forces. Aspects of the General Environment guide managers’ strategic decisions. The eight categories in the General Environment are highlighted on the slide below and a detailed explanation of each is provided in the text. A brief summary follows: 1. Complimentary Products/Services: Can be used in tandem with other industries, e.g. smart phone operating systems and applications that are complementary. 2. Technological Change: Has potential to radically reshape a firm’s landscape and sometimes society in general. Example: Smart phones (used for banking, communication, music). 3. General Economic Conditions: The state of the economy can affect a region or the nation and ability for a firm to be profitable. Analyzing the economic environment involves: measuring economic growth rate, interest rates, currency exchange rates and rate of inflation or deflation. a. Economic expansion tends to improve customer balance sheets, lowers price sensitivity and increases growth rate in an industry. As customers purchase more, it eases the rivalry. When the economy slows down, industry growth rate slows, customers are more price sensitive and suppliers struggle looking for ways to get profits.

Groups Assignment b. Interest rates: Can affect rivalry by increasing or decreasing the demand for products. True for expensive items like houses, cars, education; that is, things that require people to take out loans. i. Interest rates low: industry growth rate increases/rivalry decreases. ii. Interest rates high: the opposite occurs. As interest rates increase, new investments becomes more difficult. c. Currency exchange rates: Reflect the value of one country’s currency in relation to the currency in another country. Exchange rates can have a large impact on prices that customers pay for products from firms in other countries. Example: Nestle (text). d. Inflation: A significant, consistent rise in prices can create problems for firms. Inflation, or the opposite, deflation, means that the value of the dollar doesn’t stay constant. Today product sells for $1.00. Two percent (2%) inflation means the product sells for $1.02 next year. Inflation tends to decrease overall economic growth increasing rivalry. When firms can’t predict the price at which they will sell the product, investments in new product development are riskier. 4. Demographic (population) Forces: involves changes in the basic characteristics of a population including # of people, average age, # gender/ethnicity, income distribution. These changes result in shifts in the product and geographic markets that firms target and thus, are accompanied by opportunities and threats. 5. Ecological/Natural Environment: Shortages for key inputs/raw materials, fluctuations in cost of energy, changing public perception of how business affects the environment. 6. Global Forces: Trade barriers have fallen in recent past, we have improved communication/ transportation technology. Firms have expanded operations and selling across borders. 7. Political, Legal, Regulatory Forces: Affordable Health Care, Same Sex Marriage, US tax rate (company decision to stay or leave) 8. Social/Cultural Forces: Refers to society’s cultural values and norms. McDonald’s had to change its marketing and products (perception of unhealthy). Facebook has changed social norms about connecting to others. Classification of Industries: See Strategy in Practice “How the U.S. Government Defines Industries”.

References: 1. Dyer, J., Godfrey, P., Jensen, R., & Bryce, D. (2016). Strategic Management Concepts and Tools for Creating Real World Strategy. Hoboken, NJ: John Wiley & Sons, Inc. 2. Porter, M. (2007). Understanding Industry Structure. Harvard Business Review. 3. Porter, M. (1979). How Competitive Forces Shape Strategy. Harvard Business Review.

Chapter 3 – Internal Analysis: Strengths, Weaknesses, and Competitive Advantage Class Exercise – VRIO and Company Diamond

Teaching Note This exercise is from the chapter PowerPoint slides. This is an application (Bloom) level exercise where students apply the VRIO – Model of Sustainability and the Company Diamond. We use Starbucks for VRIO and ESPN for the Company Diamond. These exercises are split across two class sessions that include short lecture on key chapter concepts. Student handout includes the following slides and templates for VRIO Framework and Company Diamond. These slides are referenced in short lecture and exercise debrief.

VRIO: Students are instructed to count on their own knowledge and experience with Starbucks along with the company website to complete the VRIO Framework. They are asked to post their small group discussion results on a flip chart and report out to the class. The flipcharts may contain some overlap information. In that case, I try to get each group to report out something unique on their chart and explain their rational for the VRIO designations.

The Company Diamond: Students are instructed to complete the Company Diamond for ESPN. This is a small group exercise. A good way to debrief is to have the Diamond on white board and summarize/capture class input for each of the key questions. Sources that students can access include company website and http://espnmediazone.com/us/. For this exercise you will likely get some of the following responses: The things we do to compete (Activities) • Movies, TV channel, games, all sports, radio • Cable sports • Original programming, • Produce other products – 30 for 30, pre-game shows • On demand video • Live sporting events • ESPN.com, ESPN Mobile, podcasts • Operate in over 200 countries • Apparel The assets we employ (Resources) • ESPN The Magazine, ESPN Mobile (mobile messaging on smartphones & tablets) • Brand • Operations in over 200 countries • People – former professional athletes 2

The processes we use (Capabilities) • Sports Center (cutting edge, funny, engaging) • Connect to local teams and markets (ESPN Cleveland, ESPN Chicago, ESPN LA, etc.) • Radio contests, different venues, Twitter polls. The values that guide us (Priorities) • Sports fans serving sport fans • Diligent about hiring sports fans to work for the company – former athletes • Emphasis on finding new and creative ways to deliver sports content (e.g. espnW) • Corporate citizenship and activities The above items are a snapshot. There are likely many other examples that can be added based on personal knowledge and further research.

Chapter 4 - Cost Advantage and Chapter 5 - Product Differentiation Class Exercise Teaching Note This exercises combines concepts from two chapters on sources of cost advantage and sources of differentiation advantage. It could be adapted to many different real company examples. It is an application (Bloom) exercise that asked students to apply concepts from the textbook to real companies. I try to choose companies in which students might be interested (even if they are not familiar with the company) and companies with which they are likely familiar. I recommend checking company information each semester to be sure any information used in prior classes is still relevant and up to date. Each semester also brings the opportunity to include a company that may be in the news at that time. This is a small group exercise. I give the students about 30 minutes in small groups to research their responses. I then conduct a large group debrief. The debrief session is a great time for the instructor to provide additional “color commentary” regarding the chapter concepts and to clarify any misconceptions about those concepts. The handout includes a summary of sources of cost advantage and differentiation advantage (noted below) along with the questions to complete.

Exercise Below is a summary of chapter (4, 5) concepts. Use them for reference in answering the questions. You may access company websites for additional information. Sources of C/A – Cost Advantage 1. Economies of Scale or Scope 2. Learning & Experience 3. Proprietary Knowledge 4. Input Costs 5. Different Business Model Sources of Differentiation Advantage 1. Different Product/Service Features (better job, more jobs, unique job) 2. Quality and Reliability 3. Convenience 4. Brand Image (mere exposure effect, in social psychology/familiarity principle, prestige brands How to find Sources of Differentiation? 1. Customer Segmentation (product attributes on price, attributes of customers, job-to-be done view 2. Mapping the Consumption Chain

Please document your responses to the following: 1. Select a public company that seems to have a cost advantage over its competitors – demonstrated by consistently lowest prices in the market. a. Describe one or more sources of advantage. b. Identify any resources or capabilities the company has that enable it to achieve low costs. c. What if anything prevents competitors from imitating this product or service? Explain. This question gets the conversation started in a general way allowing students to come up with examples. 2.

How does the Toyota Production System provide a cost advantage for Toyota? Among other things TPS allows Toyota to leverage Proprietary Knowledge as a cost advantage. A key principle of TPS is “just-in-time” delivery of components, both from outside suppliers and from different manufacturing stations within the plant. Delivering components close to the time they will be used keeps inventories at plants low and minimizes waste. TPS is also about a philosophy that permeates the corporate culture – company first, flexibility, solve problems.

Airbnb is an on-line, homestay network that provides short term lodging. It is a very successful start-up that makes money by charging its users. Guest fee range from 6-12% depending on the size of the reservation subtotal. The higher the subtotal, the smaller the reservation fee percentage – which is nonrefundable. Airbnb also charges hosts a 3% host service fee which is applied to the subtotal. a. What sources of cost advantage apply to Airbnb’s business model? b. What sources of differentiation apply to Airbnb’s business model?

Input Costs (cooperation with suppliers, location advantages, and preferred access to variety of property options HomeAway.com and VRBO.com charge a 10% commission. Owners can list for free and pay HomeAway when the property is booked. With Airbnb, the guest fee ranges from 6-12% depending on the size of the reservation subtotal. The higher the subtotal, the smaller the reservation fee percentage – which is non-refundable, if the guest cancels. Airbnb also charges hosts a 3% host service fee. For example, if a guest books a four night reservation at $100/night, plus $50.00 cleaning fee, the 3% host service fee is applied to the $450 subtotal, which comes to $13.50. Learning & Experience There may also be benefits from early learning & experience. In its first 4 years, Airbnb served 4 million guests. In year five alone it served five million more for a total of 9 million through 2013. That’s called hockey stick growth experienced by few startups. (See graphic)

Source: Business Insider.com Sources of Differentiation: Different products such as exotic accommodations; e.g. tree houses, yurts, castles.

Wal-Mart is the most obvious example of a company benefitting from economies of scale. As a dominant player in retailing, the company’s size provides it with enormous efficiencies that it uses to keep costs low. Size provides enormous efficiencies across it’s over 5000 stores worldwide. Wal-Mart has a ton of important information concerning consumer likes and dislikes and it spreads best practices across all its stores. (news.morningstar.com/classroom 2016) a. Beyond the obvious economies of scale, which other sources of Cost Advantage does Wal-Mart leverage? b. What approaches do you think Wal-Mart uses in “finding sources of differentiation”? Explain.

Input Costs & Scale: • Size allows Wal-Mart to gain efficiencies across its stores that allows it to keep costs low. For example, its size allows Wal-Mart to do its own purchasing more efficiently since it has about 5000 stores worldwide. This gives the company great bargaining power with its suppliers. • It gets products cheaper AND its size allows for more inexpensive distribution. • It has enormous amounts of information on consumer likes and dislikes – can spread best practices across its stores. • Economies of Scale – o EXAMPLE: Wal-Mart buys a DVD from a supplier for $5.00. o Same DVD costs a small competitor $6.00. o It costs Wal-Mart $4.00 to distribute the DVD and pay for the overhead costs of the stores. o Costs the small competitor $5.00 to do same. o Wal-Mart can sell the DVD for $9.50 and still make $.50 profit. o The smaller competitor can’t charge that little, because at a cost of $11 per DVD it would be losing money. • Scale would also allow Wal-Mart to spread costs of advertising across many stores in a local area.

Sources of Differentiation: One differentiator could be the Supercenters for convenience of one-stop shopping.

Dollar Shave Club’s retail disruption. As noted in theweek.com (August 2016), “in a deal that has shaken the stodgy consumer products industry, Unilever announced (2016) it will pay $1 billion to acquire Dollar Shave Club – a five year old firm that delivers no-frills disposable blades to subscribers for as little as $3 a month. Since launching in 2011, the Venice CA-based startup has grown to 3.2 million subscribers – earning $152 million in 2015 and becoming a case study in how a disruptive innovator can “break into a highly profitable and overserved industry”. DSC contracts with a South Korean razor manufacturer and then sells the blades directly to consumers over the web. The global razor business has long been built on convincing people they need more and more blinged-out blades at higher and higher prices (Terlep, Wall Street Journal). Doller Shave Club now claims 5% of the US men’s shaving market long dominated by Gillette (Proctor & Gamble). Since 2010, Gillette’s market share has fallen from 71 to 59 percent.” a. Which type of Cost Advantage applies to Dollar Shave Club? Explain. b. What sources of Differentiation Advantage does Dollar Shave Club leverage?

Cost Advantage – Different Business Model: • DSC uses a different business model to disrupt a mature industry. • Shows how creative disruption results from technological change. o In past challenging a market leader like Gillette would have required factories, sophisticated distribution an enormous and experienced sales force, and TV marketing blitz. o But the internet, mass transportation and globalization destroy everything. o DSC doesn’t actually make its products. It contracts with a South Korean razor manufacturer and then sells the blades directly to consumers over the web, bypassing retail middlemen. o Because of its lean approach (190 employees), thanks to YouTube (initial advertising was free). Its first video has been seen by more than 20 million times. o When startups can get free advertising though YouTube, easy distribution through the mail and low cost sales via the web, every other company should take notice. • Who are the biggest winners in this new model? o Consumers. o By cutting out the inefficiencies of retail space and the marketing expense of TV, these companies can offer better products at lower prices. o Since brands born online live and die by reputation, their customer service must be fast and friendly. • P&G is playing catch up with its own Gillette Shave Club and has launched the Tide Wash Club which sends consumers detergent refills for a monthly fee. • Both firms are eying Amazon, which aspires to provide regular deliveries of everything from diapers to groceries through its “subscribe and save” program.

Sources of Differentiation Advantage • Different Product features – “better job” of meeting customer need than an existing product. • Quality and Reliability – in this case, product may not do better job as far as performance. It simply lasts longer • Convenience – making products easier to find and purchase (in the mail).

Customer Segmentation: • Product attributes based on price. Can get same or better quality, same price. • Attributes of individuals – convenience, income levels (lower price) • Job to be done view – According to Clayton Christenson customers hire products to do jobs for them. Understanding the functional, social and emotional dimensions of a job to be done is complex. • Mapping the Consumption Chain: o How do find your product? o How to pay? o How to deliver?

•

Job to be done view…..

Duluth Trading Company – sells men’s and women’s clothing, accessories and outdoor gear. a. Which source(s) of Differentiation Advantage does Duluth Trading employ? Explain. b. In terms of “finding sources of differentiation”, what approach does Duluth take to Customer Segmentation?

Sources of Differentiation Advantage: • Different Product – does a better job. The entire premise of the company is about making things people can use. Started in 1989 with the Bucket Boss for tools. • Quality and Reliability. Products are field tested on job sites by construction workers, dock hands, cycle riders and others. Testers now called the “Duluth Trades Panel” – they use, abuse and improve products in real-world conditions. • Brand Image – use illustrations instead of photos on covers. The only requirement is that the drawings convey something in a quirky, fun and intelligent manner. May segment customers via “job to be done” view. Clothes must withstand real life and work.

Casper sells mattresses on line. a. Which sources of Cost Advantage does the company leverage? b. How does Casper apply the “Consumption Chain” to help with customer segmentation?

Cost Advantage: • No brick and mortar retail outlets like competitors. • Boast a free 100 night trial. Can easily return for full refund if not satisfied. • Lets consumers know how the trial process works in the simplest terms. • Simple easy to use website

Differentiation Advantage: • Different product features – better job. • Quality and Reliability – trial process and return policy • Convenience – easy to access on line, get a new mattress without leaving home! Nice if you don’t have a truck or want to pay for delivery. Mapping the Consumption Chain: • How do consumers make decisions? Their research told them what attributes were important. (comfort, support, temperature, durability) • How is the product delivered? (Due to using high quality, resilient foams, able to compress the mattress w/o undermining its integrity. Using a unique compression machine ensures no pressure on the sleep surface. – can be shipped in manageable box size. • What if customers are not satisfied…..100 night free trail, can easily return for full refund if not satisfied.

Nordstrom is known for its exceptional customer service. a. What sources of differentiation advantage is Nordstrom using?

Sources of Differentiation Advantage Convenience – products easy to find and purchase. Brand Image – known for extreme customer service.

LLBean – Free shipping, 100% guarantee. According to the LLB company website: Since 1912, we’ve believed in the adventure of a life lived outdoors, the promise of a fair deal sand the guarantee that everything we make is designed to last. So if any of our products isn’t working or fitting or standing up to its task, we’ll take it back. LL himself always said that he didn’t consider a sale complete “until goods are worn out and the customer still satisfied”. a. What sources of Differentiation Advantage is LLBean leveraging? Explain.

Sources of Diff Advantage: • Diff product feature – better job. • Quality and reliability – sale not complete until the product wears out. • Convenience – easy to find, free shipping. • Brand Image: o Mere exposure effect – people familiar with the name.

10. Prepare a cost and differentiation advantage comparison between Home Depot and a local hardware story in your area.

Depending on the examples available, there is opportunity here to emphasize economies of scale (HD) and other sources of cost advantage, as well as sources of differentiation we might see at a local hardware store.

References: 1. Dyer, J., Godfrey, P., Jensen, R., & Bryce, D. (2016). Strategic Management Concepts and Tools for Creating Real World Strategy. Hoboken, NJ: John Wiley & Sons, Inc. 2. Liker, J., (2004). The Toyota Way. New York, NY: McGraw-Hill. 3. Mcalone, N. (2015). Airbnb’s Summer Reach Has Grown by 353 Times in 5 years. Retrieved from http: //www. businessinsider.com. (2017) 4. Albert-Deitch, C. (2016). This $200 Million Mattress Company is Waking Up the Sleep Industry, Retrieved from http://www.inc.com. (2017) 5. Shaoolian, G. (2017). Improving Brand Credibility in 2017: What Can We Learn from Brands like Warby Parker and Casper. Retrieved from www.forbes.com (2017) 6. Gonzalez, G. (2016). Inside Dollar Shave Club’s Billion-Dollar Payday. Retrieved from www.inc.com (2017) 7. Dollar Shave Club’s Retail Disruption (2016). Retrieved from http://theweek.com/articles (2017) 8. Low-Cost Producer or Economies of Scale (2016). Retrieved from http://news.morningstar.com/classroom. (2017) 9. Solomon, M. (2014). Take These Two Steps to Rival Nordstrom’s Customer Service Experience. Retrieved from http://www.forbes.com. (2017) 10. Casper.com 11. Duluthtrading.com 12. LLBean.com

Source: Business Insider.com Sources of Differentiation: Different products such as exotic accommodations; e.g. tree houses, yurts, castles.

Sources of Differentiation: One differentiator could be the Supercenters for convenience of one-stop shopping.

Strategic Management Concepts and Cases, 4th Edition Solution Manual