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Product Differentiation and Porter's Five Forces Model

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Bryndon Fry

on 20 March 2015

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Transcript of Product Differentiation and Porter's Five Forces Model

I. The Market of Increasing Returns - Colin
II. Strategies surrounding uncertainty - Vincent
III. An Empirical Example - Bryndon
Strategy Formulation and Product Differentiation

Markets facing Increasing Returns
Market for operating systems on PC's in early 1980's
CP/M, DOS and Apple's Macintosh were competing
DOS took first step to control market when Microsoft reached a deal to supply an operating system for IBM's PC
DOS was able to differentiate itself, therefore attracting further software developers to adopt it
As a result, Microsoft enjoyed large profits
Factors that influence these industries to behave this way include:
Up-Front Costs
Network Effects
Customer Groove
As more of the market is captured, the easier it becomes to capture future markets
Confronting Uncertainty
I. Apply appropriate analytic tools to identify strategic options
A few future scenarios
- use option valuation models and game theory
Wide range of future scenarios
- use technology planning to develop multiple scenarios

An Empirical Example
The Emerging Model of Increasing Returns
Economies have experienced a transformation from bulk-material manufacturing to design and use of technology
Focus has shifted to the processing of resources and information, as well as the application of raw energy and ideas
Mechanics of economic behaviour have evolved
Many markets now face increasing returns
Two styles of markets now exist
They differ in behaviour, style and culture
Require different management techniques, strategies and levels of antitrust regulation
Bryndon Fry
Colin Aubrey
Vincent Crisol

The "Old" Walmart
Unsustainable Practices:
-Energy usage

The "New" Walmart
Bargaining Power of Suppliers
Bargaining Power of Customers
Threat of Substitute Products
Threat of New Entrants
Competitive Rivalry within the Industry
- The movement to sustainable products has increased the bargaining power of suppliers.
-Less suppliers means less options for Walmart to turn to if they want better prices or differentiated products for the products they want to bring in.
-The bargaining power of customers will be high
-Walmart is initiating Green practices, but buyer switching costs remain virtually zero as they can seamlessly change stores to buy from
-Walmart sells everyday goods that people buy, so there will always be essentially the same product somewhere else
-However, prices are lower at Walmart, as per their "lowest price guarantee", so similar products will be more expensive at different locations.
-High level of rivalry amongst other big box retailers such as Costco, Zellers, Tesco, etc...
-Differentiate using by engaging in sustainable practices.
Barriers to entry
-Capital Requirements
-Possible retaliation by Walmart and other big box stores
-Low initial margins
-Not only new big box stores, but any store that sells anything that Walmart sells
II. Select a strategic posture
- pushing your industry towards a new structure that will create new opportunities
- choosing when and how to compete with current industry structure
Reserving the right to play
- making small investments to stay in the game without prematurely changing strategy
III. Build portfolio of strategic moves:
Big bets -
major commitments that create large payoffs
Options -
modest initial investments that allow for more investments as the market evolves
No-regret moves -
moves that payoff no matter what
The 4 levels of uncertainty
1. A clear enough future
2. Alternate futures
3. A range of futures
4. True ambiguity
A Clear Enough Future
Alternate futures
A range of futures
True Ambiguity
What is known:
a single forecast enough to determine a strategy

Analytic tools:
Traditional strategy
What is known:
a few discrete outcomes that define the future

Analytic tools:
decision analysis, option valuation models, game theory
What is known:
a range of outcomes but with no natural selection

Analytic tools
: latent-demand, technology forecasting, scenario planning
What is known:
no basis to forecast the future

Analytic tools:
pattern recognition and non-linear dynamic models
Identify the nature and extent of residual uncertainty

Choose a strategic posture

Build a portfolio of actions

Actively manage the strategy
Full transcript