WPC 480. Week 8 1 For next week… Complete Case Paper #3 on Aldi Due at our next class March 19th Focused on Cost Leadership and Differentiation Strategies. NO Blue Ocean! NO Business Models Focus on Chapter (After tonight – it’s Spring Break) 2 Generic Business Strategies Differentiation Seeks to create higher value than competitors Offers products or services with unique features Keeps the firm’s cost structure as low as possible Charges higher prices Cost Leadership Seeks to create similar value as competitors Products or services delivered at lower cost Charges lower prices Business-level Strategies Cost leadership Sources of keeping costs down and prices low Cost of input factors (supplier power matters here) Economies of scale Employing specialized systems and equipment Minimum efficient scale – increases in volume do not lead to further cost reductions Implies large market share almost always to get the best economies of scale 8 Cost leadership: It takes time to reduce costs Learning Curve Effects – price drops (and quality increases) as volume increases over time Versus Economy of Scales: Economy of Scales are a specific points in time versus accumulation over time Differences in Complexity: Depending on product/service EoS may have stronger impacts than learning curves Experience Curve Effects – price drops (and quality increases) with changes in technology of production Process Innovation: changes in technology allow increased efficiency with same output volume. Technology can be changes in methods or machinery 9 Attributes of the Product/Service offering Relationships between company and consumers Linkages within or between firms Differentiation Strategy Blue Ocean Strategy Value Innovation: Aligning consumer utility, price and cost for maximizing value to company and consumer – product differentiation and low cost. 8 Blue Ocean Strategy Strategy Canvas: Captures current state of the known market place and action framework to explore alternatives. 9 Blue Ocean Strategy 4 Action Framework: To assist in creating a new value curve the 4 Action Framework helps evaluate the tradeoffs between differentiation and cost. 10 Blue Ocean Strategy 11 Blue Ocean Shift 12 Activity In your group, identify a company who has a Blue Ocean strategy Identify that BO company’s competitors or industry Identify the factors that consumers use to make decisions about their purchases with this company. What factors were raised/created by the BO company or eliminated/decreased? 13 Risks of Blue Ocean Finding the right blue ocean – easy to say but hard to find/create Arriving too early and/or Being too new, too different – are consumers ready? Strategy Execution – Right leaders? Strategic Clarity and Mindset – ready for the challenges from top to bottom Trust and Patience How defensible is your new ocean? 14 Blue Ocean vs. Yoda 15 Tradeoffs Maintain a focus on the cons ...

1. WPC 480.
Week 8
1
For next week…
Complete Case Paper #3 on Aldi
Due at our next class March 19th
Focused on Cost Leadership and Differentiation Strategies.
NO Blue Ocean!
NO Business Models
Focus on Chapter
(After tonight – it’s Spring Break)
2
Generic Business Strategies
Differentiation
Seeks to create higher value than competitors
Offers products or services with unique features

2. Keeps the firm’s cost structure as low as possible
Charges higher prices
Cost Leadership
Seeks to create similar value as competitors
Products or services delivered at lower cost
Charges lower prices
Business-level Strategies
Cost leadership
Sources of keeping costs down and prices low
Cost of input factors (supplier power matters here)
Economies of scale
Employing specialized systems and equipment
Minimum efficient scale – increases in volume do not lead to
further cost reductions
Implies large market share almost always to get the best
economies of scale
8

3. Cost leadership:
It takes time to reduce costs
Learning Curve Effects – price drops (and quality increases) as
volume increases over time
Versus Economy of Scales: Economy of Scales are a specific
points in time versus accumulation over time
Differences in Complexity: Depending on product/service EoS
may have stronger impacts than learning curves
Experience Curve Effects – price drops (and quality increases)
with changes in technology of production
Process Innovation: changes in technology allow increased
efficiency with same output volume.
Technology can be changes in methods or machinery
9
Attributes of the Product/Service offering
Relationships between company and consumers
Linkages within or between firms
Differentiation Strategy
Blue Ocean Strategy
Value Innovation: Aligning consumer utility, price and cost for
maximizing value to company and consumer – product
differentiation and low cost.

4. 8
Blue Ocean Strategy
Strategy Canvas: Captures current state of the known market
place and action framework to explore alternatives.
9
Blue Ocean Strategy
4 Action Framework: To assist in creating a new value curve
the 4 Action Framework helps evaluate the tradeoffs between
differentiation and cost.
10
Blue Ocean Strategy
11

5. Blue Ocean Shift
12
Activity
In your group, identify a company who has a Blue Ocean
strategy
Identify that BO company’s competitors or industry
Identify the factors that consumers use to make decisions about
their purchases with this company.
What factors were raised/created by the BO company or
eliminated/decreased?
13
Risks of Blue Ocean
Finding the right blue ocean – easy to say but hard to
find/create
Arriving too early and/or Being too new, too different – are
consumers ready?
Strategy Execution – Right leaders?
Strategic Clarity and Mindset – ready for the challenges from
top to bottom
Trust and Patience
How defensible is your new ocean?
14
Blue Ocean vs. Yoda
15

6. Tradeoffs
Maintain a focus on the consumer
Who won’t buy the products/services, or which
potentially profitable consumers are ignored or
avoided?
Mutually exclusive choices to commit resources
Tradeoffs give something up – they “hurt”
Resource commitments other firms cannot easily match
Questions for you as an analyst
Sufficient consistency in tradeoffs over time?
Inconsistency creates a “stuck in the middle” situation where
the firm is not great at any one thing
Strategic discipline to avoid being “stuck in the middle”
No firm starts wanting to be stuck in the middle
Discipline over time required to be true to tradeoffs
How do these threaten discipline in tradeoffs?
Customers
Employees
Management
Shareholders
Technology
The Conundrum
18
Drew Houston, Founder of DropBox
Attributes of the Product/Service offering
Features, Complexity/Simplicity, Location

7. Relationships between company and consumers
Customization, Marketing, Brand, Services
Linkages within or between firms
Enhancing connections to other parts of a business or to another
business
Complement – consuming in tandem
Networks
Differentiation Strategy
2018 US
best sellers by volume
1. Ford F Series 909K
2. Chevy Silverado 586K
3. Ram Pickup 537K
4. Toyota RAV4 427K
5. Nissan Rogue 412K
How are they differentiated?
6. Honda CR-V 379K
7. Toyota Camry 343K
8. Chevy Equinox 333K
https://www.automobilemag.com/news/year-auto-sales-facts-
figures-bestsellers-2018/
https://www.caranddriver.com/news/g25558401/best-selling-

8. cars-suv-trucks-2018/?slide=25
20
Problem of sustaining:
What won’t we do?
US$211,000 Lamborghini Urus
US$33,000 Nissan Rogue Sport
US$130,000 Porsche Cayenne
US$171,000 Maserati Levante
US$40,000 Volkswagen Tiguan
US$46,000 Mazda CX-9
Activity
Breaking into groups
Consider ASU and its competitors
How is ASU Differentiated?
How is W. P. Carey Differentiated?
What factors would you highlight for each of the above?
22
Managerial levers to differentiate a firm strategically
Clear goal for strategy (the constant checklist)
Who?
What will we satisfy?
Why do we want to do this?
How we will do this?

9. Levers to differentiate
Product features (blurs w/marketing)
Customer service (blurs w/operations here)
Complements (blurs w/industry boundaries AND competitors)
Example: Disney World, Sea World, Universal Studios and
Orlando air flights
Networks effects, or why not to buy a Fiat in the U.S.
What is meaningful about being a differentiator?
How does this strategy motivate people by making them feel
meaningful?
How do you know you have made progress and improvement as
a differentiator?
What are reasons employees might enjoy being a differentiator?
Differentiation Strategy
Product Characteristics
Unique, special, premium
High service, new product launches
Acceptable price
Goal

10. Increase perception of value
Capture perception with higher prices
Resources are focused on
Creating higher value
Marketing & Promotion
Innovation/ Exploration
Differentiation Response to Five Forces
Threat of Rivalry
customer’s brand loyalty to differentiated product offsets price
competition
Power of Buyers
well differentiated products reduce customer sensitivity to price
increases

11. Power of Suppliers
absorb price increases due to higher margins
pass along higher supplier prices due to buyer loyalty
Differentiation Response to Five Forces
Threat of New Entrants
differentiation sets a high bar on performance and brand
Threat of Substitutes
brand loyalty to a differentiated product tends to reduce
customers’ testing of new products or switching brands
Competitive Risks of Differentiation
The price differential between the differentiator’s product and
the cost leader’s product becomes too large
Differentiation ceases to provide value for which customers are

12. willing to pay
Experience narrows customers’ perceptions of the value of
differentiated features
Counterfeit goods replicate the differentiated features of the
firm’s products
For next week…
Complete Case Paper #3 on Aldi
Due at our next class March 19th
Focused on Cost Leadership and Differentiation Strategies.
NO Blue Ocean!
NO Business Models
Focus on Chapter 6
(After tonight – 0 class till Spring Break)
29