When a competitive market becomes controlled by a monopoly, the price ________ and the output ________.

How do we assess the sources of sustainable competitive advantage

-VRIO, SWOT

Is Apple going to sustain a competitive advantage     

-Sources of Apple’s CA

-Why has it been sustainable

oValuable

oRare,

oInimitable

§Legal mechanisms (patents), path dependence/time Compression diseconomies, casual ambiguity, social complexity/interdependencies Between R&Cs

oOrganized to capture value

-Will it stay sustainable

oSome resources and capabilities may degrade or Depreciate over time

§Natural resources (oil well), genius CEO, Expensive equipment

oR&Cs may also lose value if they become less Useful in creating value because the environment/markets have shifted

§“Fatburger” brand in times of health Consciousness, “Rustic” + “Minimalist” trend as the new thing

oIf Apple juggernaut continues: iPhone will Dominate, Mac etc. Will continue to grow

oIf Apple levels off: will remain the leader, but Further market fragmentation will continue, Apple will have to fight hard for a New source of growth

oIf Apple has peaked: end of the fad? End of innovation? Open standards will win eventually

SWOT implications

-Identify opportunities and threats

oNotice where growth is coming from (K-pop in China), beware what strengths will become obsolete (Blackberry)

-Exploit strengths

oShift competition to that dimension (Coke&Pepsi), leverage/exploit (Disney brand)

-Manage weaknesses

oUpgrade (Samsung), outsource (corporate IT Depts.), “turn bug into feature” (Harley)

How to compete (position) in a product market

-Cost Position vs. Value Position

-Economic Value Created = CWP – Cost to firm

-Consumer Surplus = CWP – Actual price

-Firm Surplus = Actual price – Cost to firm

Value vs. Cost Leaders

-Hotel Industry, Fashion Industry, Home Appliance Industry, Beauty & Personal Care Products Industry

Value Drivers

-Apple: intangible, product feature (Siri), Customer service (genius bar), complements (apps)

-Whole Foods

Cost Strategy

-Walmart

oEconomics of scale/volume à Bargaining power (pushing suppliers to cut prices)

oMinimization of operating costs & overhead (use own trucking fleet)

oThey started with small towns, so it was cost-prohibitive for competitors to enter these same regions (barrier to entry)

-Ikea – combines cost and differentiation

oA desk at Walmart – 49.98 à A same desk with an extra spec = 49.99

Learning Curve/Experience Curve

-Experience = shift of whole curve… process Innovation leads to it (captures both learning effects and process improvements)

Cost Drivers

-Cost of input, economies of scale, Learning/experience curve

1.If costs are equal, when a firm has a higher Value gap than its competitor, it can be inferred that the firm can charge a Premium price for its products and services

2.Able to drive down the cost of complex medical Procedures by doing a thousand small things… this approach focus on driving Down costs through process innovation

3.Firm that follows differentiation strategy is Protected from the threat of new entrants primarily due to its reputation for Quality

Spirit – has bad rep but jetBlue lags behind it. Spirit stock even higher than American

Innovation – invention + commercialization

Industry Life cycle = intro, growth, shakeout, maturity, decline

Chasm Is between early adopters and early majority

Intro – uncertainty in tech standards and market potential; efforts focused on Product R&D

Growth – early adopters buying the products, emergence of tech standards, start of Large-scle manufacturing, process innovation and marketing; fragmented market, But fast growth; differentiation matters (fitbit, phones)

Shakeout, Maturity, and decline – standards are fixed, no more major product innovation, Process innovation prevails, shifting from non-price to price competition

Palm Pilots vs iPads that crossed the chasm; palms didn’t have enough value for Early majority, failure to educate the market, overpromised, under-delivered (handwriting, weight), lack of “ecosystem” (no complements, no network effect) = first mover disadvantage

Key Difficulties in innovation: entrants

-Often hard for entrants to overcome chasm; often A tech-push without market-pull; costly to educate and create the market; high Uncertainties about technologies/demand; lack of complementary assets

Key difficulties in innovation – hard for incumbents To be disruptive – cannibalization; entrenched in existing organizational Routines