Strategic Market Management, 9th Edition David A Aaker Solution Manual

Type:

Solution Manual

Resource:

Strategic Market Management

Edition:

9th Edition

Author(s):

David A. Aaker

INTRODUCTION INSTRUCTOR’S GUIDE for Strategic Market Management, Ninth Edition David A. Aaker & Jim Prost Strategic Market Management can be used in marketing strategy courses at both the undergraduate and graduate levels. These courses can include some combination of cases, projects, papers, and computer simulations such as MARKSTRAT. With the Ninth Edition there are five types of aids to instructors that can be accessed through the Wiley web site (www.wiley.com): 1. Instructor’s Guide. This guide provides an overview, some syllabus examples, instructions for a group industry analysis project (contained in the syllabus), and a discussion of sources of cases.

2. Chapter Instructor notes. A set of instructor notes for each chapter including answers to questions and suggestions for class discussion.

3. Power Point decks. For each chapter there is a PowerPoint deck that contains most of the figures used in the chapter plus other slides.

4. Test bank. Contains 20 discussion questions and over 200 objective questions.

5. Case teaching notes. A guide for teaching each of the cases in the book. The cases are designed to support a 20 to 30 minute discussion so they do not replace major Harvard Business School cases.

6. Supplemental cases with teaching notes. Three cases used in prior editions are included with teaching notes—Xerox, Samsung, and Intel.

Syllabus Section There are two suggested syllabi below. The first has a group industry report assignment detailed and is for a quarter-length course. An important objective of this course (taught at the University of California Berkeley) is to provide the students with confidence in their ability to conduct and apply an external analysis. Thus, the first four or five case discussions plus a group project involve a very structured approach to external analysis. The student emerges with the confidence to conduct an external analysis.

Many students have later reported that this skill provided a differential advantage in their first jobs. The second is a semester course.

These are followed by a discussion of case options.

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Syllabus I (Quarter) Strategic Marketing Management Text: Strategic Market Management, Ninth Edition by David Aaker This course is concerned with strategic market management and strategic planning. The focus is on strategic decisions (decisions which have a long-term impact on the organization and which are difficult and costly to reverse). The strategic decision-making process is supported by an external analysis (an analysis of the organization's environment) and an internal analysis. The course objectives include the development of ability to: 1. Conduct the external and internal analyses that support the development of strategies.

2. Identify and address issues such as: -What environmental opportunities and threats does the entity face?

-What are the key strategic questions or uncertainties?

-What are our organizational strengths, weaknesses, and problems?

-What are our strategic alternatives?

-What business should we be in?

-What are our long-term objectives, our vision?

-What product markets are attractive to us?

-What growth directions are most attractive?

-How should the organization's resources be allocated?

-Should we diversify? How? -What is our sustainable competitive advantage?

-What assets or skills need to be developed and maintained?

-What should be the strategy with respect to product line, distribution, branding, manufacturing, and finance?

3. Understand and work with a set of useful and important concepts such as unmet needs, strategic groups, first mover advantage, positioning, sustainable competitive advantage, risk, key success factors, strategic opportunity or threat, strategic strength, weakness, or problem, strategic question, vision, product market, segmentation, industry structure, portfolio analysis, and scenarios.

4. Develop an understanding of asset building as the core of business strategy. The focus of asset building will be on brand assets-brand equity.

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The course involves case analyses and a group industry report.

Case Analyses A large part of the course involves case discussions and the presentation of analyses. It is expected that each student will prepare the major case of the day in depth and will discuss the case before class with a group of 2 to 6 classmates. The cases should be read and considered but not analyzed in depth.

Industry Analysis The industry analysis is to be completed by a team of 4 to 6 people--the groups need not be the same as those you use for case analyses, but it is usually efficient to have some overlap.

An industry can be selected from a firm in which a group member is working, but it need not be. Sometimes the learning process is actually better if you get away from the familiar. Select an industry in which the information is available in trade magazines and business publications like Business Week and Fortune. Possible industries include gourmet frozen foods, wine, retail banking, a software area, soda pop, frozen novelties, department stores, fiber optics, food retailing, a type of restaurant, automobiles, cross country skis, drug equipment, personal computers, tennis equipment, etc.

You should also identify a client (or two clients). The client can be a firm that is considering entering the market. Sometimes, if it is convenient, you may wish to have contact with the client, as they may be able to provide information and help sort out strategy options. However, you do not have to have any contact with the client. In fact, sometimes client contact in this context can be constraining because the client’s agenda will be to get some free information and analysis, and the client often is not interested in new strategic directions. So it is not always a plus for the purposes of this project to become close to the client.

The identification of a client will help you focus on the strategically important material and to avoid getting overwhelmed by information and becoming too descriptive. At the outset of the report (both oral and written) it will be helpful to indicate the nature of the strategic decisions the client is (or should be) facing if such decisions can be identified.

To the extent possible, the industry analysis should include: 1. A customer analysis, including an identification of the key market segments. Create, if useful, a segment by motivation grid.

2. A market analysis, including a market definition, demand trends, product life cycle analysis and an identification of key success factors.

3. Identification of the important competitors and their strategic objectives, weaknesses, and problems. Attempt to identify the sustainable competitive advantages (SCAs) of each of the major competitors. Were the firms "born" with those SCAs? If not, when and how were they developed? Do any of the firms have a strategic vision?

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4. If appropriate, a historical view of the strategies pursued by one, two, or more competitors. Perhaps two competitors can be identified (i.e., Schlitz and Budweiser) who were similar in the '60s but have since pursued very different strategies with different results. Specify what the strategies were, their rationale and the reason they worked or did not work.

5. Contact, if appropriate and feasible, one or two operating managers from a firm (or two firms) in the industry. Determine from them: - Who is the leading competitor in his/her business?

- What are the respective sustainable competitive advantages (SCAs), if any, for his/her firm and for the leading competitor?

- Try to determine which of the SCAs the involved firms were "born" with and which they "developed".

6. An analysis of the major environmental trends, opportunities, and threats. Consider doing a scenario analysis. Develop one or two alternative scenarios different from baseline assumptions. The scenario could be the accentuation of a trend or the occurrence of a future event. Or it could be motivated by a strategic question. For that (or those) scenario(s), address the following questions: - What causal factors will influence whether the scenario emerges?

- What are the implications for external analysis--segments, motivations, competitors, industrial structure, key success factors, etc.?

- What strategies would be optimal?

7. An assessment of the industry in terms of the GE "industry attractiveness" dimension and the BCG "market growth" dimension.

8. The completion of a "planning form" as illustrated in pp. 294 to 308 in the appendix of Strategic Market Management, Ninth Edition.

Hand in by (Date), but earlier if possible, a report of: 1. Who is in the group?

2. The industry and client selected.

3. A preliminary list of strategic decision options your client is likely to face.

Hand in on (Date) a short memo setting forth one or two of the most interesting and useful strategic questions (areas of uncertainty--not strategic decisions). Explain why they are important and propose a way to deal with them (e.g. a market-research or information gathering proposal or a scenario analysis).

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Oral and Written Reports There will be a 25-minute oral presentation on (Date). This presentation should be polished, professional, rehearsed (using the A/V facility), interesting, punchy, and useful to your client. You should regard it as an excellent opportunity to improve or refine your presentation skills. Everyone should present, although if there is a large group, someone who is extremely skilled at presenting can be excluded.

The written report, which is due (Date), the last class, should be as concise yet comprehensive. Free use should be made of appendices for descriptive, background material. However, material that is worth discussing and supports strategic insights and recommendations should appear in the body and/or as figures. To the extent possible, the report should go beyond descriptive material to get at strategic implications. It is helpful if the paper starts with an introduction that briefly describes the client, sets forth the objectives of the study, motivates the project and provides an overview of the paper’s structure. It is very helpful to provide a feel for the strategic problems and alternatives facing the client. This should be used to motivate and provide implications in the body of the report. An executive summary is not required and, if included, should not take the place of an introductory section. It is not imperative that the group agrees upon the interpretation and conclusions. A note setting forth areas of disagreement is appropriate if a group member has an opinion not shared by others.

In both the written and oral report, when covering a section like competitor analysis, do not attempt to be comprehensive--just discuss those areas that add insight. The goal is to be insightful and helpful to the client--not to cover every dimension of the external analysis. Introduce strategic questions, threats, opportunities, and judgments about strategic options as you go along. Do not save them for the end. The recommendation section can then be a summary of the questions and options that have already been raised and discussed in the context of the analysis. One goal should be to create a link between the external analysis and the recommendations. You should consider defending and justifying each summary recommendation with respect to the rationale, effort/cost and risks involved. If more information is needed, it might be worthwhile to set forth how it might be obtained and used.

During the presentation of the other groups you will be asked to provide written comments on the presentation skills of each speaker (not the content) and what suggestions for improvement you would make. A set of the comments on your group’s presentation will be copied (with the author's name excluded) and returned to you on the last day of class. The goal is not only to provide feedback but also to sensitize you to presentation skills.

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Course Plan DATE

TOPIC(S)

ASSIGNMENTS

Introduction One Week What is a business strategy?

What is strategic market management?

Weeks 2 - 5 Strategic Analysis Key concepts and methods Creative thinking Possible Cases Global Wine Industry Zipcar Snapple HCL Technologies Weeks 6 - 9 Developing Strategy and Organizational Issues Possible Cases Google Asahi Breweries Heineken

Week 10

Group reports and course summary

Required Text: Strategic Market Management, 9th Edition Author: David A. Aaker Publisher: John Wiley & Sons, 2010

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Syllabus II (Semester) The material for ASSIGNMENTS is found in the following: Chapters are found in Strategic Market Management 9th Edition by David Aaker. The Articles can be purchased at www.harvardbusinessonline.com DATE (Date)

TOPIC(S) Introduction and Overview Introduction to Strategic Marketing; Review of the Marketing Mix; The strategic mind: implications for creative and critical thinking in strategy formulation.

ASSIGNMENTS

(Date)

Strategic Market Management - An Introduction and Overview Case: Global Wine Industry

Chapter 1

External Analysis and Customer Analysis Case: Zipcar

Chapter 2

Competitor Analysis Case: BMW

Chapter 3

Market/Submarket Analysis Case: Zara

Chapter 4

Environmental Analysis and Strategic Uncertainty Case: Wal-Mart 2005

Chapter 5

Internal Analysis Case: Kodak and the Digital Revolution

Chapter 6

(Date)

Creating Advantage, Synergy, and Strategic Philosophies Case: Apple Computer, 2006

Chapter 7

(Date)

Alternate Value Propositions Case: Intel: Microprocessors at the Crossroads

Chapter 8

(Date)

(Date)

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Building and Managing Brand Equity Case: On-Line Music Distribution in a Post-Napster World

Chapter 9

Energizing the Business Case: Samsung Electronics

Chapter 10

Leveraging the Business Case: Google

Chapter 11

Creating New Businesses Case: Southwest Airlines

Chapter 12

(Date)

Global Strategies Case: Robert Mondavi and the Wine Industry

Chapter 13

(Date)

Setting Priorities for Businesses and Brands – The Exit, Milk, and Consolidate Options Case: Asahi Breweries

Chapter 14

Organizational Issues Case: 3M Optical Systems

Chapter 15

(Date)

Date)

Required Text:

Final Project Presentations

Strategic Market Management, 9th Edition Author: David A. Aaker Publisher: John Wiley & Sons, 2010

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Cases Strategic Market Management – 9th Edition By David Aaker Contact: Harvard Business School @ www.harvardbusinessonline.com Phone: (800) 545-7685 or (617) 783-7600 outside U.S. and Canada Fax: (617) 783-7666 24 hours a day, 7 days a week Email: custserv@hbsp.harvard.edu or use the online feedback form.

Note: It is very easy and efficient for the instructor to create a Course on the Harvard website. You list the cases and articles in your course and the students can purchase them and not incur the costs of a reader.

If you chose to use the Harvard Business School cases, you may consider assigning one of these articles on the Case Method: • An Introduction to the Case Method (P/N 9-576-031) • Case Method Teaching (P/N 9-581-058) • Learning by the Case Method in Marketing (P/N 9-590-008) • Persuasion, Argument, and the Case Method (P/N 2447BC) • What is a Case? (P/N 2448BC) Recommended Cases NEW CASES FOR THE 9Th EDITION Swimming in the Virtual Community Pool of Plentyoffish (2008) (P/N 808M15) Suggested Chapters, Chapters 3, 7, 12 Description: This case deals with the burgeoning social networking phenomenon as seen through the eyes of a recent, highly successful new entrant. The case has been used in undergraduate, graduate, and even executive education programs (to help older managers understand social networking). The case is multi-dimensional, and can be used in a Finance course (if the option to sell the business is chosen), a Marketing course (if the option chosen is to grow the market by segments), a Strategy course, and an MIS course (if the option to grow the business' capacity is chosen). This case partners well with the Harvard case on Facebook (Harvard product #E220) if instructors opt for a module on social networking sites. Comparing and contrasting the business models, marketing plans and strategic approaches of these respective websites can make for an interesting and topical class.

Teaching Note: (P/N 808M15)

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Dell – New Horizons (2002) (P/N 502022) Suggested Chapters: 10, 11, and 12 Description: This case highlights the fundamental components of a good marketing strategy and when a change is warranted.

Teaching Note: (P/N 5-503-040) Cisco Systems: Managing the Go-To-Market Evolution (2006) (P/N 505006) Suggested Chapters: 4, 10, 11 Description: To examine the design and management of channel evolutions Teaching Note: (P/N 5-506-065) Marketing Chateau Margaux (2006) (P/N 507033) Suggested Chapters: 8, 9, and 10 Description: This case examines marketing and branding issues of a premium wine; to discuss distribution options for Chateau Margaux; to examine pricing strategies; and to debate running a small but global brand facing large world competitors.

Teaching Note: (P/N 5-508-107) Kingsford Charcoal (2006) (P/N 506020) Suggested Chapters: 4, 9 Description: To help students understand strategic and tactical issues facing brand managers in the consumer packaged goods industry.

Teaching Note: (P/N 5-507-013) The Brand in the Hand: Mobile Marketing at Adidas (2005) (P/N 905A24) Suggested Chapters: 7, 8, 9, and 12 Description: Highlight the role of new technology in overall marketing strategy and integrated marketing communications.

Teaching Note: (805A24) Kinko’s (2005) (P/N 5506024) Suggested Chapters: 2, 3 4, Description: To explore the ways in which firms can achieve customer loyalty and satisfaction in mature industries. To consider the Instructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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inter-relationships among various customer segments and their impact on overall brands.

Teaching Note: (P/N 507011) Toyota Motor Corporation: Launching the Prius (2006) (P/N 706458) Suggested Chapters: 3, 4, 7, Description: To examine a wide range of business strategy topics involving strategy formulation, including market structure, competitive advantage, sustainability, and competitive strategy. Also, to discuss leadership and corporate environmental citizenship.

Teaching Note: (707558) PayPal Merchant Services (2006) (P/N 806188) Suggested Chapters: 3, 4, and 12 Description: To illustrate competitive dynamics and pricing strategies in a two-sided networked market. Also, to explore a platform provider's options for responding to the threat of "envelopment" by an adjacent platform that can bundle its functionality with that of the target platform.

Teaching Note: (P/N 808031) Rayovac Corporation: The Rechargeable Battery Opportunity (2007) (P/N 906A36) Suggested Chapters: 3, 4, 7, 8, 11, and 12 Description: Develop skills in: (1) analyzing industry and company characteristics; (2) assessing opportunities and alternative strategies available to a company; (3) determining the best strategic direction for the company, given this opportunity and the company's goals and resources; and (4) creating a marketing plan for the new opportunity.

Teaching Note: 806A36) AKBank: Credit Card Division (2008) (P/N 909M02) Suggested Chapters: 3, 4, 5, 7, and 13 Description: The purpose of the Akbank case is to help students develop environmental analysis skills. It is designed to be used in a strategy course at an undergraduate or graduate level. Additionally, this case can be used in a marketing course to illustrate issues related to loyalty programs or in an international business course to illustrate the impact of environmental uncertainty on managerial decision-making. Teaching Objectives include: To acquaint students with the rapidly changing macroeconomic environment of emerging markets; To illustrate how to apply various models of industry analysis; To examine the various factors that contribute to dynamic change in an industry; To assess sources of sustainable growth, differentiating between internal and external factors; To introduce an understanding of how to make strategic choices in a dynamic industry.

Teaching Note: (809M02) Instructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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Guam Visitors’ Bureau (2008) (P/N 90887) Suggested Chapters: 4, 14, and 12 Description: Instructors will find this case useful in strategy, marketing strategy, tourism industry, hotel management or service industry courses. The case can be best positioned for use in a strategic management or marketing management class. The case assesses business strategy and depicts the use of the Porter 5 Forces, SWOT, Product Life Cycle (PLC) and Boston Consulting Group (BCG) matrix models in assessing industry structure.

Teaching Note: (P/N 808M87) L’Oreal and the Globalization of American Beauty (2005) (P/N 805086) Suggested Chapters: 7, 13 Description: To explore the strategic, management, and marketing challenges involved in the globalization of consumer brands.

Teaching Note: (P/N 806162) A Crack in the Mug: Can Starbucks Mend It? (2008) (P/N 9008A16) Suggested Chapters: 2, 3, 4, 5, 7, 10, 11, and 14 Description: The case can be used in classes from upper undergraduate to MBA-level. The disciplines or areas to which this case is most suited for detailed study or major analysis are: Marketing, Consumerism and Growth strategies. This case is intended as a stimulus to critical analysis of a complex business situation. Many variables can be seen as possibly influencing or directly contributing to Starbucks' future success or otherwise. Participants should be asked to distinguish between factual and suppositional information related to the case. Projecting the future of the company is of course conjectural, but the exercise will stimulate participants to provide well-reasoned arguments for their predictions.

Teaching Note: (808A16) PORTS: China’s Walk in the Global Luxury Fashion Boulevard (2008) (P/N HKU 749) Suggested Chapters: 2, 3, 4, 5, 7, 8, 12, and 13 Description: This case is designed for a course in marketing and business strategy, specifically in luxury brand management, international marketing, consumer behavior and societal marketing, which has emerged as a modern marketing concept that embraces the importance of long-term consumer welfare and society’s well being. The teaching objectives are as follows: 1. To understand the distinctive features and market segmentation of luxury brands. 2. To study the strategy implementation model and to identify the success factors and risks of PORTS. 3. To examine the trend of luxury goods consumption in the West and in Asia. 4. To explore ways to improve brand performance in view of the changing consumption patterns for luxury goods. 5. To learn the brand management models adopted by other successful luxury brands. 6. To discuss social issues and criticism associated with the luxury market and explore ways to deal with them.

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Teaching Note: (HKU 750) Napo Pharmaceuticals (2006) (P/N E223) Suggested Chapters: 2, 4, 5, 7, 8, 12, and 13 Description: To examine how non-financial goals can influence a company's strategy. Also, to think creatively about marketing products to consumers in developing countries. Can be used for a new venture creation and strategy course as well as a course focusing on health care innovations or socially responsible business practices.

Teaching Note: (P/N E223TN) Whirlpool’s Road Map in China: 2004 (2005) (P/N HKU414) Suggested Chapters, 3, 4, 7, 8, 12, 13 Description: Details Whirlpool's initial years in China and illustrates the problems that a global industry leader can face while entering a new, developing country.

Teaching Note: (P/N HKU 415) Polyphonic HMI: Mixing Music and Math (2005) (P/N 506009) Suggested Chapters: 2, 3, 4, 7, 8, 10, 12, and 13 Description: To examine issues related to the development of an integrated market strategy and marketing plan for a product likely to meet with strong resistance in the marketplace. Also, to examine the challenges of operating in hit-and-miss entertainment industries.

Teaching Note: (P/N506081) Cases from Previous Version of Textbook Google Inc. (2006) (P/N 9-806-105) Suggested Chapters: 3, 7, and 12 Description: Describes Google's history, business model, governance structure, corporate culture, and processes for managing innovation.

Reviews Google's recent strategic initiatives and the threats they pose to Yahoo, Microsoft, and eBay. Asks what Google should do next. One option is to stay focused on the company's core competence, i.e., developing superior search solutions and monetizing them through targeted advertising. Another option is to branch into new arenas, for example, build Google into a portal like Yahoo or MSN; extend Google's role in e-commerce beyond search, to encompass a more active role as an intermediary (like eBay) facilitating transactions; or challenge Microsoft's hegemony over the PC desktop by developing software to compete with Office and Instructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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Windows.

A rewritten version of an earlier case.

Learning Objective: To analyze the strategic significance of network effects in search-related advertising and for Google's prospects in the portal, ecommerce intermediary, and desktop operating system businesses. Also, to explore whether pursuit of the latter opportunities is consistent with Google's mission and the company's unique culture and bottom-up processes for managing innovation.

Teaching Note: (806199) Intel Corporation: 1968-2003 (9-703-427) Suggested Chapters: 3, 4, 10, and 11 Description: Describes three stages in Intel's history: the initial success and then collapse in DRAMs and EPROMs, its transition to and dominance in microprocessors, and its move to become the main supplier of the building blocks for the Internet economy. Allows a rich discussion of industry structure and transformation in DRAMs and microprocessors, creation of competitive advantage and value capture, and sustainability.

Learning Objective: An introduction to basic ideas on corporate strategy, using Intel's Internet strategy. Also introduces industry analysis and transformation, competitive strategy, and competitive dynamics.

Teaching Note: (704465) Microsoft in 2005 (9-705-505) Suggested Chapters: 7, 12 Description: Focuses on Microsoft's strategy for sustaining competitive advantage in the global software industry. Also, explores Microsoft's history and its current position, as it tries to diversify its product and service revenue streams.

Learning Objective: To learn the strategic aspects of technology, bundling, and sustainability.

Teaching Note: (5-706-467) Wal-Mart, 2005 (9-705-460) Suggested Chapters: 4, 5, 7, 8, 10, and 11 Description: Wal-Mart has been expanding, both domestically and internationally. Covers recent developments at Wal-Mart, including new stores, new store formats, and international expansion.

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Learning Objective: To look at strategy and competition in the discount retail environment.

Teaching Note: (5-705-472)

Zipcar: Refining the Business Model (9-803-096) Suggested Chapters: 2, 3, 4, 5, and 12 Description: Zipcar is a start-up organized around the idea of "sharing" car usage via a membership organization. This case describes several iterations of the Zipcar business model and financial plan. These iterations include a very early version and a version developed just prior to the launch of the business, as well as data from the first few months of operations. Students are called on to analyze the underlying economics and business model for the venture and to discover how these assumptions are holding up as the business is actually rolled out.

Learning Objective: To understand the notion of a business model and unit economics and flow through the impact of actual operating results.

Teaching Note: (5-804-060) Global Wine Wars: New World Challenges Old (A) (9-303-056) Suggested Chapters: 3, 4, 5, 7, and 13 Description: After contrasting development in the tradition-based, regulated, old-world wine industry with the technology-based, market-oriented, new-world challenges, and this case focuses on "The Battle for Britain"--the huge, bellwether export market--as the traditional French wines are challenged for leadership by the Australian newcomers in 2001. Allows analysis of the way in which newcomers can change the rules of competitive engagement in a global industry. Also poses the question of how incumbents can respond, especially when constrained by regulation, tradition, embedded values, and a different set of capabilities than those demanded by the emerging market.

Learning Objective: Focuses on global industry analysis and competitive dynamics.

Teaching Note: (5-304-048) Online Music Distribution in a Post-Napster World (9-502-093) Suggested Chapters: 2, 3, 4, 9, 10, 11, and 12 Description: Provides a description of the rise and decline of Napster, the free Internet music-swapping service. Also describes secondInstructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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generation peer-to-peer services (e.g., Gnutella) as well as paid subscription services (e.g., MusicNet, pressplay).

Learning Objective: Provides an opportunity to discuss pricing, product bundling, and promotion-related issues as they pertain to online music distribution.

Teaching Note: (5-506-058) Kodak and the Digital Revolution (A) (9-705-448) Suggested Chapters: 2, 3, 6, 10, 11, and 12 Description: The introduction of digital imaging in the late 1980s had a disruptive effect on Kodak's traditional business model. Examines Kodak's strategic efforts and challenges as the photography industry evolves. After discussing Kodak's history and its past strategic moves in the new landscape, the case questions how CEO Daniel Carp can use digital imaging to revitalize Kodak. A rewritten version of an earlier case.

Learning Objective: To discuss business strategy in light of new technology developments.

Teaching Note: (5-705-488) Supplemental Material(s): Kodak: Interview with Dr. George Fisher, Video (DVD) (9-706-802) 21 min Giovanni Gavetti Kodak: Interview with Dr. George Fisher, Video (VHS) (9-706-804) 21 min Giovanni Gavetti Robert Mondavi and the Wine Industry (9-302-102) Suggested Chapters: 2, 3, 4, 5, 7, 8, and 13 Description: Examines the competitive challenges facing Robert Mondavi as the wine industry begins to consolidate globally. Mondavi faces challenges from foreign competitors entering the U.S. market as well as diversified global alcoholic beverage companies entering the wine business.

Learning Objective: Designed to examine a domestic firm's competitive strategy in an industry undergoing global consolidation.

Teaching Note: (5-304-047) Samsung Electronics (9-705-508) Suggested Chapters: 7, 8, 10, 11, 12, 13, and 14 Description: When is it possible to create a dual advantage of being both low cost and differentiated? In this case, students assess whether Instructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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Samsung Electronics has been able to achieve such a dual advantage, and if so, how this was possible. Moreover, Samsung Electronics' long-held competitive advantage is under renewed attack. Students also can assess how Samsung should respond to large-scale Chinese entry into its industry.

Learning Objective: To teach advanced concepts of competitive advantage; to determine the conditions under which dual advantage is possible; and to discuss how industry incumbents should best respond to large-scale Chinese entry.

Teaching Note: (5-706-406) Apple Computer, 2006 (9-706-496) Suggested Chapters: 7, 8, 9, and 10 Description: Apple has reaped the benefits of its innovative music player, the iPod. However, its PC and server business continue to hold small market share relative to the worldwide computer over the past few years. Will the iPod lure new users to the Mac? Will Apple be able to produce another cutting-edge device quickly?

Learning Objective: To contrast Apple's success in creating and marketing the iPod with its results in it’s other hardware categories. To evaluate past performance and consider what the future may hold for a company that relies heavily on periodic bursts of innovation.

Teaching Note: (5-706-513) Cola Wars Continue: Coke vs. Pepsi in the Twenty-First Century (9-702-442) Suggested Chapters: 2, 3, 4, 9, 10, 11, 12, 13, and 14 Description: Examines the industry structure and competitive strategy of Coca-cola and Pepsi over 100 years of rivalry. New challenges of the 21st century included boosting flagging domestic cola sales and finding new revenue streams. Both firms also began to modify their bottling, pricing, and brand strategies. They looked to emerging international markets to fuel growth and broaden their brand portfolios to include noncarbonated beverages like tea, juice, sports drinks, and bottled water. For over a century, Coca-Cola and Pepsi-Cola had vied for the "throat share" of the world's beverage market. The most intense battles of the cola wars were fought over the $60 billion industry in the United States, where the average American consumes 53 gallons of carbonated soft drinks (CSD) per year. In a "carefully waged competitive struggle," from 1975 to 1995 both Coke and Pepsi had achieved average annual growth of around 10% as both U.S. and worldwide CSD consumption consistently rose. This cozy situation was threatened in the late 1990s, however, when U.S. CSD consumption dropped for two consecutive years and worldwide shipments slowed for both Coke and Pepsi. The case considers whether Coke's and Pepsi's era of sustained growth and profitability was coming to a close or whether this apparent slowdown was just another blip in the course of a century of enviable performance. A rewritten version of an earlier case by Michael E. Porter and David B. Yoffie.

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To analyze an industry and its competitor specifically, Coca-cola and Pepsi during the past 100 years.

Teaching Notes: (5-703-403) Additional cases Massive A (806126) and (B) (806127) (2006) A new product in a new industry HCL Technologies (A) Abridged HCL had grown from a hardware company into a software firm with 41,000 employees if now facing Indian competitors and needs a transformation strategy.

Snapple (599126) 1999 Tells the story of Snapple’s rise and fall and poses the question “Can it recover?

Heineken (596015) 1995 Research results can be used to identify Heineken values and translate that into strategy Think: the Norwegian Electric Car Company (808070) 2007 A new venture.

Icebreaker: The US entry Decisions (806006) 2005 Should Icebreaker, merino wool, outdoor apparel, enter the US MARKET?

Bayerische Motoren Werke (9-593-082) Suggested Chapters: 3, 4, and 15 Description: In 1992, BMW attempts to revive its position in the United States market. In 1991, unit sales had fallen to 53,000 from 88,000 in 1987. The new CEO of North America considers a multifaceted plan to turn around the situation.

Learning Objective: Demonstrates marketing mix planning and implementation. Teaching Notes (5-594-107) Asahi Breweries (9-389-114) Suggested Chapters: 11, 12, 14, and 15 Instructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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Description: Focuses on competitive repositioning, organizational renewal, and personal leadership. Describes how Asahi Breweries was faced with a major capacity expansion decision after succeeding in increasing market share dramatically in the traditionally stable Japanese beer industry. This has been done through the creation of a new product category, "Dry Beer." Information on industry economics, Asahi's organizational process, and competitive interaction are provided as well as an in-depth description of top management's profile and management posture at Asahi. Designed to allow discussion on how to make a balanced decision incorporating such market strategy issues as product strategy, competitor retaliation, advertising policy, rebate policy, and distributor relations management, as well as such organizational elements as corporate goals, financial integrity, quality control, personnel policy, management philosophy, and leadership style.

Teaching Notes (5-389-213) & (5-395-194) Intel: Microprocessors at the Crossroads (BP256D) Suggested Chapters: 2, 3, 8, 9, 10, and 11 Description: This case presents Intel's position and key developments in the worldwide microprocessor industry in 1993. It provides an overview of the evolution of Intel's microprocessor business strategy since the mid-1980s. The case offers rich quotes from various key players from different functional areas that can support a fairly detailed discussion of Intel's distinctive competencies and the critical linkages between its technology, marketing, manufacturing, and microprocessor business strategies in 1993. It describes Intel's further evolution toward becoming a "branded products" company. Intel has boldly entered consumer (end-user) space with its "Intel Inside" advertising campaign. Discussion can focus on how viable a strategy this is for a components supplier like Intel.

Learning Objective: To examine how Intel can use its strong strategic position and its powerful distinctive competencies and capabilities to secure its future as the architectural leader and sole source supplier of microprocessors.

Teaching Notes (BP256DT) 3M Optical Systems: Managing Corporate Entrepreneurship (9-395-017) Suggested Chapters: 8, 11, 12, and 15 Description: A middle-level division manager must decide whether he should support an investment request for a third attempt at launching a new product developed by a struggling business unit. Describes the long, difficult process by which the unit has developed the product--a computer privacy screen--after years of problems and continuing losses, and its absolute faith in the project. Also presents the division manager's concerns about the need for discipline and control, setting up a tension that is focused on the launch decision.

Learning Objective: Focusing on the role of the first--line and middle level general manager, the subject matter also allows an exploration of the challenge of creating and sustaining entrepreneurship in large organizations--in a company that has managed it with great success Instructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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for decades.

Teaching Note (5-398-094) Case Video (9-395-513) The Black and Decker Corp. Power Tools Division (9-595-057) Suggested Chapters: 11, 13 Description: Presents Black & Decker's performance against a Japanese competitor and others in the power tools market. Black & Decker is anxious to regain its market share leadership in particular segments of the market.

Learning Objective: Allows exploration of issues of brand equity, product positioning, and competitive strategy in the context of international competition.

Teaching Note: The Black & Decker Corp. (A), (B), (C), (D), and Video, Teaching Note (598106) Supplement: The Black & Decker Corp. (B): "Operation Sudden Impact" (595060) Supplement: The Black & Decker Corp. (C): "Operation Sudden Impact" Results--1992-94 (595061) Supplement: The Black & Decker Corp. (D): DeWalt Opportunities in Europe and Japan (595062) Southwest Airlines (9-575-060) Suggested Chapters: 2, 3, 4, 5, 6, 7, 8, and 10 Description: Southwest Airlines, a small intrastate carrier serving Dallas, Houston and San Antonio, begins service in 1971 in the face of competition by two larger, entrenched airlines. Improved quality service, lower prices, and innovative advertising and promotional strategy bring Southwest to the brink of profitability in early 1973, when its major competitor halves fares on Southwest's major route.

Management wonders what response to make. Exhibits include cost and revenue data. Southwest Airlines (C), which may be used as an alternative to the (A) case, focuses on advertising and promotional strategy through June 1971.

Teaching Notes: Southwest Airlines (A) and (B), Teaching Note (5-575-134) 12p Christopher H. Lovelock.

Supplemental Material(s): Southwest Airlines: Interview with Lamar Muse, January 1978, Video (9-883-510) 10 min Christopher H. Lovelock Saatchi & Saatchi (9-792-056) Suggested Chapters: 9, 12, and 15 Description: Saatchi & Saatchi, founded in 1970, became the world's largest advertising agency in 1986. It then diversified into consulting and other managerial areas before crashing in 1989. Under a new CEO, the company restructured and refocused on its advertising Instructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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agencies.

Learning Objective: Discusses diversification and strategy between businesses. Also valuable for examining corporate structuring, managing the multibusiness corporation, and global management.

Teaching Notes (5-795-094) Starbucks (98M006) Suggested Chapters: 9, 10, and 11 Description: Starbucks is faced with the issue of how it should leverage its core competencies against various opportunities for growth, including introducing its coffee in McDonalds, pursuing further expansion of its retail operations, and leveraging the brand into other product areas. The case is written so that students need to first identify where Starbucks' competencies lie along the value chain, and then assess how well those competencies can be leveraged across the various alternatives. Also provides an opportunity for students to assess what is driving growth in this company. Starbucks has a tremendous appetite for cash since all its stores are corporate, and investors are betting that it will be able to continue its phenomenal growth so it needs to walk a fine line between leveraging its brand to achieve growth and not eroding it in the process.

Teaching Notes (898M06) Wal-Mart Stores’ Discount Operations (9-387-018) Suggested Chapters: 2, 3, and 12 Description: Facilitates a discussion of the sources of Wal-Mart Stores' competitive advantage in discount retailing, and the future sustainability of that advantage. Also profiles the company's major diversification move in the early 1980s.

Teaching Notes (5-387-127) Dell Computer Corp.

(9-596-058) Suggested Chapters: 7, 8, 9, and 10 Description: Traces the evolution of the personal computer industry over the last 20 years and uses this as a backdrop to look at how Dell Computer Corp. grew from a small start-up to a multi-billion-dollar company in a decade. Dell is now faced with a set of decisions on the product markets it needs to serve in order to sustain its growth profitably into the future.

Learning Objective: To give students an appreciation of developing strategy in a dynamic and rapidly evolving market.

Teaching Notes (5-596-098) Instructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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Cola Wars Continue (9-794-055) Suggested Chapters: 2, 3, 4, and 13 Description: The competition between Coke and Pepsi is a classic corporate battle that began in America at the turn of the century and has expanded into worldwide competitive warfare in the 1990s. This case examines the economics of the soft drink and bottling industries, and describes the history and internationalization of the cola wars.

Learning Objective: To illustrate competitive interaction and other strategy concepts.

Teaching Notes (5-794-143) Benetton (9-685-014) Suggested Chapters: 10, 13, and 15 Description: The world's largest manufacturer of woolen outerwear garments seeks to extend its retailing network to the United States from its base in Europe. A number of issues concerning marketing, manufacturing, and logistics strategy are raised by the proposed move along with specific questions about how the move should be managed. The case describes a well-thought-out, functionally integrated strategy for Europe in a way that allows assessment of its applicability for a proposed U.S. effort.

Teaching Notes (5-686-019) Case Video (9-886-510)

Instructor’s Guide for Strategic Market Management, 9th edition, By David A. Aaker

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Teacher’s Manual for Strategic Marketing Management 9th ed.

Case discussions Part I Retailing Trends Energy Bar Transformational Innovation

Teaching Note for Trends in Retailing One way to start is to ask for each of the four brands (so substitute one that might be more relevant fro your area) what is the most important threat represented by the relevant treads? And then the most important opportunity? And why?

1. Trend drivers 1. The upscale trend—people are upgrading their home, the higher income segment has money to spend in part because of the appreciation of their homes, and customers are attracted to interesting retailers with some energy. There has always been a price end but Target and Wal-Mart and Costco have made going for low price less of a trade-off.

2. One drive is to have more convenient shopping—near where you live. The concept of driving to the mall not only wastes costly gas but is not fun anymore. The rise of the downtown areas reflects the desire for convenience and the appeal of something that is more interesting. Of course, just being new is worth something. The malls are old.

3. There was a tremendous unmet need for installation. In general, people simply do not want to be bothered. In addition there an intimidation factor in consumer electronics. What started out as a need to expand sales and create a differentiator has turned out to be an important dimensions on which firms compete to be the best or at least be a player.

4. It is driven by the advantage provided by more trend responsive merchandise and the energy and interest that provides to the customer.

5. Private label strength is driven by the desire or retailers to control a category, to obtain higher margins, and to have leverage over the big brands. The reason that private label is doing well lately is that retailers have become better brand managers and the private label products are now better.

6. In store media is driven by its effectiveness and the corresponding ineffeciecy and ineffectiveness of traditional media.

7. This is a huge trend. Wal-Mart is even in on it and has made money on organic clothing. Might ask for all the trends in foods—non sugar, low-fat, low-carb etc and ask what happened to them and why. Will the same fate befall organic?

8. The use of data was predicted to happen 20 or 25 years ago but is just now materializing. What took it so long? One was that retailers are focused on what to carry and getting details right. Using data is a different way of managing.

2. What trends will be around?

Forecasting is tough. One way is to look at analogous situations. Another is to ask what impact does it have on business strategy. Fast fashion creates a new business model. It will win if it remains feasible as a retailer gets large. Zara’s design and manufacturers is at home (Spain although they are expanding that) and Uniqlo (like Gap but a much lower price point) is so connected to Chinese factories that they can turn around items choices in weeks. Can that scale? Can peruse whether private label increase will go on forever.

And ask for what products will it be most successful. It has never done well in beer because of the innovation in that area.

3. Key threats and opportunities.

All four represent threats and opportunities that can be identified. After doing so you might ask how each brand should spend their investment dollars to sparpen the trade-off judgments that must be made.

4. Against the trend.

A retailer might consider going against the trend when there are alternative competitive models that fit their assets and competencies?

5. Losing the core.

The Gap and Saks both went trendy because they were not attractive to the teens and 20s or so they thought. As a result they lost their core market. A classic dilemma and a tough call. Clearly, a way needs to be sought that is not so radical that it turns off the core. Might ask if they can think of anyone that has pulled it off—being relevant to the young without losing the core. Whole Foods is one that has a lot of energy without losing their core.

Instructor Note—ENERGY BAR INDUSTRY There are now bars around breakfast, protein, sports and energy, diabetic, diet (the South Beach Diet Bar), soy (SoyJoy a major Japanese brand), and nutrition. A key issue in this case is the concept of emerging submarkets, their projected growth, and their competitor set.

1. What are the submarkets that will be major factors going forward?

2. What can firms do to enhance the success of “their” submaket?

3. Can firms compete in more than one submarket with the same brand or is it necessary to have a brand for each?

1. External Analysis What are the segments? Should they be grouped? How? Can a brand appeal across segments? And PowerBar. Is it sports and energy? Is it energy in any context? Can the subbrands take them beyond sports? How many subbrands can they support?

What are the treads that are relevant? Being active? Eating right? Weight control?

Organic? Good place for scenarios. Contrast a big growth with a flash in the pan. Recall low fat—discuss where that is now.

2. Submarket prjection.

Look at what are the trend drivers? Are they real? Do they have legs? Will the submarket be splintered over time?

3. Leveraging brands Take Luna—can the active, diet conscious women image be leveraged? What products would make sense? This could be a good vehicle to do a brand extension exercise.

4. A basic question as to how distinct all these categories are and will be over time.

Sometimes a category splinters into many competitors and then comes together with a few major survivors. Will that happen here? Think of other contexts in which such dynamics occurred.

5. The energy bar category and its life cycle The students should learn that the life cycle question involves the life cycle of what?

6. SoyJoy Students might try one. They are well marketed but have a taste and texture problem (very dry) even though they come in a dozen flavors. They might have to come out with different product variations to achieve a point of parity on taste and texture. And it is a new name. What can they do to promote it? There is an opportunity in the soy area as no other brand has been able to establish it. What should be the response to SoyJoy by PowerBar if it is successful?

Instructor Note--Transformational Innovations Zopa 1. Traditional banks and, to a lesser extent, credit card firms. Might look at other Internet finance firms like eLoan to see how much business they took. However, eLoan and the car sites are simply front ends for existing institutions whereas Zopa aims to replace. It would be very awkward for a bank to go into this business because it is so anti-bank.

2. This could add customers. Small loans, for example, might be made that otherwise would not exist.

3. One option is how much to invest to accelerate the growth. Another is segmentation.

How do you prioritize the various potential segments.

4. Zopa is not a great name but it is short. Peer to peer lending sounds stilted. But a good label would help communicate and make acceptable the concept.

Eestor 1. All car companies that do not find a way to participate will be threatened plus the oil industry. Evaluation must start with technology analysis both theoretical and experimental. The problem in part is to not only evaluate the current technology but also to project it because as in the case of the telephone it was not the initial technology that won. Think of the automatic transmission, the mini-van, the SUV and the hybrid. They

took over a good chunk of the market. This should be more dramatic. The company with an exclusive is in a great position.

2. In the car industry this will replace not supplement.

3. Should that firm license to GM and the others or go it alone? Think Apple who made a similar decision to go it alone and restricting itself to a small part of the market but controlled the technology.

4. It probably should not be called ESU or Eestor. What about feel good?

NextMedium 1. Anything connected to advertising and the 30 second spot is at risk. This could divert and lot from the advertising budget. Media companies who help people place advertisng will have a big hole in their offering. Agencies will be bypassed because there is no need for any of their services. To project might look at other Internet firms especially those dealing in advertising. Media companies could easily be motivated to come up with competing modes or trying to incorporate brand integration into their systems. It might be hard psychological for some to admit that advertising simply needs to be bypassed.

2. Yes, this will definitely add new form of brand building. Entertainment firms will be able to market placement opportunities easier and the result will be more of them.

3. One option would be to sell out or partner with one of the big communication firms like WPP. They could then provide media buying that is more comprehensive.

4. NextMedium is not great but they have come up with a bunch of branded services like Embed and PlaceViews so maybe they could come up with something.

Part II Hobart Dove Competing Against Wal-Mart Sony vs. iPod Contemporary Art

Instructor Note--Hobart 1. Why do chefs buy Hobart for their kitchens?

For those that say it was rational ask them to describe the like process—did they examine specs? The likely fact is that cooks were often ego-maniacs and wanted their kitchen to have the best—Hobart. So the purchase had a lot of self-expressive benefits. They want all the cues to say that this kitchen is the best. The question is how can you exploit that insight.

2. What is the strategic position before the “Solid Equipment, Sound Advice” program? How did it change? a. Hobart was a 100 year firm that made products that lasted decades—it was the Mercedes of the industry. Customers were paying Hobart prices because of the quality but also because of the prestige. But the position was based primarily on functional attributes and the total marketing program including the advertising and the trade shows was designed to communicate the latest features and product improvements. b. After the change, Hobart still had an identity of product quality, reliability and product scope. However, product features and functional attributes were dialed down and the sound customer advice was dialed up. The key was to be known as a firm that cares about, invests behind and understands customer problems. Hobart is now part of the customer’s team rather than being a supplier. It is a very different relationship. Some questions to pose • What is the new brand personality?

• What is the new customer relationship?

3. What strategic options did Hobart pursue?

It is interesting that this is not just an advertising and trade show programs. There is a lot involved. The students might be asked what is the most critical element of the program?

And what is the most effective communication device. The answer will be that which looks least like advertising.

4. The new program soaked up resources that meant that the effort to communicate new product innovations was reduced. Was that likely to be wise? Which approach is likely to create better support toward a quality position?

This is a bit like the Intel Inside decision. Logically, there is no reason to spend all that money on customer problems and thus reduce radically the effort behind new products and new features. It is a very painful choice. But the key is which effort will best affect quality image. A very good discussion will conclude that the indirect approach is the best way to say quality. It is rather like saying to a new friend, you will like me because I am fun and humorous—it is better to be more subtle.

Instructor’s Note--Dove 1. Why was Dove so dormant for so long?

There are probably a accumulation of reasons. First, Unilever (and P&G) was not focused on leveraged existing brands as much as other strategic initiatives like, for example, buying brands such as ice cream brands around the world. Second, Dove was

regarded as a product specific brand and had a very pleasant profitable niche. It was not a problem and thus the firm enjoyed the case spin-off. Third, the experience with dishwasher detergent had to create a “been there done that” feeling among the executives.

2. What ware the keys to the success that Dove achieved in building the brand into a $2 billion business? What was the role of success momentum? The subbrand?

Again there are a combination of factors. First, the breakthrough product that had patent protection and the endorsement of dermatologists was the bases of everything. Second the incredible positioning of the brand—moisturizing—that was developed through great advertising and packaging over many decades helped to create a leveragable asset. Third, there is no question that momentum played a key role. Success creates a quality perception and new product credulity. It also creates a group of customers loyal to the brand that are much easier to attract to a new product than others. It also can create a buzz. This possibility could merit some class discussion. Fourth, the subbrand also helped to define the new advance, without which Dove could not breakthrough. This branded differentiator was so strong it helped Dove soap.

3. Why did Dove wake up? Would they have done so without P&G pushing (or more accurately pulling)?

The questions as to why Dove woke up is provocative and could merit a discussion. A case could be made that without P&G noting much would have happened to Dove. Then ask why that is. How can organizations be so clueless? One possibility is that they are distracted by other priorities. Another is that problems tend to get more attention than opportunities. The fact is that it is common to see great vitality in an industry with a vigorous competitor that is innovating. Ask the class to think of an industry with a lot of vitality and consider the source of that vitality. Think of the energy bar industry, for example.

4. Why did Dove soap sales get affected by the other Dove successes?

Dove soap got affected in because the brand got visibility, energy and credibility. The success in an adjacent category was an extremely effective way to tell the Dove story.

5. What does this case tell you about first mover advantage?

First mover advantage is real but can be overcome. Being first to market can be an advantage as Dove found when it attempted to take on Palmolive in the dishwashing detergent market with something of a me too product in a crowed area. However, the case shows that a follower can also win with the right stuff and the right brand building as Dove found it body wash and deodorants.

Competing Against Wal-Mart It is useful to begin by looking at the Wal-Mart strategy. Why was Wal-Mart successful at building a firm early? The selection of the relatively small town discount store was a key—it meant little competition and access to low cost, non-union labor.

Then there was the culture of associate empowerment and customer service fostered by Sam Walton. Finally, there is the relentless focus on delivering low prices.

Some issues that could be raised. This low price focus has hurt or destroyed suppliers. Is that necessary? What about the encouragement of foreign sourcing? What about the given premium products like Pantene a low price thereby undercutting the brand? What about their treatment of employees? It can be argued, as they do, that they focus on one thing—delivering low price to customers and virtually any behavior is OK as long as the goal is achieved. It can be argued as well that a strong culture cannot exist if there are exceptions and less intense dimensions.

In the past few years, Wal-Mart has been aggressively adopted policies and programs aimed at sustainability and energy conservation. Has that helped their image?

There employee policy has changed a bit sometimes because of the threat of lawsuits and they have promoted their hiring of large umbers of people? Has that helped their image?

Wegmans Wegmans has been thriving in a Wal-Mart world and is aggressively expanding.

Their strategy is documented on their website and in at article in Forbes by Matthew Swibel on November 24th, 2003 entitled “Nobody’s Meal.”

1. Wal-Mart’s key strength are • Its sustainable cost advantage which puts enormous pressure on prices and margins.

• Its presence and visibility due to the exposre of its stores.

• The wide assortment that draws people in—especailly at the supercenters.

• The financial strength allows it to focus on tough competitors.

Wal-Mart’s weakness are • It preoccupation on price limits its ability and its imagination to offer many upscale..

• Its negative publicity about some real issues around jobs, treatment of employees and suppliers, and arbitrary “culture” decisions make it vulnerable to mistakes.

2. Wegmans should attempt to reduce the cost disadvantage but never attempt to compete on price. In fact they should do whatever possible to shift the focus away from price. As a result they were picked by the 2003 edition of Consumer Reports are the number 2 supermarket chain in America (Raley’s was number one and Wal-Mart was number 25.

3. In essence Wegmans provide a higher quality, more interesting selection than WalMart does, it has a host of energizing activities like Chef’s cooking in the store and connects with customers and the community. Among the strategies that Wegmans has pursued are the following: • Emphasize the family heritage—founded on 1915 and still run by the family.

• • • •

• • • • • • • • •

Connects to customers and the local community by sponsoring sports teams (Buffalo Bills) and events (the LPGA Wegmans’ International)) Introduced the “Food You Fell Good About” Program into the bakery departments in 1992.

Created a great shopping experiences for children and families. In 2003 Wegmans was named the “Most Family-Friendly Supermarket in America in Child magazine.

Has an informative web site where you can order gifts of all types and find out about specials and a wide variety of information. Included are Healthy ideas around allergies, arthritics, diabetes, healthy eating for kids, weight management.

In each are it gives straight, unhyped advice and information.

Has a menu magazine that has featured holiday recipes, roasting techniques, and making ice bowls.

Guest chefs appear at Wegmans locations Makes the firm a good place to work—a perennial entrant on Fortune’s Best Companies to Work For in America, In 2003 it was tenth.

Sponsors the Wegmans Great Tastes Culinary Festival in Allentown Pa where there are culinary delights from the premier restaurants and caters of Lehigh Valley and cooking demonstrations by celebrity chefs and wine tasting.

Parisian brand is presented line a Parisian open air market.

Checkout lanes are fully staffed (while Wal-Mart is moving toward self-checkouts.

Has gourmet items and prepared foods to respond to needs for upscale tastes and take out food.

Works with 600 farmers to stock its produce section (when Wal-Mart is consolidating suppliers).

A key question that should support a vigorous discussion is how to handle the Wal-Mart resentment. Wegmans could go negative and made the issues more visible.

That is what works in politics. In fact that is what works period. The problem might be in this context Wegmans may not be comfortable going down that road and there could be a backlash. A sub-issue is how to do that. Going positive is a safer option—the goal should be to make by contrast what Wal-Mart does visible.

Costco Costco also thriving. While Sam’s Club aims at the tradition mass middle market that is purely looking for functional goods at bargain prices. Costco,in contrast , looks toward the urban sophisticate who want aspirational items at less than full prices. In is said that Chef Julia Child bought meat at Costco. They will trade down to private label for paper towels nd vitamins but want the Callaway golf clubs and Starbuck’s coffee. So they are a bit insolated from Sam’s Club in terms of clientele and promise. Costco also is energy created by having unexpected items that people look toward.

While Sam Walton is gone, the founder and CEO of Costco, James Sinegal, is very much around. He caps the Costco markups at 14% (department store markups can reach 40%). Unlike Wal-Mart, his hourly workers are well paid—after four hears an hourly worker can make $40,000. While Sam’s Club imitate, Costco innovates. Costco

was first, for example, to introduce a premium private-bale line called Kirkland Signature, in 1995, three years before Sam’s versions, Members Mark came along. Information on Costco is documented in a November 10, 2003 Fortune article “Costco: The only Company Wal-Mart Fears” by John Helyer Sam’s Club has the financial backing and access to the buying economies because of the Wal-Mart business. However, it is at a disadvantage in matching the Costco upscale stuff. Further, it has operated separately from Wal-Mart which has inhibited the development of synergies but allowed them to have a different culture. Wal-Mart wants to combine many operational elements of both which should help the efficiency of Sam’s Club but may make it harder to distinguish itself from Wal-Mart.

Instructor’s Note—Sony vs. iPod 1. Advantages of proprietary products This is a classic strategic issue. On one hand “open source” involves that sharing of all your IP and points of advantage with competitors. As a result they can copy you easily. So you need to somehow capture the advantage by” a. Being dominant so that you have more visibility and thus access to customers and so you have more experience and thus will be better at delivering. b. Being the industry though leader through books, articles, media appearances—thus choosing you is less risky. c. Being an ongoing innovator so competitors are always behind.

The challenge of being proprietary is to provide confidence that your stuff will work, that you will be around to stand behind it, that you will continually upgrade it, and that you will price it fairly despite not having any competition.

2. Sony went slow at dignital.

It is the curse of success. Sony had a great TV product developed at great cost.

And it was protected by patents. It was painful to make it obsolete with a technology that would be hard to differentiate from competitors’. Jim Collins has a book out that talks about how does a company on the top of its game detect signs of trouble that could require a change of course.

3. Digital convergence?

Think checkless society that was proclaimed in 1960 or the one stop financial shopping of 1980. Neither came close to coming to life in the time horizon that was expected. There may be digital convergence but it may be decades in the future. It is worthwhile to write down the ways that the captain of the home could come from— mainly the TV set, the computer, the Cable, the DVR, or the content people like movie

studies to TV networks. Do a scenario analysis as to the computer or the Cable as winners. How would each scenario play out?

4. How did two products come out at the same time.

Understand the silos are very independent and are incented to be successful as silos. It is logical for the computer to look in this direction because content can come through the computers. It is logical for the Walkman group because the application is their heritage and they have the brand. And Sony Music had not incentive to make it happen? This is, unfortunately, not that uncommon.

5.Correcting the silo problem Some ideas for correcting the problem. It starts with communication. It might be that the silos were not even aware of the competing programs. Get the incentives away from the silos to the organization. Get a cross silo team working on the opportunity. Etc.

Instructor’s Note--Contemporary Art 1. Why might the demand for contemporary art increase?

There are more and more museums opening and also more serious collectors. At the same time the supply of name artists is limited. Many of the established ones are dead and the future reputations of many of the rest is uncertain.

2. Why do people buy contemporary art?

The investment motivation is one. Although if you compare to alternative investments, art pieces that have had a dramatic increase over a long time period may still not match that of stocks. It is true, however, that there is a lot of variability of art and artists and if you would get lucky and pick a future star, the returns could be high. There is the attraction of the gamble, however, most don’t really buy for investment.

A main reason is for social and self-expressive benefits. A purchase means that you: • have sophistication and taste.

• are interesting.

• are part of a small and special group of people.

• are associated with a dealer or auction house or museum that are the authorities of the field.

• have arrived financially and socially

3. How does an artist develop a brand? What about an art dealer?

The artist develops a brand through associations. Surprisingly art critics are not very influential. What is important is the implied approval of dealers, auction houses, art faires (there are four major international fairs), and museums. So the first step is to get exposure into a dealer. The dealers have variable prestige from at at least three levels.

So you would try to start with level three and work up. Collectors are very important.

Note the Charles Saatchi story about how the Hirst brand was started. Actually Saatchi will buy a dozen works of a new artist and his purchase will make the works go up in value. In addition, he can buy works from dealers at big discounts because having him as a client and collector of a dealer’s artists means so much. He can also get deals at the auction houses for the same reason. The auction houses are the ultimate seal of approval but they only handle a limited number of artists and it is hard to break into that group.

The same is true for museums.

But how do you get started and start the march up the ladder. There are several approaches that are relevant. You can be an outrageous personality in the news like Andy Warhol and Tracy Emim. Second, you can put out pieces that have shock value because they are so outrageous. Anything to get into the news. Third, your work can be distinctive. It helps to have a style so that when someone sees a piece they can say that is a Pollack or Walhol or Hirst. You don’t want to be an artist whose work is hard to identify.

A dealer will base its reputation on artists. So it is crucial to cultimate up and coming artists and equally crucial to keep them when they are ready to move up to a more prestigeious dealers. One thing that dealers do is to make sure that their artists work do not decline. If a piece is out there at a low price, the dealer will snap it up so the market price for the artist is not compromised.

4. Is Hirst famous because of his work and it shock value, because of Charles Saatchi, or because he is famous.

All of the above.

5. How would to develop a brand if you were a new investment advisory serice? Can you use any of the techniques that artists use?

Could start out by asking how it is similar to an artist brand. Hard to evaluate, etc.

It is all about associations. Can you get some clients that will legitimize your service? Can you get something distinctive that has value—perhaps brand some aspect of your service.

SUPPLEMENTAL CASES Strategic Market Management 9th edition David Aaker Author Intel Samsung Electronics Xerox: The Early Years Intel Teaching Note Samsung Electronics Teaching Note Xerox: The Early Years Teaching Note

Intel During the 1990s, Intel achieved remarkable success in terms of increased sales, stock return, and market capitalization. Sales of its microprocessors went from $1.2 billion in 1989 to over $33 billion in 2000. The firm’s market capitalization grew to over $400 billion in just over three decades. Intel’s ability and willingness to reinvent its product line again and again, making obsolete business areas in which it had big investments, certainly played a key role in its success.

Its operational excellence in creating complex new products with breathtaking speed and operating microprocessor fabrication plants efficiently and effectively was also critical.

Intel’s sustained rise would not have happened without the firm’s ability to create and manage a brand portfolio that included a complex set of endorser brands and subbrands. The brand story really starts in 1978 when Intel created the microprocessor chip, the 8086, which won IBM’s approval to power its first PC. The Intel chip and its subsequent generations—the 286 in 1982, the 386 in 1985, and the 486 in 1989—defined the industry standard and made Intel the dominant brand.

In early 1991, though, Intel was facing competitive pressures from competitors who were making clones of the 386 and exploiting the fact that Intel failed to obtain trademark protection on the X86 series. Calling their products names like the AMD386, these firms created confusion by implying that an AMD386 was as effective as any other 386.

To respond to this business challenge, in the spring of 1991 Intel began a remarkable ingredient branding program, establishing the "Intel Inside" brand with an initial budget of around $100 million. (The logo—which has a light, personal touch, as if it was written on an informal note—was a sharp departure from Intel’s corporate “dropped-e” logo.) Under the branding program, computer manufacturers who properly displayed the Intel Inside logo received a 6% allowance on their purchases of Intel microprocessors, which could be used to pay for up to 50% of the partner’s advertising . Partners also were required to create subbrands for products using a competing microprocessor, so that buyers would realize that they were buying a computer without Intel Inside.

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This decision was very controversial within Intel. Many people argued that brand building was irrelevant for a firm that only sold to a handful of computer manufacturers; the money could be used for R&D instead. Within a relatively short time, however, the Intel Inside logo became ubiquitous, and the program was an incredible success. Even as the budget grew to well over $1 billion per year, the brand-building effort was perceived to generate such loyalty that it more than paid for itself.

For many years, a computer with an Intel Inside logo could be sold at around a 10% premium (for the whole computer, not just the Intel microprocessor). Because of the logo’s wide exposure, Intel was given credit for creating reliable and innovative products and for being an organization of substance and leadership—even though most computer buyers had no idea what a microprocessor was, or why Intel’s were better.

In the fall of 1992, though, when Intel was ready to announce the successor to the 486 chip, it faced increasing competitor confusion despite the Intel Inside campaign. A huge decision loomed. Calling the successor the Intel 586 would leverage the Intel Inside brand and provide familiarity to customers who had become accustomed to the X86 progression. Even so, Intel elected to give the chip a new name: Pentium.

Four key issues guided the decision to adapt the Pentium brand. First, it would avoid confusion with competitors who might also use the 586 name. Second, the cost of creating a new brand and transitioning customers to it, although huge, was within the capacity and will of Intel. Third, the Intel Inside equity and program could be leveraged by adding “Intel Inside” on the new Pentium logo, in essence making the former brand an endorser for the latter. Finally, a new name would signal that the product was a significant enough advance to support demand at a premium price, which was necessary to pay for a costly new fabrication plant.

A few years later, Intel developed an improved Pentium with superior graphic capability.

Rather than change the brand name itself, the firm added a branded technology, MMX, to the Pentium. This decision gave the Pentium brand more time to repay its investment, and it reserved the impact of announcing a new-generation chip for a more substantial technological leap. Subsequent generations did emerge and leveraged the Pentium name and equity with names like Pentium Pro (1995), Pentium II (1997), Pentium III (1999), and Pentium 4 (2000).

In 1998 Intel decided to extend its reach to mid-range and higher-end servers and workstations. To address this market, it developed features that allowed four or eight processors to be linked to supply the necessary computing power. This progress, however, raised a branding issue. On one hand, because the Pentium brand was associated with the lower-end personal computer market, it would not be regarded as suitable for servers and workstations. On the other hand, the market would not support developing yet another stand-alone brand alongside Intel Inside and Pentium. The solution was to introduce a subbrand, the Pentium II Xeon, in 1998. The subbrand distanced the new microprocessor enough from Pentium to make it palatable for the higher-end users. It also had the secondary advantage of enhancing the Pentium brand because it associated Pentium with a more advanced product.

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In 2001, the Xeon subbrand stepped out from behind the Pentium name. Technological advances (in particular, the branded NetBurst architecture) had dramatically improved the chip’s processing power. The Xeon brand had also become established, making it easier to support as a stand-alone brand, and initial trademark issues over the Xeon name had been resolved. Finally, because the target market had become even more important to Intel, having a brand devoted to it was now a strategic imperative.

In 1999 another problem or opportunity emerged. As the PC market matured, a value segment emerged, led by some competitors eager to find a niche and willing to undercut the Intel price points. Intel needed to compete in this market, if only defensively, but using the Pentium brand (even with a subbrand) would have been extremely risky. The solution was a stand-alone brand, Celeron. The brand-building budget, like that for many value brands, was minimal—the target market found the brand, rather than the other way around.

The decision was made to link the Celeron to Intel Inside, so there was an indirect link to Pentium. The trade-off was the credibility that the Intel endorsement would provide to Celeron versus the need to protect the Pentium brand from cannibalization and a tarnished image through association with a lower-end entry.

In 2001, Intel introduced the Itanium processor as a new-generation successor to the Pentium series. Why not call it the Pentium 5? The processor was built from the ground up with an entirely new architecture, based on a branded design termed Explicitly Parallel Instruction Computing (EPIC), and it had 64-bit computing power as opposed to the 32-bit Pentiums. Capable of delivering a new level of performance for high-end enterprise-class servers, the processor needed a new name to signal that it was qualitatively different than the Pentium.

In 2003, Intel introduced its Centrino mobile technology. The new processor provided laptop computers with enhanced performance, extended battery life, integrated wireless connectivity, and thinner, lighter designs. These groundbreaking advances promised to fundamentally affect personal lifestyles and business productivity by enabling people to “unconnect” (the Centrino advertising tag line is “Unwire Your Life”). The new Centrino logo reflects the Intel vision of the convergence of communication and computing, as well as a new approach to product development. Rather than simply pushing the performance envelope, this product responded to real customer needs as determined by market research.

The most dramatic element of the Centrino logo is its shape, a sharp departure from the rectangular design family that preceded it. The two wings suggest a merger of technology and lifestyle, a forward-looking perspective, and the freedom to go where you will. The magenta color used for the Centrino wing balances the Intel blue and visually connotes youth and excitement while suggesting a connection between technology and passion, logic and emotions.

The Intel Inside logo has also evolved. More precise, sophisticated, and confident, it now provides a link to the classic dropped-e Intel corporate logo and reflects a world in which the positives of the corporate connection and the loyalty program can be linked.

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For Discussion 1. The Intel Inside campaign started in the spring of 1991 and $100 million was budgeted for it in 1992. Was that worthwhile? Why would Compaq participate in the program? What about Dell? How would you evaluate the program? What alternatives does a competitor such as AMD have to combat the Intel Inside branding strategy?

2. In the fall of 1992, when the "586" chip was ready, would you have called it Intel 586 or i586, or would you have started over with a new name? What are the pros and cons of each alternative?

3. What effects did changing the brand name from X86 to Pentium and others have on Intel’s ability to manage the product life cycle of the newly branded products?

4. When would a new product require a new name (such as Pentium) versus a new subbrand (such as Xeon)?

5. Evaluate the Centrino brand strategy. Will it help Intel be relevant to the mobile computing world?

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Strategic Market Management 9th edition David Aaker Author

Samsung Electronics Samsung Electronics, which begin in 1972 as a manufacturer of cheap B&W TV sets, in 2002 had sales of over $34 billion and net profit of 5.9 billion dollars which was less than Microsoft’s profits but more than IBM and Nokia earned who were number three and four in industry profitability. In part due to product leadership Samsung achieved third place in world wide mobile handset sales closing on second (after Nokia), became the second place seller of semiconductors (after Intel) and was the largest manufacturer of television sets and computer monitors in the world.

The products delivered function and more. Their products from plasma TV screens to robotic vacuum cleaners to fridge-freezers that tell you when you are low on milk to bracelet cell phones were cool and had a buzz. Business Week recognized Samsung as the number one Information Technology company in the work and its brand was valued by Interbrand at 8.3 million dollars, the 34th most valuable brand in the world. This performance was astounding given the fact that only five years earlier Samsung was financially crippled in the face of a Korean economic crisis and some bad strategic decisions.

In some respects it was the worst of times in late 1996 when Yun Jong Yong became CEO. He addressed the financial crises in part by cutting some 24,000 people, shutting factories, and selling business units. But in the face of this adversity, he set the stage for gaining global leadership by enunciating a bold strategy.

The strategy had several components. First, Samsung would change its market position in the US and Europe from a price-oriented copy-cat manufacturer to a premium priced product leaders sold in the most upscale retail outlets. Essentially no part of his management team agreed with this direction as it meant walking away from much of their business and would be risky to implement. Second, Samsung would continue its policy to be vertically integrated and turn its memory and component design and manufacturing into an asset by providing direct access to the latest technology. Nearly all other firms felt that strategic flexibility required moving away from vertical integration. Third, Samsung would be a leader in creating new products that would be designed to be distinctive and cool. Further, the organization would become much faster to market with its new products. Fourth, it would build the brand especially outside Korea as brand would be crucial in becoming the leader in the coming years.

The new course was somewhat aided by the New Management initiative launched in 1993 by Lee Kun-Hee, the CEO of The Samsung Group of which Samsung Electronics is a part.

No less than a total change in the way that the group thinks, works and serves the customer, the initiative included a focus on quality, listening to the world’s markets, creating distinctive advantage, being the world’s best, anticipating the future, creating organizational environment to foster innovation and growth, and contribute to a better global society. The initiative was re-

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launched in 1996 as it had received little traction. As part of the re-launch, Lee set up in 1996 a training center for information related infrastructure topics.

There were several key aspects to the implementation of the strategy. One was the hiring of Eric Kim to be global marketing head in 1999. Kim, who left Korea at the age of 13, had an engineering and marketing background. He was determined to get the global silos to be on the same page. Toward that end he consolidated the disparate business operations and drove toward a single vision around the new cool, upscale brands with leadership technology around digital convergence. He replaced the 55 advertising agencies with one global agency. In part to emphasize the global future of Samsung, Kim made his first big presentation to 400 managers in English.

Another initiative was sponsorship and advertising. Yun believed that the new Samsung could best be communicated by sports sponsorship. The logic was that sports competition, which involved hard work by athletes striving to achieve ones highest potential, suited the industry and the associations that Samsung wanted to nurture. Sports also provided a stage to demonstrate technology. Samsung sponsored several events include the 1998 Bangkok Asian Games but the crown jewel was the sponsorship of the Olympics starting with the 1998 Winter games in Nagano Japan. In 1999 Samsung embarked in a $400 million advertising effort around the tagline DIGITall which signaled that Samsung was a leader in the digital convergence world and it would apply to all people and all products.

Among the misadventures of Samsung that contributed to the financial crises of 1997 was the AST adventure. AST in the early 90s was among the top four PC manufacturers in the US. However, they struggled to keep up and began losing money at an alarming rate in part because their acquisition of the Tandy PC business in 1993 was not managed well and because their product development tended to be late (they missed a Christmas selling season one year).

Meanwhile Samsung which had 30% of the computer market in Korea tried and failed in its effort to crack the critical US market, a failure attributed to a lack of marketing savvy and distribution clout. Their solution was to invest in AST in 1995 and buy the balance in 1997.

Inserting a Korean CEO in 1996 who instituted needed manufacturing efficiencies and some comarketing efforts with Disney. When that did not stem the tide at effort to focus on the business market failed, Samsung bailed out in December of 1998 after having lost well over $1 billion dollars.

For Discussion 1. Yun lacked support for his new strategy. Is it important that the strategy be accepted? That it be enthusiastically be embraced? How could the CEO make that happen?

2. What are the organizational implications of vertical integration and the new product program?

With respect to vertical integration, how would you make sure that the component suppliers are incented to become efficient even though their customer is captive?

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3. How would you change the reward system to reflect the new strategy? In the past all units have been largely measured on sales and market share.

4. Why didn’t Lee’s initiative gain traction in 1993? What is needed to make it happen?

5. How should Kim gain acceptance for himself and his ideas? Was it risky to speak in English?

In creating a global strategy would you use a top down or bottom up approach?

6. Do you agree with the logic of the Olympic sponsorship? How would you get organizational support for it? How would you decide what sports events to sponsor?

7. What was the objective of the AST acquisition? Why did it fail?

Source: Samsung Electronics Annual Reports—1997 to 2002. Cliff Edwards, Moon Ihlwan, & Pete Engardio, The Samsung Way, Business Week, June 16, 2003, pp. 56-61.

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Strategic Market Management 9th edition David Aaker Author

Xerox: The Early Days

When Chester Carlson invented xerography in the 1930s, he attempted to market his idea to a host of firms, including Kodak and General Electric. All viewed the rather crude invention as unnecessary in the face of carbon paper and the coated-paper copiers of the day. Finally, in the 1950s, a small firm took the gamble. The result was the Xerox 914, introduced in 1959, which truly revolutionized the copying industry. The first plain-paper copier, it was easy to use and operated at seven copies per minute. The 914 was responsible for the number of copies made in the United States increasing from 20 million to 9.5 billion in only ten years.

The Xerox business strategy through the 1970s involved several pillars. First, the machines were leased at $95 per month, including 2,000 free copies per month to firms who mistakenly felt that their use would never exceed that level. Second, an extensive direct sales and service operation was developed to market the 914 and more expensive models, all of which were relatively complex and needed informed salespeople and responsive service. Third, the R&D focused on the high end of the market, where the best margins were. The low end was virtually ceded to the Japanese, first with coated-paper machines and later with inexpensive plain-paper products. Fourth, international growth was based on a joint venture with Fuji.

The fifth pillar, a major strategic thrust for Xerox in the 1970s, was the “Office of the Future.” This concept recognized that the copier was only one instrument of office productivity and business communication, and Xerox wanted to be a leader in the broader playing field.

Clearly, the key to the strategy was a computer capability. To fill that gaping hole, Xerox in 1969 purchased Scientific Data Systems, a firm that targeted the scientific community, and changed its name to Xerox Data Systems (XDS). Despite pouring investment into XDS, the firm’s products for the business data-processing market never had any success in the office, Xerox’s territory. Further, the Xerox organization had too many layers of bureaucracy in too many locations to encourage the integration of computer and copier products. In 1975, after six years of losses, Xerox closed XDS, judging that the computer mainframe market was not part of its core business after all.

Competitors: Savin, Canon, IBM, and Kodak Savin was a small company obsessed with participating in the copier market and frustrated by the patent chokehold of Xerox. Finally, with the help of an Australian inventor and a consortium of firms from the United States, Germany, and Japan, Savin developed a liquidtoner approach that avoided Xerox patents. Its breakthrough became the Savin 750, manufactured by Ricoh in Japan and introduced in 1975 at $4,999, less than the annual lease price of a Xerox machine. Instead of a direct sales force, Savin sold through dealers who would contact Xerox customers with an attractive alternative when their contracts expired. Dealer service was feasible because the machine was relatively small and reliable; the Savin 750

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averaged 17,000 copies between failures. It made twenty copies per minute, the first in less than five seconds, a pace far superior to Xerox efforts at the low end. By 1977, Savin placed more copiers in the United States than Xerox. Meanwhile, Ricoh captured the top market share in Japan, as measured in units.

Canon also avoided the Xerox patents by developing an alternative technology that was licensed to other Japanese firms. Rather than using joint ventures, Canon deliberately decided to market its copiers throughout the world under its own name, even though that would mean relatively slow market penetration in a fast-moving industry. In the long run, keeping control of the brand and operations became a strength. Canon struggled in the United States until 1978, when its NP-80 combined with an aggressive advertising campaign to succeed in the midvolume market. By 1979, Canon became a leader among the Japanese copier firms. In 1982, it introduced its Personal Copier, which sold for under $1,000 and had a $65 disposable cartridge.

The slower copying speed was unimportant to the target customers, who wanted a small, inexpensive, worry-free machine for the home or office. In 1985, with Savin fading, Canon became the world leader in low-end machines and the second overall company behind Xerox.

IBM attempted through the 1970s to participate in the copier market with as series of products. It was generally unsuccessful, despite its famous name and a large sales force, in part because it was technologically behind and its products were unreliable.

Kodak entered the market in 1975 with its Ektaprint 100, a plain-paper copier that soon became the industry standard for reliability in the mid-volume market. The firm then developed a series of high-end machines that were by many measures the best in the industry. Kodak moved slowly, however, making sure the products were reliable, carefully building a strong service and marketing organization, and avoiding building capacity too quickly. Kodak was still able to move into fourth place in copier sales by 1985 because of its technology, reputation, and resources—and because Xerox was not successful in developing comparable products. A Xerox executive opined that if IBM, with its size and superior marketing skills, had the Kodak machine it would have aggressively captured market share at the middle and high ends, and Xerox would have been severely damaged.

Problems at Xerox After many years of dramatic success, Xerox faced significant threats in 1980. The firm managed to hold onto its dominance in medium- and high-speed machines, still controlling 60% of the market for machines over $40,000 in 1981. Performance at the lower end was much worse, however, and as a result Xerox’s share of U.S. copier revenues declined dramatically, from 96% in 1970 to 46% in 1980. Between 1976 and 1982, Xerox's share of worldwide copier revenues dropped from 82% to 41%. Why? How did this happen?

One problem was the development of an unwieldy bureaucracy. In 1966, an executive from Ford was brought in to control an undisciplined organization that was expanding at an unmanageable rate. The result was a divisional structure that looked too much like an auto firm, with a painfully complex and slow process of getting a product from design to manufacturing to

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marketing. Throughout this marathon, the product would be subjected to a system (adopted from NASA) of staged program management, which entailed constant review and criticism.

In part because of this organizational paralysis, Xerox was not able to respond to the Kodak threat at the high end of the market. Xerox had long prided itself on its superior technology, but it actually lagged behind in product development. In the 1970s, it only introduced three completely new machines, only one of which was a success—and that one cost more that $300 million to develop. For Xerox to have grown as it did during this decade was more a tribute to its sales force than to the quality of its products.

One of Xerox's major problems in the 1970s was its focus on making the largest, fastest, and fanciest machines. It paid far less attention to reliability, and therefore it was not prepared to compete with machines made by Kodak. Rather than being lean and trim, it became bloated and failed to locate low-cost outsourcing opportunities. When machines like the Savin 750 were introduced, Xerox could not compete in either price or quality.

Despite its large staff, Xerox was weak in customer and market research, even as it transitioned from being a virtual monopoly to a participant in a competitive market. In particular, Xerox gave no thought to the fact that its customers might be willing to trade speed for price and reliability, or that they might prefer to have smaller, slower machines rather than a few large, faster ones.

Xerox ignored the Japanese threat, allowing those firms to get a foothold at the low end of the market that they exploited by moving up. One rationale was that the early Japanese machines were of low quality and priced too high; the Savin 750 was a shock. A second rationale was that the margins at the higher end were much more attractive than those at the low end. Xerox, however, failed to recognize that the Japanese firms would use their advantage further down to climb the market ladder. There was also a strong “not invented here” syndrome.

After introducing its 2200 model in Japan in 1973, Fuji Xerox offered to export it to the United States, but Xerox refused, unable to believe that a Japanese product would be up to Xerox standards. It was not until 1979 that Xerox finally accepted a Fuji machine for the American market.

For Discussion 1. Identify and evaluate Xerox’s strategy in the 1960s. What entry barriers did Xerox create in that decade?

2. Identify and evaluate the strategies of Savin, Canon, IBM, and Kodak. How did each overcome Xerox's entry barriers? Kodak did not aggressively invest behind its equipment at a time when it held a significant technological edge. Why? 3. Why did Xerox lose position in the 1970s? How could that happen? How could a large successful, admired company be so clueless?

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4. What were the strengths and weaknesses of Xerox in the 1980s? What were its strategic imperatives?

5. Xerox had a research think tank in Palo Alto that essentially developed what became the Apple computer. When the Xerox organization was not interested, Steve Jobs and others accessed the concept and started Apple. Why do you think such a blunder happened?

Source: Drawn in part from John Hillkirk and Gary Jacobson, Xerox: American Samurai, New York: Macmillan, 1986, pp. 55-57.

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Strategic Market Management 9th edition David Aaker Author

TEACHING NOTES FOR SUPPLEMENTAL CASES: TN--INTEL 1.

In the spring of 1991 the Intel Inside campaign was started, and $100 million was budgeted in 1992. Was that worthwhile? How would you evaluate it? Why would Compaq or Dell participate?

What were the problems facing Intel?

1. Competitors were selling the Intel name 386/486.

2. Competitors were distorting it by selling different versions than Intel, even to the point of labeling as 486 what was really 386.

3. Losing control not only of the name but also the product.

Was the $100-million campaign worthwhile?

NO it was a mistake--spend $100 million on R&D or shareholders - OEMs just buy on price and specs and you need to compete on price and specs.

- End users just buy a 386 class machine from Compaq and don't care what chip is used.

If so it makes no sense--you hurt your cost structure--better spend on R&D. What about NutraSweet--was their campaign effective? They insisted that all use their logo.

YES it was a good move - It works by making people more familiar with Intel--people are reassured by the Intel name even though they have no clue as to how it differs--Why look into it - just buy Intel and be sure.

- Q exactly how.

- Intel gets the endorsement of IBM Compaq etc.

- There must be a reason that Intel is placed there--must be quality.

- Intel name means reliability, backward-compatible.

- In fact, there was a much higher incidence of buyers who spec’d Intel.

Note: What about the logo? Isn't it friendly?

Note: Compare the effectiveness of Intel Inside vs. a campaign telling people that Intel is better because of a dozen factual reasons. If you try to communicate a perspective that makes Intel look better, AMD will find another in which they are better and, as with aspirin, people will assume that all are same. Intel Inside is much harder to compete against.

Note: Intel Inside was really the idea of Dentsu who was trying to do something to make Intel better known and more prestigious in Japan.

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How to measure the results of Intel Inside - Measure the space advertisingDuring 18 months (1992 and first half of 1993), over 90,000 pages of OEM ads contained the Intel Inside Logo. If each page is seen by 100,000 people, that is 10 billion impressions.

- Measure the awarenessRecognized the brand (exact task unknown) NutraSweet 1992(when unknown) PC specifies (Job to specify) 80% 60% 90% Business end users 80% 46% - Measure the extra people will pay - Measure the market share/price - Measure the attitude toward - Measure the image of Intel

1993

80%

Why would Compaq or Dell participate?

1. To avoid being perceived as less than others on the chip side.

2. Because Intel pays for part of their ad and gives them access to their lowest advertising rate.

Actually the OEMs get a 3 percent merchandising credit that can be used to pay for up to 50 percent of the OEMs space advertising. In addition, they get another 2% if they will put the Intel Inside Logo on the case and shipping container.

2.

In the Fall of 1992, the "586" chip was ready. Would you call it Intel 586 or i586 or would you start over with a new name? What are the pros and cons of each alternative?

Pro for i586 - Draws upon the X86 equityCustomers already know what the product is.

- The Intel Inside provides a brand name that is Intel - you don't need another.

- Competitors will not be allowed to have the 586 name for nothing.

- A new name will cost a bundleDoes it really matter that much in customer choice?

Under a new name competitors will get 586 free.

Con for i586 - Competitors usurping--like a new chocolate company using Hershey, Intel doesn't own.

- Competitor game-playing generates confusion that Intel cannot control.

- Intel can control and own a new name.

If there is to be a new name—what is the criteria that should be used: Intel's Criteria Trademarkable Hard to copy Has positive associations

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Works worldwide Can effectively transition from generation to generation Supports Intel's brand equity Works with our partners' brand names Secondary goals Memorable Sounds technically sophisticated Suggests what the product is Other possible goals Associated with Intel Associated with microprocessors Funny names considered: iCUCyrix, iAmFastest, 586NOT!

3. When would a new product require a new name such as Pentium, a new subbrand such as Xeon.

It really depends on the separation needed between the brand and the new product from two perspectives. Will the new product help or hurt the brand? If it will hurt more separation is needed. And will the brand help or hurt the new offering? If it will be hurtful, more separation is needed. A new brand is the ultimate in separation and is very costly if feasible. A subbrand is often a good compromise but unless that subbrand is given resources, it may not be able to play the separation role.

4. Evaluate the Centrino brand strategy. Will it help Intel be relevant to the mobile computing world?

An important strategic initiative for Intel is to be relevant, indeed be a driver of the technology behind the mobile world. The Centrino is the brand asset that will represent the core of the business strategy. The brand name itself and its logo might be worth discussing. What associations do they have and are they the right ones? The more basic question is whether a microprocessor can be a diver of this space? If not, who? Will it be a computer manufacturer like HP or Dell? If so will a brand be involved?

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Strategic Market Management 9th edition David Aaker Author

TN--Samsung Electronics This case provides a look at one of the most successful and dramatic strategic successes by a large firm in the last decade or so. Highlighted are some organizational issues.

1. Yun lacked support for his new strategy. Is it important that the strategy be accepted? That it be enthusiastically be embraced? How could the CEO make that happen?

One approach is to engage in culture building activities around the new strategy; to be a consistent and vocal advocate and to invest in the strategic imperatives that are implied. Put your money where your mouth is, so to speak. Another is to identify those that really are not suited for the new approach and move them or get rid of them. Bring in new people that are suited. That will send a signal as well as provide support.

2. What are the organizational implications of vertical integration and the new product program? With respect to vertical integration, how would you make sure that the component suppliers are incented to become efficient even though their customer is captive?

Vertical integration means that very different people and cultures need to co-exist in the same organization. That means that the organization needs to be able to hire and keep happy very different types of people, structures, cultures and systems. To create faster product development cycles new organizational forms were used—such as virtual teams of engineers focusing on a product development project.

3. How would you change the reward system to reflect the new strategy?

In the past all units have been largely measured on sales and market share.

One change that was dramatic is that the key measure was price as compared to competition.

Business units were measured on their ability to create a premium priced position. Sales was mush less important although still in the formula.

4. Why didn’t Lee’s initiative gain traction in 1993? What is needed to make it happen?

The Samsung group is around $100 billion of which Samsung Electronics is around $34 billion.

It contains construction; real estate, heavy industry and even at one time a disastrous entry into automobiles. Most of these are much more established and “old school” than Samsung electronics. It is thus not easy to change without a dramatic change in CEOs and business

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strategies. Further, Lee probably has an inflated view of his influence on day-to-day operations and did not take the effort to develop programs to make it happen.

5. How should Kim gain acceptance for himself and his ideas? Was it risky to speak in English? In creating a global strategy would you use a top down or bottom up approach?

On one hand you want to be accepted but on the other you want to be a change agent. So being disruptive might be an acceptable risk. At that meeting Yun made the following remark—“Some of you may want to put Mr. Kim on top of a tree and then shake him down. If anybody tries that, I will kill you!!” That was a rather direct show of support although not a very positive one. The students might be asked if they would have felt that helpful if they were Kim. One thing that Kim did was to develop small pilot programs around going upscale in pricing and distribution and show that they were very successful. As a result retailers and other partners were supporters.

The process had to be top down or it would never happen.

What are the problems that you foresee in the global management structure? What changes would be

6. Do you agree with the logic of the Olympic sponsorship? How would you get organizational support for it? How would you decide what sports events to sponsor?

In this case Lee was very keen on sponsoring the Olympics partly because of an ego trip but also because it matched his strategic vision for the Samsung Group. Another route is to create an analytical model to evaluate sponsorships. It would start by determining the brand identity—the aspirational associations that Samsung is looking for. In doing that, care is needed to consider the different markets. Half the business is in components and they are not the same as the mobile phone buyers or the typical costumer electronics customer. You also have to realize that it is connection as well as association that is relevant.

7. What was the objective of the AST acquisition? Why did it fail?

The objective was to crack the US market using the marketing savvy and distribution clout of AST. They overestimated the AST brand and its organizational competitive which was weak.

The problems AST were having should have been a signal. They also were not able to keep the people—all the key people left within a year—a common problem in acquisitions. The students might be asked why and what could be done to retain talent. Then there was the Dell power that may have been difficult to anticipate. HP and Compaq were also successful competitors. The fact that they pulled the plug so fast is admirable. The students might be asked if they would have been so decisive.

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Strategic Market Management 9th edition David Aaker Author

TN-SAMSUNG For Discussion 1. Yun lacked support for his new strategy. Is it important that the strategy be accepted?

That it be enthusiastically be embraced? How could the CEO make that happen?

TM-- One approach is to engage in culture building activities around the new strategy; to be a consistent and vocal advocate and to invest in the strategic imperatives that are implied. Put your money where your mouth is, so to speak. Another is to identify those that really are not suited for the new approach and move them or get rid of them. Bring in new people that are suited. That will send a signal as well as provide support.

2. What are the organizational implications of vertical integration and the new product program? With respect to vertical integration, how would you make sure that the component suppliers are incented to become efficient even though their customer is captive?

TM-- Vertical integration firms Vertical integration means that very different people and cultures need to co-exist in the same organization. That means that the organization needs to be able to hire and keep happy very different types of people, structures, cultures and systems. To create faster product development cycles, new organizational forms were used—such as virtual teams of engineers focusing on a product development project.

3. How would you change the reward system to reflect the new strategy? In the past all units have been largely measured on sales and market share.

TM-- One change that was dramatic is that the key measure was price as compared to competition. Business units were measured on their ability to create a premium priced position.

Sales was mush less important although still in the formula.

4. Why didn’t Lee’s initiative gain traction in 1993? What is needed to make it happen?

TM-- The Samsung group is around $100 billion of which Samsung Electronics is around $34 billion. It contains construction; real estate, heavy industry and even at one time a disastrous entry into automobiles. Most of these are much more established and “old school” than Samsung electronics. It is thus not easy to change without a dramatic change in CEOs and business strategies. Further, Lee probably has an inflated view of his influence on day-to-day operations and did not take the effort to develop programs to make it happen.

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5. How should Kim gain acceptance for himself and his ideas? Was it risky to speak in English? In creating a global strategy would you use a top down or bottom up approach?

TM-- On one hand you want to be accepted but on the other you want to be a change agent. So being disruptive might be an acceptable risk. At that meeting Yun made the following remark— “Some of you may want to put Mr. Kim on top of a tree and then shake him down. If anybody tries that, I will kill you!!” That was a rather direct show of support although not a very positive one. The students might be asked if they would have felt that helpful if they were Kim. One thing that Kim did was to develop small pilot programs around going upscale in pricing and distribution and show that they were very successful. As a result, retailers and other partners were supporters. The process had to be top down or it would never happen.

What are the problems that you foresee in the global management structure?

6. Do you agree with the logic of the Olympic sponsorship? How would you get organizational support for it? How would you decide what sports events to sponsor?

TM-- In this case Lee was very keen on sponsoring the Olympics partly because of an ego trip but also because it matched his strategic vision for the Samsung Group. Another route is to create an analytical model to evaluate sponsorships. It would start by determining the brand identity—the aspirational associations that Samsung is looking. In doing that, care is needed to consider the different markets. Half the business is in components and they are not the same as the mobile phone buyers or the typical customer electronics customer. You also have to realize that it is connection as well as association that is relevant.

7. What was the objective of the AST acquisition? Why did it fail?

The objective was to crack the US market using the marketing savvy and distribution clout of AST. They overestimated the AST brand and its organizational competitive which was weak. The problems AST were having should have been a signal. They also were not able to keep the people—all the key people left within a year—a common problem in acquisitions. The students might be asked why and what could be done to retain talent. Then there was the Dell power that may have been difficult to anticipate. HP and Compaq were also successful competitors. The fact that they pulled the plug so fast is admirable. The students might be asked if they would have been so decisive.

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Strategic Market Management 9th edition David Aaker Author

TN--XEROX: FROM THE FIFTIES TO THE EIGHTIES The case describes Xerox and the copier industry through the mid-eighties. It can rather easily occupy two days, with the first day on the sixties and the second on the seventies and the eighties. The objectives are to: 1. Identify the key elements of a business strategy (Xerox and its competitors) and discuss their implications for the future competitive position.

2. Identify barriers to entry that were developed and see how they were overcome by Kodak, IBM, and the Japanese firms.

3. See the risks of a strong monopolistic position and of a diversification move.

4. Understand tradeoffs such as high performance vs. low cost and high reliability.

5. Understand the role of competitor analysis.

6. See alternative entry strategies of foreign competitors.

7. Assess assets and skills of a firm.

The following provide an overview of the industry that the students should understand: 1960’s: Xerox dominates and creates barriers.

1970’s: Xerox slept and was diverted. Market share fell from 96% to 46%.

1975: Savin 750 enters under $5,000.

Kodak Ektaprint 100 enters at high end.

1980: Cannon NP-200 follows in 1983 with the PC-10.

1980’s: Xerox wakes up.

Questions for Discussion

1. Identify and evaluate Xerox strategy in the 1960’s.

2. What entry barriers did Xerox create in the 1960’s?

3. Identify and evaluate the strategy of IBM, Kodak, Ricoh/Savin, Cannon, and Minolta. How did each overcome barriers?

4. Why did Xerox lose position in 1970’s?

5. What were the strengths and weaknesses of Xerox in 1980?

6. What should Xerox do to come back in the 1980’s?

1. IDENTIFY AND EVALUATE XEROX STRATEGY IN THE 1960’s There are seven strategy elements that can be identified and discussed. Each of them represents a key Xerox strategic choice and was not obvious even in retrospect. For each, the students can be asked to identify the strategy rationale and to determine if they would have pursued a similar strategy.

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Rented Equipment The original product was complex and risky to customers, who certainly did not want to spend a lot of money on buying a machine. The decision to lease was absolutely brilliant and helped make Xerox what it is today. Who could resist $90 a month and only four cents a copy after the first free 2,000? What happened was that firms grossly underestimated the usage levels which averaged 8,000 per month. In 1967, the average Xerox 914 made 100,000 copies per month. In an original evaluation of the machine in 1960, A.D. Little estimated a total world market of only 5,000. A key assumption A. D. Little made was that the machine would be sold instead of leased.

Leasing reduced the risk to the customer, created entry barriers to competition and allowed Xerox to control the supplies business, which was a gold mine. It did, however, have disadvantages. It raised the financing requirements for Xerox and put less pressure from the customer upon reliability. Worse, it made the firm have a vested interest in keeping the old technology/machines. This aspect undoubtedly cost Xerox later.

Sales/Service Network The machines were new to office management and continually broke down. Sales and service organizations were crucial to the strategy, and Xerox was strong in these areas from the start. However, these organizations were very costly for a firm that was struggling to finance the new product and its growth. The use of dealers or third party service organizations was an option that must have been attractive.

International--Joint Ventures The commitment to joint ventures can be criticized. First, it sacrificed substantial profits-Xerox got only 50% of Europe and Latin America and 25% of the Far East. Second, their communication with Fuji Xerox was a big problem. Xerox did not foresee the importance of exploiting Fuji-Xerox product development nor could it understand the possibility of the future Japanese competitors. If Xerox had been in Japan itself, the communication might have been better. The Savin experience is also relevant to evaluating joint ventures On the other hand, the joint ventures: - allowed Xerox to move quickly into Europe and Japan, bypassing the organizational, financial (costs of setting up a service operation and financing the leases), and cultural hurdles.

- provided substantial success that may simply not have occurred any other way. FujiXerox is often held forth as one of the U.S. success stories in Japan.

- provided autonomous product development.

Technology--Patents A key was clearly the technology and the patents that surrounded it. The importance of the Xerox 914 technology cannot be overestimated. One Xerox executive said that "we were able to sell almost anything we made at whatever price we wanted to charge." The issue is how best to maintain that strength.

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License CPC Technology The decision to license CPC technology did provide an entry for firms that later became important competitors. Why? First, it was good money. Second, it may have diffused some of the anti-trust pressure. Third, the CPC technology was regarded by Xerox as obsolete.

Ignore Low End The explicit decision to ignore the low end was fateful. In retrospect, a low end entry even if it was a money loser would have shut down a window of opportunity for other companies. In retrospect it seems dumb. However, at the time Xerox was stretched thin managing the growth despite their profitability and the money was clearly in the high end.

Diversification into the Office of the Future A very reasonable diversification move, the problem is that it diverted attention from the main product. More on this under Question 4.

2. WHAT BARRIERS WERE CREATED BY XEROX BY 1970?

A market structure analysis (using Porter's framework) could be quickly done. It would show that Xerox was in an incredible monopoly position and would demonstrate why they were making a ton of money. The barriers were: - Technology--Patents - Capital Cost Lease Base Sales/Service System - Xerox Name - Global Presence

3. IDENTIFY AND EVALUATE THE STRATEGY OF IBM, KODAK, RICOH/SAVIN, CANNON AND MINOLTA. HOW DID EACH OVERCOME BARRIERS? IBM The IBM strategy was basically to build a me-too product and rely upon its sales/service operation and its name. The strategy really did not work. Xerox sued for patent infringement and basically won. IBM's inferior product meant that IBM dug itself into a hole from the beginning.

Kodak The Kodak strategy was to attack the high end with a technologically superior product and to very slowly build an organization to support its product. Kodak explicitly decided to grow very slowly. As a result they developed a solid business. They were lucky in that they came out in 1975 expecting only a few years of superiority. They had, in fact, a window of over five years. Thus their slow approach didn't hurt them so much although it is clear that a more

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aggressive strategy would have enabled them to gain a much more dominant position. Some interesting questions to pose: • • •

What would have happened if IBM had the Kodak machine? (Xerox might have been killed.)

Why did Kodak rather than IBM generate the best technology? Was it an accident?

(Consider the technology behind Kodak. In fact most of the copier firms have photographic backgrounds.)

Should Kodak have been more aggressive? (Given their culture, it is not clear an aggressive push was even feasible for them.)

Savin/Ricoh The Savin 750, a reliable, 20 cps copier introduced for under $5,000 in 1975 was a bombshell. In had one-third the parts and weight of its Xerox competition and cost $500 to build. It had a 17,000 copies PR failure rate as compared to 6,000 for Xerox.

The technology barrier was overcome by the development of a new process that overcame the Xerox patents although their product came out 15 years after the 914. Could Xerox have pursued this technology and gotten patents on it as well? The problem is that unless you are driven by desperation, it is hard to exert the effort. It is rare that the market leader is the one that generates the new technologies.

The capital cost and sales/service system barriers were overcome by focusing upon reliability and cost and thus having a product that could be handled by dealers. The Xerox name was overcome by having dramatic price-performance superiority and the fact that they really didn't compete head-to-head against Xerox. The Savin team had perhaps a superior and more coordinated global presence than Xerox.

Canon Most of the Savin strategy applies to Canon. There are some differences. Canon did not use joint ventures and they marketed under the Canon name everywhere. The results are instructive. They introduced a good product in the early 1970’s which languished until the NP200 came out in 1980. Their decision not to joint venture or otherwise use an established American and European name and organization clearly hurt them in the seventies. Further, the effort to develop a global product and a global business had to be done alone. It was expensive and took a long time. However, in the long run it might have paid off. The Savin\Ricoh combination got into trouble when competition heated up in the eighties. Ricoh decided they needed to get out from under the joint ventures to compete. Canon was in a very good position in the eighties.

Minolta Minolta was forced by Ricoh and Canon to enter the PPC market in the late 1970s. They took a technology approach and attempted to create a better machine. Contrast that with the IBM me-too strategy.

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4. WHY DID XEROX LOSE POSITION IN THE SEVENTIES? Diverted by Office of the Future Xerox rather logically felt in the sixties that they had no more worlds to conquer in copiers, so they looked for new growth directions. Building from the copier base they chose office-of-the-future, a logical expansion direction as it moved toward the customer system and seemed to be supported by environmental trends. Thus, they bought a host of component firms and a mainframe manufacturer and set up PARC (Palo Alto Research Center) which had some of the best computer people around; in fact, it developed the software that was to be the basis of the Apple Mac system.

However, the firm was not able to keep the excitement and attention on copiers. The action was in the office product systems. Further, the office products and all the computer entries were disappointing or failures. Thus, the organization diverted resources to build/save this area of the future.

Diverted by Anti-Trust Cases The case documents how the firm got bogged down. The cost was not only the money and the time of the executives, but strategy options. Xerox had a tendency to be much less aggressive in pricing and product options. Prices were kept high which provided extra margins, but made it easier for the competition to come in.

Breakdown in Product Delivery System The Xerox organization simply could not deliver new products. There were two main reasons. The first was organizational. A new product concept had to go to drafting (to get it drawn), to service (to see if it could be serviced), to manufacturing (to see if it could be made cheaply), and then to marketing. The process virtually made it impossible to move quickly and to pursue good ideas.

Second, the communication was terrible. Even though the PARC group could have provided key breakthroughs in microprocessor communication, they were not consulted.

Instead, competing firms like Kodak and Minolta, solved the multiple microprocessor linkage problem in copiers. Xerox did not exploit what should have been substantial synergy.

The third was a preoccupation with speed and sophistication. Xerox wanted only to be fast, state of the art. Attributes of reliability and cost were not of any concern. Why? They were not close to either the customer or the competitors.

Arrogance about Xerox Technology Xerox seemed to believe that they were the only ones that could make a copier that was sophisticated. The patents were the ultimate protection. There are several partial explanations: • •

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They did not do good competitor analysis if they did any. This despite the presence of Fuji-Xerox which was in an excellent position to learn of competitors and in fact tried to communicate with Xerox.

They were a virtual monopoly until 1975 making incredible profits.

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They had a perception that the technology was extremely complex. They tended to use specially-made parts even for simple items such as screws. In contrast, the Japanese used as many standard parts as possible.

Turned Back On Low End The President of Canon, replying to a question about what he would have done in 1970 to forestall the competition, said that it was easy: he would have entered the low end. Xerox saw that the very early Japanese machines didn't work well and wrote them off. They turned their back on some viable Fuji-Xerox options. Their own efforts were not successful.

Why? There are some logical reasons besides their focus upon speed, their technological arrogance, and their failure to do competitor analysis. First, the use of dealers would create problems with their sales force and customers. Second, they would cannibalize the rest of their lines and hurt some very profitable products. Third, they would obsolete the lease base.

5. WHAT WERE STRENGTHS AND WEAKNESSES OF XEROX IN 1980?

Strengths-- Strong position in high-volume segment - Large installed base - Name - Sales/service network - Global presence - Wide product line - Some electronics capabilities Weaknesses - High manufacturing costs - Weak low-volume segment - Low reliability - Office automation position unclear

6. WHAT SHOULD XEROX DO TO COME BACK IN THE 1980's?

There are a variety of things that Xerox did starting in 1979 to turn things around and become competitive. They included the following seven strategies: 1. Competitive benchmarking. Xerox became serious about competitor analysis.

They got good information about competitor's costs and performance and projected them forward. They even benchmarked against non-competitors (such as the warehouse system of L.L. Bean) that did well in some aspect of their business.

2. Low cost goals. Xerox developed cost goals so that it would be competitive with the Japanese. That meant in part that reliability and cost increased in their priorities. One aspect of cost control was a reduction of staff so that the overhead was reduced. By

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1985 their overhead had been reduced from $500 million to $275 million and direct labor was only 10% of the cost. The parts inventory dropped from 3.3 months to 1.0 months.

3. Product quality goals. Xerox developed quantitative quality goals and dramatically improved quality. Their defects per machine in the 10-series were 65% of former products. A total organizational commitment to quality was initiated.

4. New product development. Xerox re-organized the new product development effort so that the process was streamlined and much faster. Teams of people now had responsibility for a new product development cycle. One product that took from $1,000 to $1,500 million and seven years would not take more than $300 million and four years.

5. Market research. Paying much closer attention to the customer was evidenced by formal marketing research, more concept tests, use tests, customer observations, surveys, etc.

6. Internationalization. Xerox attempted to turn the international presence into more of an asset by improving the co-ordination between the Xerox, Fuji-Xerox and RankXerox and using world-wide sourcing.

7. A new product line, the 10 series, which was first shipped in volume in 1983, was a key to the turnaround. It provided a technological advance that finally regained the technology position for Xerox. It used nine microprocessor brains to control quality and the processing. It had an advanced re-circulating document handler and organic photoreceptor which allowed the machine to be more compact.

The program worked in that the long steep slide in share was reversed and, in 1983, share actually went up two or three points. A Minolta executive was quoted as saying that "It appeared that we could kill Xerox too. Now I don't think so. Japanese people don't talk about it but Xerox is taking more and more market share back."

CONCLUSION In summary, the case brings home a number of points-1. The long-term importance of the strategic decisions to lease, to avoid the low end, to go for product sophistication, and to use joint ventures.

2. The arrogance of success/monopoly and the risk of diversification.

3. The risks to the country of anti-trust enforcement. Without the anti-trust efforts, the Japanese may not have ever arrived. Certainly this is arguable.

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4. The importance of organizational communication and structure.

5. The variety of ways of approaching global competition.

6. The importance of competitor analysis.

7. How entry barriers can be created and by-passed.

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