Innovation, Growth, Product Differentiation Flashcards
Schumpeters Creative Destruction
- Essential fact of capitalism and necessity of growth
- continuous entry and exit of firms and products in dynamic economies
e. g. zalando vs. quelle, vacuum tube tv vs flat screen, VHS vs dvd
Product Life Cycle Phases
- Introduction
- Growth
- Maturity
- Decline
Profits by PLC
- typically losses
- increasing profits
- very high profits
- decreasing profits
Demand by PLC
- high income buyers
- increasing market penetration
- mass market replacement
- knowledgeable customers
Technology by PLC
- Competing technologies
- Standardization, rapid process innovation
- Well-diffused know-how
- quest for technological improvements
Products by PLC
- Poor quality, wide variety
- design/quality improvements, dominant design
- standardization, avoid commoditization via branding
- commodities are norm
Manufacturing/Distribution by PLC
- short production runs, high skilled labor content
- capacity shortages, mass production
- overcapacity, deskilling, long production runs
- heavy overcapacities, speacialty channels
Trade by PLC
Manufacturing shifts from advanced countries to less developed countries
Competition by PLC
- Few
- Entry, mergers and exits
- shake out, increasing price competition
- price wars, exits
Key Success Factors
- Product innovation/credible image
- design for manufacture, build brand
- cost-efficiency, scale, high quality, fast development
- reduce overhead, signal commitment, rationalize capacity
Characteristics: Introduction/growth (2)
Continuous technological change, high demand growth
Characteristics: Mature industries (3)
- Consumers become more knowledgeable
- Technological knowledge diffuses
- demand growth slows
Characteristics: Declining industries
- excess capacity
- no technical change
- high average age of resources
- aggressive price competition
- capacity demand balance: predictablilty of decline vs exit barriers
Growth: M&A
Acquire shares or assets of target/
decide on joint operation and ownership
M&A: Goals buyer side (3 types)
- Horizontal mergers: competition, production (scale/scope), market power
- Vertical mergers
- Conglomerate mergers
M&A: Goals target side
- resolve company issues
- management (e.g. exit)
Organic growth
- essential in early phase
- Less risky but slower
- Ansoff Matrix
Ansoff matrix
Existing Market + Product: protect/build
Existing market + new product: product development
New market + existing product: Market development
New market + new product: diversification
Ansoff matrix: Protect/build
Market penetration: Consolidate, stabilize position, leverage existing resources/capabilities
Ansoff Matrix: Product Development
Build on existing capabilities with new capabilities (higher risk)
Ansoff Matrix: Market development
Target strategy if core competencies are product related: new segments, territories, use-cases
Ansoff Matrix: Diversification
develop product and market outside of current core competencies
- highest risk
- horizontal and vertical diversification
Diversification benefits (6)
- economies of scale/scope
- exploit/leverage resources
- enhance knowledge base
- internal market efficiency (finance, labor)
- improved market position/bargaining
- risk diversification
Diversification costs
- escalation of coordination costs
- rising overhead
- increasing complexity of info/communication
- organizational diseconomies
- increasing governance costs
Reasons for Product differentiation in general
- Avoid Bertrand competition
- is beneficial for heterogeneous consumer preferences
Product differentiation: dimensions of consumer preferences (7)
- Technical features
- Durability
- Resale value
- Taste/image
- Location
- Time
- Delivery duration
Horizontal differentiation
- for equal prices, some consumers prefer A over B
Vertical differentiation
- for equal prices, all consumers prefer A over B
- typically prices differ, making two levels of quality+price viable
Porters Generic Strategies
- Cost leadership
- Differentiation
- Focus
-> avoid being stuck in the middle
Generic Strategies: Cost leadership
- Main theme: low cost
- aggressive pricing for high market share
- achieve scale and avoid complexity
Generic Strategies: Differentiation
perceived as being unique industry-wide, ideally along multiple dimensions
Generic Strategies: focus
Focus on particular buyer group, narrow target at lower cost
