Chapter 7 Flashcards
What is the expected growth for high technology industries
25%
What are technical standards
Specifications that producers adhere to when making the product or component can be a competitive advantage
What are format wars
Battles to control source of differentiation because this differentiation can create for the customer
What is dominant design
Refers to a common set of features or design characteristics
What do standards bring
Economic benefits
What are the economic benefits from standards
- Guarantee compatibility between products and complements
- Help reduce confusion in the minds of consumers
- Help reduce production costs
- Help reduce the risks associated with supplying complementary products and increase their supply
What are 3 ways standards emerge in an industry
- Companies might lobby the government to mandate an industry standard
- Technical standards are often set by company cooperation
- Government set standards they fall into the public domain meaning that any company can freely incorporate them into their products
What is a public domain
Government or association set standards of knowledge or technology that any company can freely incorporate its product
What are network effects
Network of complementary products as a determinant of the demand for an industry’s product
How are network effects divided
- Direct (same side) network effects
- Indirect network effects (based on the availability of complementary goods)
What happens when network effects arise in an industry
The size of the network of complementary products is a primary determinant of demand for an industry product
What are the key strategies and tactics to win a format war
- Ensure a supply of complements
- Leverage killer application
- Aggressive pricing and marketing
- Cooperate with competitors
- License the format
- Have positive feedback loops
What can companies do to get supply of complements
- Diversify into the production of complements and seed the market with sufficient supply to help jump start demand
- May create incentives or make it easy for independent companies to product complements
What are killer applications
Uses of new technology or product that are compelling that they persuade customers to adopt a new format or technology in droves thru killing demand for competing formats
What are considerations for exploiting positive feedback cycles
- Switching costs
- Accelerate growth on both sides of the feedback loop
What is a razo and blade strategy
Pricing the product low to stimulate demand and increase the installed base and try to make high profits on the sale of the complements which are priced relatively high
What is aggressive upfront marketing
Critical in jump starting demand to get an early lead in an installed base
What are point of sales promotion
Attract potential early adopters who bear the switching costs and start a positive feedback loop
What are the results for companies to cooperate with their competitors
- Develop technology
- There will be a strong alliance
- Can effectively eliminate the competition
What does licensing format mean
Other companies can product products based on licenses to gain from licensing fees and enlarge supply of the product which can stimulate demand help accelerate market adoption
What is the correct strategy to pursue licensing the format
- Companies must consider all different strategies and tactics
- Companies must keep the goal of rapidly increasing based on its standard
What are the advantages of helping jump start demand
Can induce consumers to bear the switching costs with adopting its technology and leverage positive feedback process
What are the costs of high technology industries
Fixed costs are high but producing one extra unit of products are low
What is the law of diminishing returns
Producing more of a good will lead to an increase in marginal costs
Does law of diminishing returns apply in high tech settings
Not really
What can high tech company emphasize
Low cost structure that drive down prices to increase volume
What happens when marginal costs are lower and fixed costs are high
- Profitability may increase
- Tech companies should emphasize the low cost structure to drive down prices to increase volume
Who is the first mover
The firm that pioneers a particular product category or feature by being first to offer it to the market
What is the first mover in a high technological industry
In a monopoly position and If the new product satisfies unmet consumer needs and demand is high, the first mover can capture revenues and profits, causing stronger barriers of imitation
What are the five primary sources of first mover advantage
- Opportunity to exploit network effects and positive feedback loops locking consumers into its technology
- Able to establish significant brand loyalty
- Increase sales volume ahead of rivals
- Create switching costs for customers
- Accumulate valuable knowledge related to customer needs, distribution channels, product and process technology
What are the first mover disadvatanges
- Bearing significant pioneer costs
- Mistakes are made bc of uncertainties in the market
- Runs the risk of building wrong resources and capabilities because they are too customer focused which is not going to be reflective of the mass market
- May invest in inferior or obsolete technology
What are the first mover strategies
- Develop and market innovation
- Develop and market innovation jointly with other companies through strategic alliance or joint venture
- License the innovation to other companies and allow them to develop the market
What are the strategies of exploiting first mover advantages
- Look at the complementary assets to exploit its innovation and capture first mover advantages
- Look at the height of barriers to imitation
- Look at the capable competitors that can imitate the innovation
What are complementary assets
- Competitive production and distribution capabilities that can handle customer demand, maintaining high product and service quality
- Marketing know how
What are the drawbacks of complementary assets
- Expensive
- Need large capital
What are the advantages of high imitation barriers
Gives an innovator time to establish a competitive advantage and build more barriers to entry in a newly created market
What are the disadvantages of high imitation barriers
Patents are easy to invent around
What are competitors capable of doing to imitate innovation
- R&D Skills
- Access to complementary assets (marketing, sales, manufacturing capabilities)
What are technological paradigm shift occurs with new technology
- Revolutionize structure of the industry
- Dramatically alter the nature of competition
- Require companies to adopt new strategies to survive
What are three innovation strategies
- Complementary assets
- Height of barriers to imitation
- Capability of competitors
When is marketing a competitive strategy makes most sense
- Innovator has the complementary assets to develop innovation
- Barriers to imitating a new innovation is high
- Capability competitors is limited
When does joint venture makes most sense
- The innovator lacks complementary assets
- Barriers to imitation is high
- Several capable competitors
When does licensing make most sense
- Innovating company lacks the complementary assets
- Barriers to imitation are low
- Many capable competitors
What is technological paradigm shifts
Shift in new technologies that revolutionize the structure of the industry, dramatically alter the nature of competition and require companies to adopt new strategies to survive
What are the natural limits to technology
Rate of performance of technology starts to decline and reach its limit, so there’s no more advances possible
What does the technology limit result to
Researchers look to alternative technologies to replaced the establish technology
What is a disruptive technology
technology that revolutionizes industry structure and competition causing a decline of established companies
What are the strategic implications for established companies
- Have access to the knowledge about how disruptive technologies can revolutionize markets
- Established companies should invest in newly emerging technologies that become disruptive technologies
- Recognize that it is better to develop disruptive technologies than to cannibalize sales base
