andreadd.it - appunti, esercizi e temi d'esame · introduction)) 06/10/2015’...

StuDocu is not sponsored or endorsed by any college or university

Appunti - Strategy & marketing - Prof Davide Chiaroni -2015/2016

Strategy & marketing (Politecnico di Milano)

StuDocu is not sponsored or endorsed by any college or university

Appunti - Strategy & marketing - Prof Davide Chiaroni -2015/2016

Strategy & marketing (Politecnico di Milano)

Scaricato da Alessandro Nava ([email protected])

lOMoARcPSD|2751981

www.andreadd.it

www.andreadd.it

INTRODUCTION))

06/10/2015'WHAT)IS)A)COMPANY?))A'company'is'like'a'“machine”'that'receives'Inputs)(Human,'Technological,'Financial'Resources)'and'produce'Output'(Products'and'Services).'Each'company'and'its'structure'can'be'described'with'3'different'dimensions:'

• Outputs:'a'company'can'realize'single'or'a'diversified'portfolio'of'outputs;'• Activities:'a'company'can'be'vertically'integrated'or'it'can'outsource'many'activities;'• Geographical)orientation:'a'company'can'serve'a'single'geographical'market'or'several'country'

(Internationalization).'It’s'a'matter'of'competitive'position'and'customers.'''EX)'VW'company:'

! Produces'cars,'so'it'has'a'diversified'portfolio'of'products,'because'each'car'has'different'designs,'customers,'price'and'production'processes'and'it'is'referred'to'different'segments.'Moreover'each'car'has'different'strategies'and'marketing'approaches;''

! Outsource'many'activities,'like'selling;''A'company'can'be'defined'in'different'ways'according'to'different'perspectives:''For)a)lawyer'a'company'is'a'legal'entity,'a'legal'construct'(contract)'through'which'the'law'allows'a'group'of'natural'people'to'act'as'if'they'were'a'single'artificial'person'for'certain'purposes.'The'nature'of'the'contract'(legal'form)'can'be'different'(companies'are'put'in'order'of'size):'

! Unlimited'company'(Corp.):'when'there’s'no'clear'distinction'between'the'duty'of'the'owner'and'the'company.'It'can'be'either'with'or'without'a'share'capital.'It'is'usually'a'small'company'where'the'bank'asks'the'money'for'debt'directly'to'the'owner'and'if'the'company'falls'you'have'your'own'money'to'repay'the'debt'(and'you'can'lose'your'car/house).'It'is'exempted'from'filling'accounts'with'the'Registrar'of'Companies'for'public'disclosure'and'the'members'don’t'benefit'from'limited'liability'in'case'of'company’s'liquidation.'

! Limited'company'(Ltd):'there'is'no'relationship'between'the'responsibilities'of'the'owner'and'the'ones'of'the'company.'It'is'usually'a'big'company,'where'shareholders'don’t'care'about'what’s'happening'to'the'company'(about'losing'value)'because'they'want'to'gain'profit'from'their'brand,'all'the'duties'are'in'the'company.'It'could'be:'

o Private'by'guarantee:'no'share'capital,'the'members'will'pay'a'fixed'amount'in'the'event'of'the'company’s'liquidation'(charitable'organisations);'

o Private'by'shares:'has'shareholders'with'limited'liability,'but'the'shares'can’t'be'offered'to'the'general'public,'the'shareholders'have'to'offer'shares'to'their'fellow'shareholders'prior'to'selling'them'to'a'third'party;'

o Public'limited:'the'biggest'one,'it'can'be'publicly'traded'on'a'stock'exchange'market,'the'price'of'the'shares'is'on'the'market'(transparency)'and'there'is'a'limited'responsibility.'

'For)an)accountant'a'company'can'be'summarized'by'its'financial'statements:'

! the'balance)sheet'of'assets'and'rights,'in'order'to'know'the'size'of'the'assets'and'the'debt'with'shareholders'and'stakeholders;'

! the'profit&loss)account'for'the'year'(Income'statement),'in'order'to'know'revenues,'EBIT'(operating'profit)'and'EBITDA'(cash'profit),'the'earnings;'

! the'cash)flow)statement'for'the'year,'in'order'to'know'the'net'cash'flow'NCF'at'the'end'of'the'year,'related'to'investments,'financial'activities,'debts,'ecc.'It'is'useful'to'know'how'much'cash'has'been'generated'by'the'company'at'the'end'of'the'year.'

'NB)'Depreciation'is'an'account'system'for'considering'the'deterring'of'tangible'things'like'plans'and'equipment'while'amortization'is'used'for'intangible'things'abused'over'the'years'like'services'and'licenses.'NB)'Profit'and'cash'are'the'most'important'numbers'for'a'company,'while'revenues'are'important'only'for'managers.'''For)a)manager'a'company'is'a'living'organism'in'a'living'and'complex'ecosystem'with:'

! Stakeholders'that'provides'resources:'


lOMoARcPSD|2751981

www.andreadd.it

o Consultant'and'Third'Parties'for'Labour'and'Management'o Suppliers'for'Plants,'Material'and'Components'o Angels'for'Loan'

! Stakeholders'that'give'constraints'and'stimuli:'o Community'for'Objectives,'Services,'Culture'o Government'and'Public'Services'for'Laws,'regulations,'bureaucracy'and'taxes'

! Shareholders'that'provides'equity'! B2C'and'B2B'Consumers'that'receive'the'final'product'

)MAXIMIZING)THE)SHAREHOLDER)VALUE)'The'goal'of'a'company'is'to'maximize'the'Shareholder)value'''

!" = $ %&'(1 + +, ((

'

where:'! -./0 = %12$&34ℎ$'678 = 9:;:<=><? + @ABCDEF? − .DH:0DI$J>K=E0:L>''! +, '='cost'of'equity'capital''" SV'is'the'discounted'value'of'net'cash'flow'for'Shareholders'" SV'should'be'the'value'of'the'shares'on'the'market'" The'SV'depends'on'the'firm’s'ability'to'generate'Free)Cash)Flow'(C),'i.e.'the'cash'exceeding'the'investment'

needs'of'the'company'" Each'company'interacts'with'the'market,'with'banks'and'with'the'shareholders.'It'receives'fresh'money'with'

new'shares'from'the'shareholders'(capital'injection)'to'invest'them'in'the'market.'From'the'market'it'receives'FCF'used'to'pay'debts'to'banks'and'to'create'profit,'that'is'given'to'shareholders'as'flow'of'dividends'and'buybacks.''

''+11$&34ℎ$'678$ = MNOPQR − 23S14 − TUV142W1U2$TU$XTS1Y$Z3[T236 − Zℎ3U\14$TU$87+]TU\$Z3[T236''FCF'or'C'measures'what'is'available'for'distribution'among'all'the'investors'in'a'corporate'entity'including'equity'holders'and'debt'holders.'It'is'the'amount'that'I'am'really'able'to'deal'at'the'end'of'the'year,'it'doesn’t'have'any'interests'from'banks,'but'if'I'have'some'debt'at'first'I'have'to'pay'the'debt'and'then'I'can'invest'the'remaining'money'or'give'to'shareholders'the'rest'of'the'cash'(we'can'also'ask'for'a'debt'and'give'the'money'to'the'shareholders,'generally'we'create'NCF'if'we'reduce'Debt'or'increase'FCF).''

" The'goal'is'to'maximize'NCF'(↑FCF'or'↓Net'Debt)''

TOT'ASSETS' SHAREHOLDERS’'EQUITY'EV'

(FCF'+'debt)'Net'Debt'(debtecash)'

Equity'Value'(SV)'''The'Enterprise)value)is'the'discounted'value'of'free'cash'flow'during'the'years''

M" = $ '&'(1 + +,^_ ((

'

'where:'

! +,^_ = `R&& = `1T\ℎ21Y$RV1+3\1$&742$7X$&3[T236'that'averages'the'cost'of'equity'(+,)'and'the'cost'of'debt'(+_)'

" It'is'the'value'of'a'company’s'operating'assets'and'shows'how'much'value'in'the'future'can'be'created'from'the'exploitation'of'the'company’s'assets'

" it'must'be'equal'to'the'value'of'the'claims'against'total'assets'(equity'+'debt)'''


lOMoARcPSD|2751981

www.andreadd.it

!" = M" − %12$Q1a2 = M" − Q1a2 + &34ℎ$ bTcdTYT2e ''

" The'Net'Debt'is'how'much'money'I'have'to'provide'in'order'to'repay'the'debt,'a'part'from'the'debt'that'I'already'have'

" Stock'market'value'(market'capitalisation)'of'a'firm'is'a'proxy'of'the'shareholders’'value'(proxy'because'the'market'is'a'crazy'actor'of'the'system'with'bubbles,'fads,'gambling'and'crashes,'SV'isn’t'the'exact'price'of'the'shares)'

" Balancing'the'power'between'shareholders'and'stakeholders'creates'issues,'especially'if'not'all'the'shareholders'are'equally'greedy.'It'depends'if'they'are:'

o One)owner:'he'could'have'different'aims'(social,'environmental)'that'means'more'costs'and'more'investments,'but'you'can'find'other'sources'of'money'that'support'you'(sponsors);'

o Private)equity)fund:'that'invest'in'the'company'with'a'short'term'share'(from'3'to'5'years),'entering'in'the'company,'making'more'profit'and'then'selling'the'shares'

o Public)company:'there'are'many'distributed'shareholders'with'a'long'term'orientation'o StateRowned)company:'its'market'value'is'lower'than'competitors,'but'if'you'are'shareholders'you'

don’t'care'about'the'market'shares'because'you'have'the'money'and'you'are'interested'in'dividend'flow''

" Remember'that'the'knowledge'of'governance'structure'is'important'to'understand'how'a'company'takes'a'decision,'you'have'to'know'the'portfolio'of'the'company,'its'assets'and'financial'numbers,'but'also'the'environment'where'the'decisions'come'from.'SV'is'affected'by'the'corporate'governance,'so'SV'on'the'market'decreases'if'someone'thinks'there'is'something'that'is'not'going'in'the'right'direction.'

'08/10/2015'

)The'Shareholder)perspective'is'not'wrong'but'not'complete,'it'misses:'

! Management)perspective,'managers'in'some'cases'could'have'different'objectives'from'the'shareholders’'ones,'because'they'are'people'and'they'want'to'get'more'money'and'increase'the'prestige'(size)'of'the'company'(saturating'a'market'or'entering'in'a'new'one).'Increasing'the'size'of'a'company'is'not'always'the'better'way'to'give'back'money'to'shareholders,'because'this'means'investing'a'lot'of'money.)

! Stakeholders)perspective,'as'the'interests'of'Environment,'Society,'Employees,'Banks,'Customers,'Competitors,'Government'that'could'be'in'conflict'with'the'aim'of'the'company'(Employees'want'to'be'well'paid,'but'the'higher'you'pay'the'lower'you'earn,'generally'companies'spend'money'and'reduce'FCF'to'follow'the'interests'of'stakeholders))

)The'Total)value'of'a'company'is'measured'by'combining'financial'success'(SV),'usefulness'to'society'and'satisfaction'of'employees'(Stakeholders'and'Management'Values).'The'three'perspectives'are'forced'to'engage'in'partnership'of'value'creation'in'a'long'term'view:'

• Stakeholders'are'vulnerable'when'management'fails'to'create'SV'• Without'Stakeholders'value'there'can'be'no'SV'in'the'long'term'

'The'aim'is'to'maximize'the'total'company'value:'

o Making'strategic'decision'in'order'to'maximize'expected'future'value'o Carrying'assets'only'if'they'maximize'the'long'term'value'o Paying'back'the'shareholders'if'there'are'no'valueecreating'opportunities'in'which'invest'o Rewarding'operating'unit'executives'for'adding'long'term'value'and'managers'for'gaining'superior'

performance'on'key'value'drivers'o Providing'investors'with'valueerelevant'information'o Evaluating'the'impact'of'decisions'on'stakeholders'

'THE)CORPORATE)GOVERNANCE))'The'Corporate)Governance)(CG)'refers'to'the'set'of'systems'principles'and'processes'by'which'a'company'is'governed,'they'provide'the'guidelines'as'to'how'the'company'can'be'directed'or'controlled'such'that'it'can'fulfil'its'goals'and'objectives'in'a'manner'that'adds'to'the'value'of'the'company'and'is'also'beneficial'for'all'stakeholders'in'the'long'term.'


lOMoARcPSD|2751981

www.andreadd.it

There'isn’t'a'single'model'of'CG,'but'each'CG'has'some'basic'principles:'! Rights'and'equitable'treatment'of'all'shareholders'! Interest'of'all'stakeholders'! Role'and'responsibilities'of'managers'! Integrity'and'ethical'behaviour'! Disclosure'and'transparency'of'information'

'The'traditional'model'of'CG'is'composed'of:'

# Shareholders)Assembly,'with'representatives'that'can'make'extraeordinary'decisions'as'Bond'issue,'Capital'Increase'and'Statute'change;'

# Board)of)Supervisors,'which'is'composed'of'independent'members'who'check'that'the'decision'undertaken'by'the'company’s'management'are'coherent'with'the'laws'and'the'statutory'requirements.'Shareholders'Assembly'can'hire'and'fire'members'of'Board'of'Supervisors'and'review'its'decisions;'

# Board)of)Directors,'which'is'composed'of'company'executives'who'take'decisions'day'by'day'about'how'to'run'the'company'(CEO'is'a'member).'Shareholders'Assembly'can'hire'and'fire'members'of'Board'of'Supervisors'and'review'its'decisions'but'also'approve'Financial'Statements;'

# Committee)of)independent)auditors,'which'is'composed'of'external'experts'who'are'called'to'check'the'Financial'Statements.'

'The'model'of'CG'in'Netherlands'and'Germany'is'composed'of:'

• TwoRtiered)Board)of)Directors:'o Supervisory)Board,'composed'of'shareholder'representatives,'auditors,'stakeholder'

representatives;'o Executive)Board,'composed'of'company'executives'who'do'day'by'day'operations.'The'Supervisory'

Board'can'hire'and'fire'members'of'Executive'Board'and'review'its'decisions'but'also'approve'Financial'Statements;'

• Committee)of)independent)auditors,'which'is'composed'of'external'experts'who'are'called'to'check'the'Financial'Statements.''

" It'protects'mostly'stakeholders.''The'model'of'CG'in'United'States'and'United'Kingdom'is'composed'of:'

• One)singleRtiered)Board)of)Directors,'composed'of'executives'and'noneexecutives'(more'than'executives,'they'are'appointed'by'shareholders'meeting)'directors'and'auditors'

• Committee)of)independent)auditors,'which'is'composed'of'external'experts'who'are'called'to'check'the'Financial'Statements')

" It'protects'mostly'shareholders.''Remember'that:'

" Italian'CG'is'in'the'middle'" Nowadays'several'trends'made'the'relationship'between'the'different'actors'of'the'system'more'critical,'

strongly'affecting'the'constraints'posed'by'the'stakeholders,'such'as'the'power'and'information'asymmetry'among'the'actors,'which'influence'a'challenging'environment'(not'only'a'constraint'but'also'opportunity):'

o Corporate'Social'Responsibility'and'Sustainability'(media'attention,'regulations,'laws,'reputation)'o Economic'Crisis'(low'demand,'low'profits,'liquidity'issues)'o Globalization'(competition,'price'wars)'o Digitalization'(customer'bargaining'power,'competition,'obsolescence)'

'EX)'When'Intesa'and'San'Paolo'merged'they'had'to'create'a'new'CG,'but'they'didn’t'refer'to'these'models'because'they'do'not'always'find'a'full'practical'application.')THE)CONCEPT)OF)STRATEGY)'The'goal'of'a'manager'should'be'to'maximize'long'term'cash'flows,'which'allows'to'achieve'a'combination'of'value'creation'for'both'shareholders'and'stakeholders,'with'a'strategy.)The'word'strategy'comes'from'the'Greek'word'Strategos'which'means'generalship.'


lOMoARcPSD|2751981

www.andreadd.it

Strategy'is'the'art'of'doing'and'deciding'something'to'take'a'competitive)advantage'(to'be'in'a'more'favourable'position'than'competitors,'and'to'do'something'in'a'unique'way),'to'provide'a'company'to'gain'in'an'efficiently'way'a'sustainable'edge'over'its'competitors.'Strategy'is'a'relative'word,'because'it'concerns'taking'a'decision'in'relation'to'someone/something'else.'The'key'word'is'sustainability,'because'company’s'position'need'to'stay'fixed'for'a'long'time,'in'order'to'create'value'for'the'shareholders.''

! Strategic)decision)is'a'decision'that:'o Has'long'term,'significant'and'nonereversible'effects'on'the'final'goal'of'the'organisation;'o Requires'usually'large'amounts'of'resources;'o Requires'top'management'involvement.''

! Strategy)is'an'integrated'and'comprehensive'plan'that:)o Identifies'the'scope'and'the'direction'of'the'organisation;)o Is'aimed'at'obtaining'long'term'performance'superior'to'competitors'(in'relation'to'the'goal);)o Integrates'a'coherent'set'of'strategic'decisions.)

)Strategy'is'then'all'about'defining'the'company’s'positioning'in'its'environment:'

$ Supporting'decisions;'$ Coordinating'devices;'$ Targeting.'

'EX)'Timberland'sell'resistant'shoes'for'workers'in'the'US'and'fashionable'shoes'for'young'people'in'EU.'It'sells'the'same'thing'in'a'unique'way'in'different'countries,'so'they'adopted'different'strategies'according'to'the'context'(different'positioning).'''SETTING)A)COMPANY’S)STRATEGY''The'logic'flow'of'a'strategic)decisional)process'is'composed'by'these'steps:'

1) Start'from'the'goal'which'is'gaining'economic'value'2) Do'the'SWOT'(Strengths,'Weakness,'Opportunities'and'Threats)'analysis'(one'for'each'land,'it'defines'the'

context)'3) Generate'strategic'alternatives'(strategies'and'strategic'decisions)'4) Evaluate'and'choose'the'strategic'alternatives'(risks'and'benefits)(using'numbers'taken'from'the'business'

plan)'5) Implementation'(of'the'best'alternative)'6) Control'(if'the'SWOT'isn’t'accurate,'I’ll'take'a'decision'based'on'wrong'assumptions,'and'the'probability'is'

lower)'and'then'corrective'actions'and'restart.''The'SWOT'analysis)is'made'of'two'level'of'analysis:''

# External)analysis,'means'looking'outside'the'company'to'competitors'and'market,'in'order'to'understand'if'there'could'be'opportunities'and'what'trends'could'deteriorate'the'company’s'performance:'

o External'environment'comprises'all'the'economic,'social,'political'and'technological'factors'that'influence'the'company’s'decisions'and'its'performance;'

o Opportunities'like'the'introduction'of'products'in'a'new'market,'the'increasing'of'demand'for'demographic'changes,'selling'the'technologies'to'other'players;'

o Threats'like'the'introduction'of'new'regulations'that'could'reduce'the'level'of'efficiency,'the'availability'of'new'technologies'that'could'reduce'the'competitive'advantage.'

# Internal)analysis,'means'looking'inside'the'company'to'find'something'unique'for'it,'what'are'its'capabilities'and'resources'and'the'weakness'and'capability'gaps:)

o Internal'environment'comprises'the'company’s'value'and'goal,'its'resources'and'capabilities,'its'organisational'structure'and'system;)

o Strengths'like'a'specialist'marketing'expertise,'a'new'product/service,'the'business'location,'the'quality'of'the'process,'an'addingevalue'aspect'of'the'business;)

o Weaknesses'like'the'lack'of'marketing'expertise,'poor'quality'of'products/services,'a'damaged'reputation,'an'undifferentiated'product/service'relative'to'competitors.)

)


lOMoARcPSD|2751981

www.andreadd.it

" the'first'step'is'the'External'analysis'(for'example'when'you'have'an'environmental'situation'to'refer'to'you'can'ask'to'logistics'and'try'to'achieve'the'requests'without'increasing'costs).'

" the'final'step'is'to'choose'a'solution.')A'successful'strategy'should'have:'

! simple,'consistent,'long'term'goals'! profound'understanding'of'the'competitive'environment'! objective'appraisal'of'resources'

'V.'SILK,'ALPHABET,'APPLE'quad'

13/10/2015')DEFINITIONS)))The'Vision)of'a'company'is'the'future'dream'(where'the'company'is'going).'The'vision'statement'expresses'the'aspirations'(and'the'direction)'of'a'company.'The'Mission)of'a'company'is'its'present'business'scope,'what'the'company'is'and'what'it'does.'The'mission'statement'defines'the'strategic'intent'of'a'company.''VISIONS:'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''MISSIONS:'

'In'order'to'understand'how'a'company'gains'money'(the'rate'of'return'above'the'cost'of'capital),'we'have'to'consider'different'levels'of'strategy:''

''

! Corporate)Strategy)defines'in'which'industries'and'markets'the'company'is'going'to'compete'(industry'attractiveness).'It'decides'in'what'arena'and'in'how'many'business'units'the'company'wants'to'be.'

! Business)Strategy)is'concerned'with'how'the'company'competes'within'particular'industry'or'market'(comparative'advantage).'

! Functional)Strategies)are'the'elaboration'and'implementation'of'business'strategies'through'individual'functions.'

'The'difference'between'the'Corporate'strategy'and'the'Business'strategy'is'due'to'the'fact'that'in'the'former'the'competition'isn’t'already'defined,'while'in'the'it'is'already'defined.''NB)'A'Strategic)Business)Unit'(SBU)'carries'out'a'defined'group'of'products,'which'are'aimed'at'a'specific'customer,'has'its'own'competitors,'can'be'managed'separately'from'the'rest'of'the'company,'can'stand'alone,'has'distinct'objectives,'is'a'profit'centre'and'has'a'manager'responsible'for'its'strategy'and'performance'(there'isn’t'an'organizational'chart'for'each'BU,'defining'BU'chart'means'defining'customers,'competitors'and'profits,'it'means'that'you'understand'the'business'of'your'company)'


lOMoARcPSD|2751981

www.andreadd.it

EXTERNAL(ANALYSIS!

Once!we!are!in!a!certain!BU,!firstly!we!have!to!look!outside!the!company!and!its!boundaries.!The!first!step!of!a!SWOT!analysis!is!the!evaluation!of!the!External!Environment:!

1. Understanding!the!big!picture:!the!rules,!the!environment!and!the!general!context!affecting!mostly!the!market!and!the!competitors!

2. Understanding!the!customers:!who!is!buying!the!product!or!service!3. Understanding!the!competitors:!who!is!playing!against!me!4. Understanding!the!supply!chain:!who!is!playing!with!me,!serving!me!for!the!same!goal,!but!taking!out!from!

me!part!of!the!profit!5. !Understanding!the!arena:!the!context!where!where!other!companies!can!enter!or!exit.!Entries!and!exits!

barriers!(if!needed)!prevent!me!to!enter!in!the!cage!(understanding!the!rules!and!the!barriers):!if!there!are!high!entry!barrier!I’ll!have!a!high!cost!to!enter!and!it’s!better!for!the!profit!potential!to!stay!outside!

1L>5!affect!the!PROFIT(POTENTIAL:!the!amount!of!profit!that!a!company!can!gain!depends!on!its!position.!!

EX)!Google:!its!customers!are!companies!who!buy!services,!while!its!competitors!are!advertising!and!search!engine!companies.!

1. Understanding(the(big(picture:(the(rules(and(the(environment!

To!understand!the!context,!we!can!proceed!with!the!STEEP!Analysis,!to!study!the!macro!trends!which!are!affecting!the!arena!(changing!the!business),!with!five!variables!grouped!in:!

♦ Social:!population!demographics,!income!distribution,!social!mobility,!lifestyle!changes,!attitude!to!work!and!leisure,!levels!of!education,!consumer!activism!

♦ Technological:!government!spending!on!research,!patent!protection,!new!findings/development,!speed!of!technology!transfer,!rates!of!obsolescence!

♦ Economic:!business!cycle,!GNP!(Gross!National!Product)!trends,!interest/exchange!rates,!money!supply!and!inflation,!unemployment,!energy!availability!and!cost!

♦ Ecological!(Environmental):!environmental!protection!laws,!compliance!to!environmental!protocols,!decommissioning!costs!

♦ Political!(legal):!monopolies!legislation,!taxation!policy,!foreign!trade!regulations,!employment!law,!government!stability!

EX)!What!kind!of!mega!trends!are!actually!changing!the!market!size!and!affecting!the!business!of!a!company/BU?!In!the!phone!industry!you!have!to!check!the!population,!the!age!(time!of!starting!using!the!phone),!the!lifestyle!and!the!education.!All!these!facts!change!the!perspective.!

A!practical!way!to!carry!out!the!STEEP!analysis!(qualitative)analysis)!is!to:!• Identify!each!possible!factor!that!impact!the!business!• Give!to!each!factor!two!numbers:!

o The!probability!of!occurrence!(%)!o A!rating!for!the!expected!impact!on!the!business!in!the!coming!3L5!years,!from!L5!(terrible,!if!the!

business!is!contracting!the!market!size)!to!+5!(fantastic)!• Create!a!scoreboard!and!sum!all!the!impacts!to!define!a!general!sentiment!about!the!arena!(Is!it!growing?!

The!+!and!–!aspects!are!in!balance?).!!!

!!


lOMoARcPSD|2751981

www.andreadd.it

To!understand!the!positive!and!negative!factors!of!the!arena!and!how!they!are!balanced,!we!use!this!graph,!where!in!the!x!axis!there!is!the!rating!for!the!impact!and!in!the!y!axis!the!%!of!occurrence.!!!Blue(part:!trends!with!an!expected!positive!impact!and!a!relevant!%!of!occurrence!(>50%).!Red(part:!trend!with!an!expected!negative!impact!and!a!relevant!%!of!occurrence!(>50%).!!We!count!the!how!many!points!are!in!the!blue/red!part!of!the!graph!to!define!the!general!sentiment!about!the!arena!and!then!we!focus!on!the!trends!that!need!to!be!checked!carefully.!!For!example,!if!the!sentiment!is!positive!we!should!consider!the!negative!trends!and!define!how!to!react!to!them!and!then!looking!at!the!list!a!company!could!think!if!there!is!something!missing.!!! In!strategy,!this!kind!of!analysis!is!called!GIGO$ANALYSIS,!because!it!is!an!analysis!run!by!the!company!or!through!panel!study!(experts!in!the!field!try!to!get!out!their!sentiments!about!what’s!going!on!in!the!context,!in!order!to!avoid!uncertain!analysis!and!points!that!a!company!could!miss).!!!!!

EX)(Automotive!industry,!European!arena.!Steep!analysis:!!

( Impact( Probability((%)(

Impact((K5/+5)( Comment(

Political(trends( FTR!(Foreign!Trade!Regulation)! 100%! +2/3! The!entry!of!new!products!makes!bigger!the!size!

of!the!arena.!POSITIVE!

Ecological(trends(

New!emission!limits! 100%! L1/2!

The!overall!profit!potential!is!reduced,!because!the!new!limits!reduce!the!range!of!products!to!

be!sold!and!so!the!arena.!They!are!entry!barriers.!NEGATIVE!

Economic(trends(

GDP!(Dross!Domestic!Product)!

increase!50%! +1/2!

The!increase!of!GDP!makes!higher!the!potential!of!spending!money!and!so!the!potential!for!

buying!cars.!POSITIVE!

( Employment!rate!increase! 50%! +1/2! The!increase!of!the!employment!rate!makes!

higher!the!power!to!buy!cars.!POSITIVE!

Social(trends( Consumers’!trust!increase! 50%! +2/3!

People!with!a!car!from!3/4!years!has!to!change!it!in!3/5!years!and!they!choose!depending!on!

their!experience.!POSITIVE!( Sharing!economy! 100%! L4/5! Carsharing.!NEGATIVE!

Technological(trends( Electric!mobility! 80%! L2/3!

New!technologies!in!3/5!years!will!not!improve!the!size!of!the!arena,!but!they!will!create!a!new!

and!different!BU.!NEGATIVE!!We!have!4!positive!and!3!negative!points:!with!the!sum!of!the!impacts!we!obtain!a!positive!sentiment!about!the!industry,!but!we!also!discover!3!main!negative!trends!that!will!potentially!affect!the!company!in!the!future!(if!you!are!a!carmaker!you!have!to!understand!them!better!to!know!how!to!react).!(


lOMoARcPSD|2751981

www.andreadd.it

2. Understanding(the(customers:(who(is(buying(the(product/service(

To!understand!the!customers!(who!is!buying!the!good)!a!company!has!to!segment(the(target!(who!are!my!customers?)!and!to!understand!the!process(of(buying!(how!the!customers!buy).!!EX)!Producer!of!toys:!!WHO:!parents!HOW:!through!the!influence!of!the!children!(influencers)!!Furniture!for!home:!WHO:!home!owner!HOW:!through!the!influence!of!an!architect!(influencer)!!There!are!always!some!influencers!that!affect!the!decision!process!of!the!buyer.!!!SEGMENTING(THE(TARGET(!To!conceive!a!successful!strategy,!companies!must!have!a!thorough!understanding!of!how!consumer!think,!feel,!act.!There!are!three!factors!that!influence!consumers’!behaviour!in!CONSUMER(MARKETS:!

♦ Cultural!factors:!subcultures,!social!classes!♦ Social!factors:!reference!groups!(primary,!secondary,!aspirational,!dissociative,!opinion!leaders),!family!

(family!of!orientation!or!procreation),!roles!and!status!♦ Personal!factors:!age!and!stage!in!the!life!cycle,!occupation!and!economic!circumstances,!personality!and!

selfLconcept,!lifestyle!and!values!♦ Roles!and!status!

!In!the!BUSINESS(MARKETS!the!challenges!are!the!same,!but!with!some!key!differences:!

o Fewer!and!larger!buyers!or!geographically!concentrated!o Close!supplierLcustomer!relationship!o Professional!or!direct!purchasing!o Multiple!buying!influences!o Derived,!inelastic,!fluctuating!demand!

!Companies!cannot!connect!with!all!customers!in!large,!broad!or!diverse!markets.!They!need!to!divide!such!markets!into!groups)of)consumers!or!segments!with!distinct!needs!and!wants.!There!is!too!much!diversity!in!the!market,!in!term!of!desires/preferences,!available!resources,!geographic!locations,!attitudes!and!buying!habits.!

There!are!differences!between:!!Segmenting:!identifying!classes!of!customers!(existing!and/or!potential)!with!certain!characteristics!in!common!that!make!them!homogeneous!from!a!point!of!view!of!their!sensitivity!to!some!marketing!plan!levers.!!There!are!3!different!approaches,!as!shown!in!the!picture:!" Undifferentiated!marketing!approach!(mass!marketing)!" OneLtoLone!marketing!approach!" Segment!marketing!approach!(Segmentation:!marketing!process!through!which!the!company!divides!the!market!into!various!sub5

groups!(with!different!demand!profiles!but!internally!homogeneous)!on!the!basis!of!which!management!develops!specific!marketing!plans!to!best!satisfy!their!requirements.!!!A!proper!segmentation!should!follow!these!characteristics!to!create!a!segment:!


lOMoARcPSD|2751981

www.andreadd.it

♦ Measurability:!it!must!be!possible!to!measure!the!size!and!buying!power!of!segments!(variables!must!be!checked!and!measurable)!

♦ Accessibility:!real!possibility!of!obtaining!the!segment!using!marketing!actions!(each!segment!can!be!accessed!through!a!different!channel!from!the!other!segments)!!

♦ Homogeneity:!within!the!segment!as!regards!one!or!more!characteristics,!heterogeneity!compared!with!other!segments!(one!segment!always!includes!different!individuals/companies,!so!it!has!homogeneities!inside!and!heterogeneities!outside)!

♦ Importance:!a!segment!large!enough!to!justify!a!targeted!marketing!action!and!to!make!value!for!a!company,!it’s!the!concept!of!size!

♦ Duration:!possibility!to!exploit!the!segment!for!a!particular!period!of!time,!to!stay!there!for!a!certain!period!!

!!Companies!try!to!standardize(and(modularize:!more!external!variety!(breadth!of!range)!vs!less!internal!variety.!!The!Segmentation(process!is!composed!of!three!phases:!

1) Choice!of!the!segmentation!market!o Consumer!markets!o Business!markets!

2) Choice!of!the!segmentation!method!o Mathematical!!o Heuristics!

3) Choice!of!the!segments!obtained!o Segment!validation!o Segment!description!o Product/market!matrix!

15/10/2015!(

1. Choice(of(the(segmentation(market(!Segmenting!CONSUMER(MARKETS:((

♦ Geographic!Segmentation!" It!divides!the!market!into!geographical!units!(nations,!states,!region,!counties,!cities,!

neighbourhoods)!" A!company!can!operate!in!one!or!few!areas,!or!in!all!but!with!attention!to!local!variations.!In!that!

way!it!can!tailor!marketing!programs!to!the!needs!and!wants!of!local!customer!groups!in!trading!areas,!neighbourhoods,!even!individual!stores.!

♦ Demographic!Segmentation!" It!divides!the!market!on!variables!such!as!age,!family!size,!family!life!cycle,!gender,!income,!

occupation,!education,!religion,!race,!generation,!nationality,!social!class!" They!are!popular!variables!because!they!are!often!associated!with!consumers’!needs!and!wants!and!

they!are!easy!to!measure.!


lOMoARcPSD|2751981

www.andreadd.it

!♦ GeoLdemographic!Segmentation!

" It!combines!geographic!data!with!demographic!data!to!yield!even!richer!descriptions!of!consumers!and!neighbourhoods.!Nielsen!Claritas!has!developed!a!geoclustering!approach!called!PRIZM!(Potential!Rating!Index!by!Zip!Markets)!that!classifies!over!half!a!million!U.S.!residential!neighbourhoods!into!14!distinct!groups!and!66!distinct!lifestyle!segments!called!PRIZM!Clusters.!

♦ Psychographic!Segmentation!" Psychographics!is!the!science!of!using!psychology!and!demographics!to!better!understand!

consumers!" The!variables!used!to!divide!the!segments!are!based!on!psychological!and!personality!traits,!lifestyle!

and!values!(divided!by!the!willingness!to!feel!about!a!thing,!the!attitude,!i.e.!cultureLoriented,!sportsLoriented,!outdoorLoriented)!

♦ Behavioural!Segmentation!" The!buyers!are!divided!on!the!basis!of!their!knowledge!of,!attitude!toward,!use!of,!response!to!a!

product!" It!is!widely!used!because!it!identifies!distinct!market!segments!with!clear!marketing!implications!!

! if!I!choose!10!variables!I!know!who!is!the!individual!consumer!and!it’s!nonsense.!An!attending!segmentation!is!up!to!3!variables.!!

!


lOMoARcPSD|2751981

www.andreadd.it

Segmenting!BUSINESS(MARKETS:!We!can!use!the!same!variables!we!use!in!consumer!markets!(geography,!benefits!sought,!usage!rate),!but!there!are!other!variables:!!

♦ Demographic!variables!are!the!most!important!(which!industry,!company!size!and!geographical!area!should!we!serve?)!

♦ Operating!variables!(technology,!user!or!nonuser!status,!customer!capabilities)!♦ Purchasing!approaches!(purchasingLfunction!organization,!power!structure,!nature!of!existing!relationship,!

general!purchasing!policies,!purchasing!criteria)!♦ Situational!factors!(urgency,!specific!application!and!size!of!order)!♦ Personal!characteristics!(BuyerLseller!similarity,!attitude!toward!risk,!loyalty)!

!!

2. Choice(of(the(segmentation(method((

Mathematical!" Using!statisticalLmathematical!algorithms!" Require!data!(a!representative!sample)!on!which!to!make!an!analysis!

Heuristics!" Empirical!(generally!qualitative)!methods!base!on!the!experience!of!the!marketer!

!STATISTICALKMATHEMATICAL!methods!are!composed!of:!

1. Survey(research(o Information!gathering!about!possible!segmentation!variables!(screening!of!potential!variables!like!

gender,!age,!geography,!religion,!nationality,!family!condition!and!so!on.!7L8!variables!are!enough!to!collect!data!about!the!willingness!to!be!our!customers)!

o Focus!groups!or!another!qualitative!research!(to!identify!the!key!benefits!sought)!o Questionnaires!(ask!them!if!they!want!to!buy!the!product,!how!much!they!want!to!pay!and!what!will!

be!the!features,!in!order!to!have!a!potential!list!of!segmentation!and!features!in!term!of!buyingLpriceLquality)!

2. Data(analysis!(Statistical!part)!o Elimination!of!correlated!variables!!o Definition!of!clusters:!starting!from!the!variables!that!are!relevant!for!the!analysis,!if!we!find!a!

correlation!between!two!of!them!we!can!put!them!together!and!create!a!cluster,!because!these!variables!make!more!difference!together!than!alone!

!!


lOMoARcPSD|2751981

www.andreadd.it

3. Segment(profiling(o Description!of!segment!obtained!(the!size!and!the!position!of!each!segments!in!a!chart!with!two!

axes!with!the!two!main!factors!about!benefits)!!o Listing!of!the!key!characteristics!!

!These!steps!are!followed!by!a!marketing!analysis,!which!aims!at!finding!a!value!for!those!who!don’t!want!to!buy/don’t!know!about!a!specific!product!or!finding!other!segments!which!could!be!attracted!by!the!campaign.!Then!we!need!to!decide!to!what!segments!work!with,!remembering!that!every!single!segment!requires!a!different!channel!and!message!to!be!accessed.!!PROS:!statistically!significant!method:!we!know!all!the!possible!information!necessary!to!know!the!customers!CONS:!very!expensive!method!(particularly!in!the!general!market)!and!it!focuses!especially!on!the!existing!customers!without!searching!for!the!new!ones.!!EX)!Vedi!esempio!quaderno!e!slides!!!HEURISTIC(segmentation!methods!have!the!same!goal!(starting!from!the!whole!list!and!reducing!the!variables)!but!the!way!is!different:!!

# Successive(elimination(approach(o It!is!a!stepsLbased!method!that!allows!the!marketer!to!build!the!final!productLmarket!starting!from!

the!identification!and!the!combination!of!the!most!relevant!segmentation!variables.!It’s!the!easiest!one.!It!starts!from!the!whole!list!(almost!20!variables)!and!then!it!tries!to!eliminate!all!those!variables!that!the!analyst!thinks!are!not!affecting!the!product.!!

1) CheckLlist!of!possible!segmentation!variables!2) Variables!identified!as!relevant!are!compared!in!pairs!using!a!matrix!3) Unimportant!crossovers!and!contradictions!are!eliminated!(find!irrelevant!pairs!of!variables,!

in!term!of!unwillingness!to!pay!or!inaccessibility!in!an!easy!way,!in!order!to!reduce!the!whole!list!of!potential!segments)!

4) Variables!are!gradually!combined!to!reduce!the!number!of!combinations!(you!continue!with!different!pairs!to!find!irrelevant!pairs,!doing!this!in!a!random!system!a!certain!number!of!times!the!result!won’t!change)!

5) Products!are!entered!according!also!to!different!use!functions!6) The!final!productLmarket!(segment)!matrix!is!built!

!o Easy!process,!because!you!can!do!it!on!the!desk!like!a!brainstorming!session!(free!process!of!variable!

selection,!without!a!hierarcy)!

!


lOMoARcPSD|2751981

www.andreadd.it

!# Two(phase(approach(

o Hierarchical!segmentation!method!that!consists!in:!1) Macro!segmentation!based!on!the!external!characteristics!and!purchase!situations!(mainly!

demographic!and!operational!variables)!2) Micro!segmentation!based!on!the!characteristics!of!the!individuals!(mainly!behavioural!

variables)!o You!are!forced!to!select!only!two!variables!in!two!different!levels,!so!it!is!usually!used!in!a!simple!

context.!

!(

# MultiKphase(approach!(Nested!approach)!o Analytical!tool!used!to!segment!market!on!the!basis!on!5!general!segmentation!criteria,!moving!from!

the!first!(the!general!one)!to!the!last!(the!smallest!and!specific!one):!1) Demographic!(age,!activity!type,!sector,!size,!location)!2) Operating!variables!(technology,!existing!customer)!3) Buying!process!(roles!in!purchase!process,!buying!methods,!criteria)!4) Situation!factors!(Quantity!purchased,!benefits!sought)!5) Personal!factors!(individual!motivation,!risk!inclination)!!

o The!following!figure!explains!how!the!5!criteria!relates!one!another,!underlining!how,!moving!from!the!«demographic»!to!the!«personal!factors»,!the!information!about!market!decrease.!

!!Segments!are!valuable!today!but!they!are!not!going!to!stay!in!an!infinite!time,!so!each!company!has!to!do!the!analysis!at!least!once!a!year!to!understand!if!there!are!some!segments!that!need!to!be!corrected!and!if!there!are!some!segments!that!are!becoming!relevant,!even!if!they!want!to!target!those!segments!or!not.!!(PAST!DEPENDENCY:!what!you!are!doing!is!the!result!of!what!you!did!in!the!past,!so!the!decision!process!is!affected!by!the!past!decisions).!!


lOMoARcPSD|2751981

www.andreadd.it

NB)(The!analysts!finds!out!the!relevant!segments!understanding!correctly!the!market,!but!the!company!decides!to!target!them!or!not.!For!example,!some!companies!decide!not!to!target!a!segment!even!if!it!is!relevant!(Prada!and!low!cost!shoes!buyers).!!

3. Choice(of(the(segments(obtained(!After!that!the!firm!has!identified!the!marketLsegment!opportunities,!it!must!decide!how!many!and!which!ones!to!target,!combining!several!variables!in!an!effort!to!identify!smaller,!betterLdefined!target!groups.!How!to!evaluate!and!segment?!!

♦ Full(market(coverage:(o Serve!all!customer!groups!with!all!the!products!they!need!o Only!large!firms!(Microsoft!for!software!market,!GM!for!vehicle!market,!CocaLCola!for!nonLalcoholic!

beverage!market)!can!undertake!this!strategy!o Large!firms!have!two!ways!to!cover!the!whole!market:!differentiated!and!undifferentiated!marketing!

♦ Multiple(segment(specialization:(o Selective!specialization,!a!firm!selects!a!subset!(attractive!and!appropriate)!of!all!the!possible!

segments,!which!one!will!be!moneyLmaker!o The!advantage!is!to!diversify!the!firm’s!risk!

♦ Single(segment(concentration:(o The!firm!markets!to!only!one!particular!segment!(Porsche!for!the!spot!car!market,!Volkswagen!for!

the!small!car!market)!o The!firm!gain!deep!knowledge!of!the!segment’s!needs!and!achieve!a!strong!market!presence,!and!it!

enjoys!operating!economies!by!specializing!its!production,!distribution!and!promotion!o If!it!captures!segment!leadership,!the!firm!can!earn!a!high!return!on!its!investment!

♦ Individual(marketing:(o OneLtoLone!or!customized!marketing,!segments!to!one!marketing!o Customers!are!taking!more!individual!initiative!in!determining!what!and!how!to!buy,!they!look!up!

information!onto!the!internet,!evaluate!product!offered,!conduct!dialogue!with!suppliers!and!in!many!cases!design!the!product!they!want!

!20/10/2015!

UNDERSTANDING(THE(PROCESS(OF(BUYING(((Understanding!the!buying!process!means!understanding!HOW!the!customers!(that!we!have!identified!with!segmentation!process)!buy!products,!with!some!phases:!

♦ Problem(recognition:!need)recognition!o They!need!to!buy!something!o It!can!take!place!in!different!ways!according!to!the!products!concerned!and!due!to!external!or!

internal!motivations!it!is!related!to:!" Events!(run!out!or!broken)!!" Internal!motivations!(investigated!through!social!media)!" Market!stimulus!

♦ Information(search:(search)for)value!o How!and!where!to!find!information:!

" Internal!sources!(past!experience)!" External!sources!

• Personal!(family,!friends,!social!networks,!some!companies!pay!people!to!talk!about!their!products,!people!get!information!from!other!influent!people)!

• Public!(consumer!reports)!• Marketing!(catalogues,!ads,!web!sites,!sales!force)!

♦ Evaluations(of(alternatives:!value)judgement!o Definition!of!decision!criteria,!which!is!different!for!each!single!segment!(if!segments!have!the!same!

criteria!it!means!that!the!segments!are!the!same).!It!can!be:!" Price!!" Perceived!brand!quality!


lOMoARcPSD|2751981

www.andreadd.it

" Performance!of!the!product!" Exclusivity!

♦ Purchase(decision:!value)purchase!o Decision!about!from!whom!and!when!to!buy,!with!some!keyLfactors:!

" PointLofLsale!aesthetic!and!atmosphere!" Purchase!conditions!(terms!of!payment!and!delivery)!" Customer’s!previous!experiences!and!economic!situation!" Importance!of!the!product!" Pressure!by!the!sales!force!

♦ PostKpurchase(behaviour:!value)in)consumption)or)use!o Comparison!between!expectations!and!performance!or!experience!o Feedbacks!that!create!a!positive!or!negative!mood!for!future!customers!

!Often!customers!skip!or!minimize!some!steps!due!to!the!level!of!involvement!(the!lower,!the!higher!the!possibility!to!skip)!that!depends!on:!

− Importance!(cost)!− Existence!of!personal!consequences!− Effect!on!the!customer’s!social!and!self!image!

!!In!B2C!we!have!to!take!care!of!the!customer$involvement!in!two!axes!that!are:!

− x!axis:!relevance!of!the!perception!(on!the!right!personal!feelings,!on!the!left!thoughts!about!objective!performances)!!

− y!axis:!relevance!in!term!of!budget!(high!involvement!if!affects!significantly!my!budget,!low!involvement!if!it’s!cheap)!!

!• high!involvement!with!feeling:!the!customer!in!collecting!information!is!more!affected!by!feelings!(luxury!

watches!and!fashion!clothes)!• high!involvement!with!thoughts:!the!customer!collects!information!that!everyone!can!check!(appliances)!

!


lOMoARcPSD|2751981

www.andreadd.it

# Marketing(in!buying!decision!process!is!important!to!convince!and!affect!customers!to!buy!the!product:!

!EX)!

!!

# Roles!of!the!process!of!buying!(they!all!could!be!only!one!person!or!different!ones):!• Initiator:!who!identifies!the!need!(young!man!has!to!decide!in!which!high!school!to!enrol)!• Influencer:!who!influences!the!decision!(parents!and!friends),!in!the!last!years!they!were!decided!by!

the!company,!now!bloggers!and!other!external!people!influence!the!decision!and!company!has!less!power!than!before!

• Decider:!who!makes!the!buying!decision!(young!man)!• Buyer:!who!makes!the!purchase!(parents)!• User:!who!uses!the!product/service!(young!man)!

!The!power(of(buyers!in!B2C!market!is!usually!quite!low,!but!it!increases!if:!

♦ product!differentiation!is!low!(if!there!are!less!different!products,!there!are!less!different!perceptions,!so!people!have!to!choose!between!less!products)!

♦ switching!costs!(defined!as!those!extra!costs!that!incurr!when!a!customer!changes!from!one!supplier!or!marketplace!to!another)!are!low!(higher!these!costs,!more!difficult!to!execute!the!switch,!because!it!is!not!convenient!for!the!customer)!


lOMoARcPSD|2751981

www.andreadd.it

♦ information!about!the!product!are!easily!available!!The!buying!process!in!B2B(market!is!different!from!B2C,!the!hard!performances!are!detailed!with!multidimensional!analysis!done!by!managers!and!they!have!a!high!impact.!From!the!request!for!proposal!(RfP)!to!issuing!order!and!the!final!order!there!are!three!phases,!all!of!them!with!the!respect!of!purchase!policies:!

!In!the!B2B!market!the!roles!are!the!same!(same!labels),!but!there!is!not!a!single!buyer!but!a!purchase)centre!with!various!people!and!functions!involved!in!the!buying!process.!Actors!in!the!buying!process:!

• Initiator:!identifies!a!need!and!believes!it!can!be!satisfied!by!buying!a!good!or!service;!activates!the!process.!• User:!uses!the!product!or!service!purchased;!may!be!the!activator!of!the!buying!process!and!plays!an!

important!role!in!defining!specifications.!• Buyer:!has!the!formal!authority!and!the!power!to!negotiate!with!the!supplier.!• Influencer:!directly!or!indirectly!influences!the!decision!process,!providing!information!and!evaluation!

criteria!for!the!alternatives.!• Decider:!has!the!authority!to!choose!between!the!existing!alternatives/proposals!and!formally!approves!the!

decision.!

!


lOMoARcPSD|2751981

www.andreadd.it

!Strategic!marketing!is!in!the!middle!of!operations!(connected!to!suppliers)!and!sales!(connected!to!the!market)!with!three!pillars:!

o Competitive!advantages!o Market!trends!o Competition!and!positioning!

You!can!proceed!with!a!strategy!understanding!the!boundaries!(HR!and!financial!resources)!!The!power(of(buyers!in!B2B!market!depends!on:!

♦ Relative!concentration:!the!bargaining!power!of!buyers!is!higher!if!their!business!area!is!more!concentrated!than!that!of!suppliers!

♦ Product’s!features:!the!bargaining!power!of!buyers!increases!if!product!differentiation!and!switching!costs!are!low!and!product’s!impact!on!the!final!performance!is!weak!

♦ Buyer’s!characteristics:!the!bargaining!power!of!buyers!increases!if!they!are!able!to!integrate!themselves!backward,!have!clear!information!about!the!product,!the!component!or!material!cost!is!a!high!percentage!of!total!cost!

!3. Understanding(the(competitors:(who(is(playing(against(me((

In!each!segment!there!is!a!different!set!of!possible!competitors.(We!can!use!the!ABBEL(MODEL!to!identify!the!direct!competitors,!those!who!are!offering!the!same!products!or!offer!the!substitutes.!According!to!this!model,!we!can!also!represent!the!space(of(competition!with!3!dimensions.!!The!model!also!identifies!three!types!of!competition:!

$ Direct(o Between!companies!offering!products!with!

similar!characteristics!(=!customers,!=!needs,!=!products)!

o The!buyer’s!decision!making!variable!is!a!preference!for!a!particular!brand!(technological!interfacing!seems!similar!to!the!customer)!

$ Broadened(o Different!products!that!respond!to!comparable!basic!functions!(substitute)products)!(=!customers,!=!

needs,!DIFFERENT!products)!o Technological!interfacing!on!the!customer!side!can!be!different!

$ Indirect(o Competition!shifts!to!the!capturing!of!the!customer’s!financial!resources!by!companies!in!other!

sectors!with!different!products.!It!is!based!on!the!willingness!to!pay!for!an!additional!service/feature!offered!by!a!competitor!(ex:!luxury!goods)!

!!!!


lOMoARcPSD|2751981

www.andreadd.it

!EX)!!

!!EX)!Considering!commuters,!age!25L60,!focused!on!price,!time!and!quality!of!the!service.!If!we!are!a!train!company!like!Trenord,!offering!the!train!service!inside!and!outside!the!city,!who!are!the!competitors?!

− Direct!competitors:!train!services!for!commuters!inside!and!outside!the!city,!like!Trenitalia!− Broadened!competitors:!services!for!commuters!inside!and!outside!the!city!with!different!prices!or!times!or!

quality,!like!ATM!or!buses!− Indirect!competitors:!services!for!commuters,!like!carsharing!(only!inside!the!city)!!

!DIRECT(COMPETITORS:!concerning!to!direct!competitors,!the!level!of!competition!is!a!function!of:!

" Industry!concentration!(distribution!of!the!market!share)!!" Market!growth!(increase!in!sales,!in!term!of!units!and!revenues)!" Diversity!of!competitors!" Product!differentiation!" Excess!capacity!and!high!exit!barriers!" Scale!economies!" Cost!structure!(fixed!vs!variable!cost)!

!It!can!be!expressed!in!the!Direct(Competitors(matrix.((The!first!step!consists!of!making!a!list!of!all!the!direct!competitors!acting!in!the!market,!then!are!considered!both!industry!concentration!and!the!market!growth!rate.!

!− L/L((high(internal(rivalry):(many!companies!are!fighting!in!a!stable!market!and!the!only!chance!to!grow!is!to!steal!market!share!from!direct!competitors!− H/H((low(internal(rivalry):(few!big!players!in!a!growing!market!don’t!fight,!because!the!only!solution!is!collution,!even!if!it!is!not!permitted!by!law,!finding!a!way!to!stay!in!the!market!− H/L!and!L/H(are!shifting!scenarios!!!!(


lOMoARcPSD|2751981

www.andreadd.it

Competitive(Intelligence!involves!the!systematic!collection!and!analysis!of!public!information!about!rivals!for!informing!decision!making,!with!three!main!purposes:!

− Forecast!competitors’!future!strategies!and!decisions!− Predict!competitors’!reaction!to!a!firm’s!strategic!initiatives!− Determine!how!competitors’!behaviour!can!be!influenced!

And!three!main!sections:!• Understand!how!rivals!compete!at!present!• Forecast!how!a!competitor!might!change!its!strategy!• Understand!the!perception!of!the!industry!competitors!have!

!SUBSTITUTES:(substitutes(are!products!that!perform!the!same!function!as!the!product!of!the!industry,!they!limit!the!potential!return!of!an!industry!by!placing!a!ceiling!on!the!prices!companies!in!the!industry!can!profitably!charge.!The!competition!from!substitutes!is!a!function!of:!

" Switching!costs!" Price!difference!between!substitute’s!and!industry’s!product!" Quality!and!performance!difference!between!substitute’s!and!industry’s!product!

It!can!be!expressed!in!the!Substitutes(matrix((radar!to!understand!what!is!going!around)!taking!into!account!two!parameters:!

− Performance!Coverage:!how!close!is!a!product/service!to!the!need!of!customers(− Price!difference:!high!if!the!substitute!product!is!more!expensive!than!the!product,!low!if!the!substitutes!

product!is!cheaper(Firstly,!you!make!a!list!of!all!the!substitutes!and!then!you!decide!what!position!you!should!take!in!the!competition!(+/L)!in!a!specific!segment.(

− H/L:(high!costs!with!different!needs!and!services(− L/H:(low!costs!with!same!needs!and!services!(very!powerful)((EX)(WHO:!a!commuter!from!Milan!to!Rome!focused!on!price,!time,!frequency!and!quality.!I’m!a!train!service!provider!!L Direct!competitors:!Trenitalia!and!Italo!(almost!2!h!with!200/300!€)!L Substitutes:!Airplane!service!L Indirect!competitors:!Alitalia!and!EasyJet!(almost!2,5!h!with!300/400!€)!

(22/10/2015!

4. Understanding(the(supply(chain:(who(is(playing(with(me(

Until!now!the!analysis!has!been!focused!on!revenues.!Now!the!analysis!focuses!on!costs!(internal!costs!to!make!products!and!external!costs!to!provide!products!to!customers)!and!suppliers. The!strongest!are!the!suppliers!and!the!distributors,!the!largest!will!be!the!profit.!They!decide!the!amount!of!profit!that!a!company!can!reach!(they!are!influencers).(

To!understand!the!supply!chain,!I!have!to!understand!who!is!playing!with!me:!! Suppliers!are!those!companies!offering!products/components/services!needed!to!the!production!process!of!

the!output!of!the!company!! Distributors!are!those!companies!delivering!the!output!of!the!company!making!it!to!reach!the!final!

customers!!!The!supply!chain!can!be!a:!

♦ Direct(channel!if!there!is!a!direct!link!between!company!and!end!user(♦ Short(channel!if!there!is!retailer/dealer!between!company!and!end!user(♦ Long(channel!if!there!is!wholesaler!and!retailer!between!company!and!end!user!


lOMoARcPSD|2751981

www.andreadd.it

!!The!power(of(suppliers!depends!on:!

♦ Relative!concentration:!the!bargaining!power!of!suppliers!is!higher!if!their!business!area!is!more!concentrated!than!that!of!companies!producing!the!product!

♦ Product’s!features:!the!bargaining!power!of!suppliers!increases!if!product!differentiation!and!switching!costs!are!high!and!product’s!impact!on!the!final!performance!is!strong!

♦ Customers’!characteristics:!the!bargaining!power!of!suppliers!increases!if!their!customers!are!not!able!to!integrate!backward,!have!not!clear!information!about!the!products,!the!supplying!cost!is!a!low!percentage!of!total!cost!

!The!profit(distribution(map(can!be!designed!starting!from!the!financial!data,!looking!at!suppliers!and!distributors,!keeping!in!mind!that!they!can!have!to!deal!with!different!products.!Looking!at!the!financial!statement,!we!have!EBIT!and!EBITDA!margin,!so!we!have!information!about!the!average!profit.!The!power!of!the!SC!depends!on!its!values!(+!or!L).!

!!

# In!this!case!suppliers!have!a!2/12%!margin,!while!distributors!have!a!2,5%!margin.!In!the!SC!of!photovoltaic!the!most!important!aspect!is!the!production!itself,!rather!than!the!channel!of!distribution,!so!the!perceived!value!of!the!main!components!(raw!materials)!is!higher!than!the!rest.!

!(((((


lOMoARcPSD|2751981

www.andreadd.it

27/10/2015!(COMPLEMENTORS((Complementors(are!those!companies!offering!complementary!products!or!services!to!the!final!customers,!affecting!the!usage!of!the!company’s!output!and!the!overall!demand!for!an!industry’s!product.!They!are!not!in!competition,!not!part!of!the!value!chain!(but!their!presence!potentially!improves!this!value!chain),!they!only!sell!something!useful!for!the!use!of!the!product!to!the!same!segment.!The!more!complementors!I!have,!the!better!is!the!correct!use!of!the!product!and!their!experience!for!customers.!They!increase!the!demand!of!the!product.!!EX)!A!food!company!is!in!competition!about!price!with!suppliers!(like!plant,!chemicals!and!farmers)!and!distributors!and!shares!its!margin!with!them,!not!with!complementors,!like!famous!cookers!and!recipe!books,!doing!a!service!directly!for!the!customers!without!passing!trhough!the!company.!Customers!have!the!decision!to!buy,!but!the!complementors!indirectly!increase!the!sales!and!revenues!of!the!company!with!this!service.!EX)!App!developers!are!complementors!for!mobile!phone!industry!(like!Rovio,!King.com!and!Supercell)!they!could!affect!the!demand!and!create!a!lock5in)phenomenon!(if!you!want!to!change!completely!the!architecture!of!the!product!you!must!convince!the!complementors!to!change!all!the!structure!otherwise!the!switching!cost!will!be!high)!and!they!create!pre5emption)on)the)market!(lack!of!complementors!means!an!issue!in!the!creation!of!the!value!on!the!market!for!a!company,!that!has!to!increase!its!investments)!!Disadvantages:!lockLin!phenomenon,!preLemption!of!the!market,!standardization!(negative!because!it!has!to!be!adapted!to!the!already!existing!standards!of!the!market)!Advantages:!standardization!(positive!for!loyal!customers)!!Complementors!relationships!can!be!troublesome!because!their!interest!often!conflicts.!In!order!to!manage!those!potential!conflicts,!a!company!has!to!understand!what!motivates!its!complementors,!chose!different!kinds!of!power!to!get!complementors!working!in!you!favour!and,!when!necessary!and!you!have!the!upper!hand,!use!hard!powerLthreats!or!incentives.!!

♦ HardKPower!tactics!o Produce!some!or!all!strategically!important!complements!inLhouse,!constraining!complementors’!

power!and!possibility!to!generate!major!profits!(Hp!makes!more!money!from!selling!ink!cartridges!for!its!printers!than!from!selling!the!printers)!

o Standard!effects!(lockLin!of!customers):!it’s!a!virtual!cycle,!because!you!force!your!customers!to!buy!a!product!in!your!platform!and!it!could!be!positive!or!negative!according!to!your!position!on!the!market.!If!you!are!outside!the!market!or!in!a!market!with!already!complementors!it’s!hard!to!create!a!new!standard:!even!if!you!enter!later!and!you!can!copy!the!strategy!of!the!first!owner,!it’s!hard!to!catch!enough!customers!and!convince!complementors!to!create!a!standard,!it’s!better!to!use!soft!tactics!

♦ SoftKPower!tactics!o Reduce!your!complementors’!risk,!building!industry!support!for!your!chosen!platform!to!boost!

everyone’s!chances!of!success!(Intel!helped!make!WiLFi!the!standard!for!wireless!computing!with!an!expensive!marketing!campaign!and!complementors!like!Starbucks,!TLMobile,!airports!profited!by!jumping!on!the!WiLFi!bandwagon)!

o Articulate!a!compelling!vision!in!which!all!players!benefit!!o Apple's!Steve!Jobs!wanted!major!music!companies!to!sell!tracks!to!iPod!users!through!its!online!

music!store,!iTunes.!Burned!by!illegal!fileL!sharing!services,!most!musicLindustry!executives!resisted.!But!Jobs's!passionate!vision!persuaded!them!to!get!on!board:!he!convinced!them!that!Apple's!technology!would!discourage!users!from!sharing!downloads,!and!that!its!service!and!marketing!prowess!would!create!a!smash!hit.!

♦ Combining(Hard(and(Soft(Power(o When!Apple!opened!its!iTunes!store,!it!relied!primarily!on!soft!power!(convincing!music!company!to!

make!their!libraries!available!and!reduce!their!risk!by!offering!safeguards!against!piracy)!but!at!the!moment!of!contracts’!renewal!Apple!turned!to!hard!power!(music!companies!wanted!iTunes!to!increase!the!price!per!track!so!they!could!boost!profits!but!iTunes,!that!commanded!80!%!of!the!


lOMoARcPSD|2751981

www.andreadd.it

market!for!legal!downloads,!kept!the!low!price,!knowing!it!was!the!only!way!to!sell!more!iPods!and!maintain!Apple’s!margins)!

!5. Understanding(the(arena:(entries(and(exits(

(Once!I’ve!the!general!picture!and!I’ve!defined!customers,!competitors!(direct!and!broadened),!suppliers!(maybe!also!complementors),!I!have!to!come!back!to!the!direct!competitors!and!ask!me!if!there!are!walls!that!protect!the!company!from!external!entries!or!internal!exits!(understanding!the!arena).!!Generally,!if!the!company!is!losing!money,!it!will!exit!from!the!market,!if!a!company!is!making!a!lot!of!money!inside!the!market,!some!other!competitors!will!try!to!enter!in!until!the!balance!is!reached!again.!Entry!in!or!exit!from!a!business!arena!is!not!easy!because!every!business!is!protected!by!barriers!that!makes!the!entry/exit!a!costly!decision!for!companies.!!

# The!higher!are!the!barriers!to!entry,!the!more!profitable!is!the!business!arena!for!those!company!that!are!already!in!(they!can!save!profit),!as!they!have!less!to!fear!from!new!external!competitors!(Uber!with!driver!licenses!and!Airbnb!in!the!hosting!area!found!a!barrier!and!decided!to!overcome!it).!Entry!barriers!are:!

o Economies!of!scale!and!capital!requirements!(the!higher!is!those!two,!the!strongest!are!the!barriers!to!entry.!Typical!of!assets!intensive!industries!as!car!industry)!

o Brand!identity!and!switching!costs!(they!are!related!to!customer!relationship,!tangible!and!intangible!effect)!!

o Access!to!distribution!channel!o Cost!advantages!independent!of!size!(proprietary!product!technology,!favourable!access!to!raw!

material,!favourable!location,!learning!curve,!government!subsidies.!EX)!De!Beers!that!owns!85!%!of!mines!of!diamonds!in!Africa!has!an!absolute!cost!advantage!against!competitors:!anyone!who!wants!to!enter!have!to!buy!diamonds!from!this!company)!

o Legislation!or!government!actions!o Incumbent’s!expected!reactions!(price!war!between!Ryanair!and!other!big!airplane!companies!when!

Ryanair!decided!to!manage!the!DublinLLondon!route,!that!means!significant!losses!for!Ryanair.!Other!companies!tried!to!strangle!Ryanair!in!order!to!avoid!its!entry!into!the!business!area!and!discourage!other!potential!entrants)!!

# The!higher!are!the!barriers!to!exit,!the!less!profitable!is!the!business!arena,!as!competitors!might!stay!in!even!if!they!are!not!making!profit,!so!it!means!saving!the!situation!of!companies!that!are!losing!money!(you!can!exit!and!turn!all!the!resources!back!in!cash,!but!there!is!a!problem!according!to!the!fact!that!you!have!to!find!someone!who!will!buy!your!plant,!and!you!have!to!pay!penalties!to!your!employees,!managers!and!suppliers.!At!the!same!time,!you!will!have!cash!in!hand!to!reinvest!it)!

o Specialized!assets!o Fixed!costs!of!exit!(labour!agreements)!o Strategic!interrelationship!between!one!business!and!other!parts!of!a!company’s!operation!(shared!

facilities!and!access!to!financial!market)!o Emotional!barriers!(loyalty!to!employees,!career!concerns)!o Government!and!social!restrictions!

!# Maximum!barriers!in!the!monopolistic!situation,!where!all!the!profit!is!for!you!

!SUMMARY(

!In!summary!the!goal!of!external!analysis!is!to!asses!the!attractiveness!(profit!potential)!of!a!given!business!arena.!Attractiveness!is!inversely!proportional!to!the!level!of!competition!of!the!competitive!environment,!including!the!general!environment,!the!customers!and!the!suppliers!who!are!competing!with!the!companies!for!the!value!created!in!the!business!arena.!!

! The)higher)is)the)attractiveness)the)higher)is)the)chance)for)companies)operating)that)area)to)make)bigger)profit)

)


lOMoARcPSD|2751981

www.andreadd.it

! McKinsey!provides!a!picture!about!the!profit!potential!and!the!distribution!of!the!US!industries!(in!term!of!knowledge,!labour!and!capital!intensity),!measuring!the!profitability!as!average!profit!margin!(NOPLAT!=!Net!Operating!Profit!Less!Adjusted!taxes!=!EBIT!L!taxes)!and!profit!spread!margin!(a!measure!of!dispersion!from!the!mean!value,!in!term!of!percentage!points)!!

!!!!!!!!!!!!!!!!

To!summarize!the!analysis,!it’s!useful!to!recall!some!tools!for!each!segment!to!have!a!dashboard!(one!page!summarizing!context!strengths,!competition!and!stuff)!and!then!start!to!think!at!a!strategic!plan:!!

♦ STEEP!analysis!o Provide!a!picture!for!general!context!

!♦ Porter’s(5(Forces(Scorecard(

o New!entrants!o Buyers!o Suppliers!o Substitutes!o Existing!competitors!(affected!by!other!4!forces)!

!The!impact!of!the!Porter’s!forces!can!be!evaluated!with!a!specific!scorecard,!which!reports!the!actual!situation!of!the!market!and!the!expected!situation!for!the!following!years,!referring!to!STEEP!analysis.!This!model!always!refers!to!a!segment!or!a!specific!business!area!(less!segment!you!have,!less!time!you!spend)!and!it!is!a!qualitativeLbased!analysis!(highLlow!level!of!impact).!These!results!combined!together!with!Key!Success!Factors!provide!all!the!elements!to!describe!the!competition,!customers’!will!etc…!


lOMoARcPSD|2751981

www.andreadd.it

!♦ Key(Success(Factors!(KSFs)(

!They!are!the!key!elements!to!take!into!account!to!make!decisions!(critical!success!factor).!They!mean!to!put!into!short!sentences!the!main!idea!of!your!analysis!(prerequisites!for!success):!

(A!KSF!can!be:!!

− A!specific!skill!or!talent!− A!competitive!capability!− Something!a!company!must!do!to!satisfy!customers!

And!it!consists!of!the!3K5!really!major!determinants!of!financial!competitive!success!in!an!industry.!!EX)!

!(The!picture!obtained!by!the!analysis!(the!industry!profitability)!changes!in!time!as!a!result!of!several!events!as:!

• The!industry!reaches!maturity,!its!growth!rate!declines,!resulting!in!intensified!rivalry!and!declining!profits!• Acquisition!can!introduce!a!very!different!player!to!the!industry!• Technological(innovation!can!create!new!sources!of!advantage!and!reduce!or!eliminate!the!previous!ones!

For!these!reasons,!the!analysis!should!be!done!at!least!every!year,!in!order!to!check!all!the!variables!which!are!impacting!on!the!market!and!the!competition.!!


lOMoARcPSD|2751981

www.andreadd.it

INTERNAL(ANALYSIS(

With%the%internal%analysis%we%look%inside%the%company,%referring%to%a%certain%segment,%to%define%its%strengths%and%weaknesses.%Once%defined%a%specific%business%unit%to%be%analysed,%studying%the%internal%environment%of%a%company%means%understanding:%

• the(sources(of(competitive(advantage,%using%a%short%term%perspective%that%provides%an%analysis%of%the%main%factors%that%makes%a%business%unit%unique%and%better%than%the%others%today;%

• the(role(of(resources(and(competences,(using%a%long%term%perspective%that%defines%what%makes%a%business%unit%unique%in%the%future,%that%could%be%the%ability%to%innovate,%the%strength%of%the%brand%and%the%managers,%the%future%situation%of%the%related%industry%and%many%other%points%of%advantage.%

THE(SOURCES(OF(COMPETITIVE(ADVANTAGE(

We%talk%about%competitive(advantage%of%a%company%when%it%competes%with%one%or%more%companies,%within%the%same%market%and%it%earns%(or%has%the%potential%to%earn)%a%persistently%higher%rate%of%profit%than%the%other%companies.%Moreover,%we%can%say%that%a%company%has%a%competitive%advantage%on%its%competitors%when%it%has%some%features%that%create%more%profit.%%

PROFIT=P*Q%–%(CV*Q%+%CF)%

The%profit%of%a%company%increases%when%it%is%able%to%sell%high%quantities%of%products%(↑Q)%at%a%high%price%(↑P),%when%it%has%a%flexible%structure%that%means%low%variable%costs%(↓CV)%and%when%it%has%low%fixed%costs%(↓CF).%To%improve%these%profit’s%aspects%we%can%refer%not%only%to%the%internal%analysis,%but%also%to%the%external%analysis,%because%there%are%some%companies%that%could%read%the%external%context%better%than%others%and%so%they%could%obtain%a%competitive%advantage%leveraging%on%external%aspects%rather%than%its%internals%ones.%

We%can%say%that%the%competitive%advantage%can%emerge%from:%

• external(sources(of(change,%like%changing%customer%demand,%prices%or%technology.%These%sources%come%from%the%external%analysis%that%gives%as%a%result%some%market’s%trends,%but%this%information%is%never%enough%to%create%a%real%competitive%advantage,%so%we%always%need%to%add%something%different%from%the%internal%analysis.%The%external%sources%can%be:(! Differential%impact%of%the%heterogeneous%resources%among%companies;(! Fast%and%effectiveness%of%the%changes%in%some%companies%rather%than%the%others(

(• Internal(sources(of(change,%like%creativity%and%innovative%capability%of%companies.(

EX)(Zara:(it%is%a%company%that%produces%affordable%clothes%with%unique%stuffs,%it%is%placed%in%good%locations%and%it%is%able%to%change%very%fast.%This%company%read%the%external%context%thanks%to%a%good%external%analysis%and%shaped%itself%for%a%certain%segment%in%order%to%exploit%all%the%opportunities.%The%external%sources%used%by%this%company%create%a%risky%competitive%advantage,%because%all%its%competitors%can%read%the%context%in%the%same%way%and%so%they%could%behave%alike%or%even%better,%removing%the%competitive%advantage.%

EX)%Apple:(it%is%a%company%that%exploit%all%its%internal%sources%to%create%something%new,%like%they%did%with%the%launch%of%the%iPod%in%2001%or%with%the%creation%of%the%name%of%their%products%that%comes%from%Steve%Jobs%(iCEO).%

%There%are%different%types%of%competitive%advantage:%

" COST(ADVANTAGE,%when%a%company%acts%better%with%costs;%" DIFFERENTIATION(ADVANTAGE,%when%a%company%acts%better%with%price%and%quantity.%

Cost(advantage(

First%of%all%we%have%to%define%what%specific%business%unit%we%want%to%study%and%list%all%its%competitors,%in%order%to%run%a(COST(ANALYSIS.%It%is%made%up%of%three%phases:%

%

%


lOMoARcPSD|2751981

www.andreadd.it

1. Identification(of(the(“relevant”(cost(activities(according(to(three(criteria:(%1.1. Size(and(growth(of(the(cost(represented(by(the(activity:%once%we%have%divided%all%the%activities%of%a%

company%and%found%the%relevant%ones,%we%define%the%cost%to%run%them%and%we%choose%the%ones%that%make%the%most%of%the%total%cost%of%the%company,%thanks%to%the%Pareto(Analysis.%This%analysis%considers%all%the%activities%from%the%most%expensive%to%the%cheapest%and%only%the%relevant%ones%(differentiate%analysis%of%costs)%because%running%the%analysis%is%costly%in%term%of%time%and%source%(if%we%consider%100%activities%for%only%one%segment%it%takes%one%year%to%run%the%analysis%and%all%the%hypothesis%defined%at%the%beginning%could%have%changed,%so%it%doesn’t%make%sense).%This%analysis%is%a%GIGO%analysis%that%follows%3%main%rules:%%1. The%activities%should%be%quite%homogeneous%in%their%definition%(ex.%undetailed%or%concentrate%activities;%2. We%should%check%if%the%aggregation%of%activities%considered%is%right%in%a%certain%period%of%time%(3%years);%3. We%should%keep%the%balance%between%the%internal%details%of%the%aggregation%with%the%external%

information.%%%%

%%%%%%%%%%%EX)%Macy’s%list%of%activities:%%1.%Purchasing%2.%Inventory%management%at%a%store%level%3.%Inventory%management%at%a%regional%level%%4.%Inventory%management%at%a%national%level%5.%Basic%store%management%(services)%6.%Sales%store%management%7.%Security%store%management%8.%Logistics%9.%Infrastructures%(cost%of%stores%and%their%maintenance)%10.%Marketing%%11.%Human%resources%(HR)%→%they%are%not%a%relevant%cost%activity%because%they%are%spread%in%the%%%%%%%%%%%%%%%%other%costs%of%the%list.%%%We%consider%the%first%activity:%purchasing.%The%purchasing%department%is%composed%by%20%people%and%1%office%that%require%1mln%€%to%run%the%company%and%the%cost%to%purchase%the%goods%is%equal%to%1%bn%€.%To%run%a%Pareto%Analysis,%we%should%keep%in%mind%that%we%are%considering%a%specific%segment%of%the%company,%so%we%should%consider%only%the%amount%of%costs%related%to%it.%(1%mn%€%→%0.5%mn%€%and%1%bn%€%→%0.7%bn%€).%%%

1.2. Cost(behaviour(of(the(activity:(we%analyse%the%behaviour%of%the%cost%of%each%activity,%defining%fixed%or%variable%costs%and%external%or%internal%costs.%The%internal%costs%are%related%to%the%activities%directly%controlled%by%the%company,%while%the%external%costs%are%related%to%the%activities%that%are%beyond%the%boundaries%of%the%company.%Each%activity%is%characterized%by%a%certain%%%that%defines%how%much%its%cost%is%variable%or%fixed%and%external%or%internal,%for%example%if%purchasing%is%equal%to%0.5%bln%€,%this%cost%is%90%%variable%and%99%%external,%because%the%company%buy%products%from%suppliers%and%then%put%them%in%stores.%The%better%solutions%are:((


lOMoARcPSD|2751981

www.andreadd.it

# Variable%and%internal%cost:%the%company%is%fully%controlling%the%activity;%# Fixed%and%external%cost:%the%company%can%change%something%related%to%the%activity,%but%not%the%cost%

structure%that%is%fixed%and%not%under%its%control.%%

1.3. Behaviour(of(competitors(in(performing(the(activity:(we%compare%the%behaviour%of%competitors%using%information%get%by%the%benchmark%communities.%This%behaviour%can%be:((

• Non%differential:%the%result%of%the%analysis%shows%that%the%behaviour%of%the%selected%company%is%more%or%less%the%same%than%its%competitors.%This%means%that%in%general%it%is%difficult%to%get%a%cost%advantage,%but%sometimes%some%companies%are%able%to%get%it%changing%some%non%differential%activities.%(v.%grafico%quad)%%

• Differential:%the%result%of%the%analysis%shows%that%each%company%run%the%same%activity%in%different%ways.%If%the%selected%company%is%the%best%in%running%a%relevant%activity%in%term%of%cost,%it%has%a%cost%advantage,%on%the%contrary%it%has%a%cost%disadvantage.%If%it%is%in%the%middle,%I%can’t%say%anything.%

%

2. Identification(of(the(specific(cost(drivers(for(each(activity:(once%defined%the%relevant%cost%activities%of%a%company,%we%need%to%analyse%the%reasons%of%the%specific%cost%structure%of%each%activity,%that%is%related%to%the%cost%drivers.%The%main%cost%drivers%are:((

• Economies(of(scale:(the%economy%of%scale%is%the%cost%advantage%of%a%company%that%arises%with%increased%output%of%a%product.%To%prove%if%the%economy%of%scale%is%a%relevant%cost%driver%we%need%to%set%a%graph%ordering%the%companies%on%the%basis%of%revenues/size%(€),%with%Cu%(cost%per%unit)%as%vertical%axis%and%Qi%(yearly%production%volume)%as%horizontal%axis.%There%is%an%inverse%relationship%between%the%quantity%produced%and%the%perlunit%costs.%The%economies%of%scale%affect%industry%concentration%and%its%sources%are:(

• Technical%inputloutput%relationship(• Indivisibilities(• Specialization(

%(v.%grafico%quad)((

((

(

• Economies(of(learning:(the%economy%of%learning%is%the%cost%advantage%of%a%company%that%arises%when%a%company%has%been%in%a%certain%industry%for%a%long%time,%so%it%can%run%its%activities%better%than%its%competitors.%Today%the%impact%of%economies%of%learning%is%less%than%before,%but%it%is%a%relevant%cost%driver%for%assembling%lines%of%production,%consultancy%businesses%and%businesses%schools.%The%experience%curve%shows%how%“costs%of%value%added%decline%approximately%20%to%30%percent%in%real%terms%each%time%accumulated%experience%is%doubled”.%(

The%sooner%a%company%enters%in%a%certain%industry,%the%lower%are%its%costs,%thanks%to%its%experience.%To%defend%the%position%of%advantage%obtained%with%the%economy%of%learning%a%company%should:%

%

o Hire%a%group%of%knowledged%people%that%fix%the%company’s%position%of%advantage%and%improve%the%economy%of%learning%(consultancy%businesses);%

o Purchase%the%internal%part%of%the%activities,%keeping%the%employees%inside%increasing%their%rewards;%o SPILL%OVER:%taking%outside%the%knowledge%of%company%created%over%the%time.%


lOMoARcPSD|2751981

www.andreadd.it

%

%• Degree(of(saturation(of(the(production(capacity(• Localisation:(the%localisation%is%the%cost%advantage%of%a%company%that%arises%when%it%affects%for%example%

production%costs:%manufacturing%plants%in%lowlcost%countries%means%less%costs%and%cost%of%transportation%from%the%origin%of%production%to%the%distribution%market%matters%in%the%total%costs%of%a%company.(

• Preferential(access(to(distribution(channels((• Institutional(factors((• Degree(of(vertical(integration:(the%degree%of%vertical%integration%is%the%cost%advantage%of%a%company%that%

arises%when%a%company%is%completely%integrated,%so%the%costs%are%low.%This%cost%advantage%can%depend%upon:%(

! company’s%decisions%about%the%vertical%scope:%the%level%of%vertical%integration%desired%defines%the%primary%activities%to%be%done%inlhouse;(

! the%company’s%decisions%about%“make%or%buy”:%make%or%buy%decisions%may%generate%significant%cost%savings%but%do%not%generate%competitive%advantages.(

%%%%

3. Identification(of(opportunities(for(cost(reduction:(once%defined%the%cost%advantage,%the%economic%value%creation%leverages%the%cost%advantage,%depending%on:(

# Costs%decrease%and%price%remains%unchanged:%in%this%case%companies%decide%to%remain%in%the%same%position%as%before%in%term%of%price,%but%they%try%to%obtain%more%profit%decreasing%costs(↑Δm,%=Q).%The%positioning%of%the%company%matters.(

# Price%and%costs%decrease%together:(in%this%case%companies%decide%to%start%a%price%war%against%competitors,%selling%products%with%lower%price%(=Δm,%↑Q).%In%this%way%they%transfer%the%cost%advantage%to%customers,%selling%more%products%with%lower%price%and%getting%larger%in%term%of%size.%The%size%of%the%company%matters(

ΔCFFO%=%Δm*Q%%%%


lOMoARcPSD|2751981

www.andreadd.it

Differentiation(advantage%

Differentiation%for%a%company%means%characterizing%its%products%through%attributes%different%and%better%than%competitors%in%a%way%that%increases%customer%value.%In%other%words,%differentiation%means%positioning,%so%the%company%needs%to%define%its%position%for%each%one%of%its%segments%and%positioning%means%acting(on(customers’(perceptions.%In%fact,%customer%value%is%a%function%of%the%real%features%of%the%products%(F)%and%of%the%features%of%the%products%perceived%by%customers%(P),%so%we%can%write%the%function%of%price%as:%

P%=%f%(%F%;%P%)%

because%people%pay%for%real%and%perceived%features.%Analysing%the%differentiation%advantage%looking%only%at%real%features%means%missing%something,%because%perception%always%distorts%the%analysis%and%people%pay%not%only%for%real%features,%but%also%for%the%perceived%ones.%Sometimes%they%can%be%similar,%like%for%example%for%helicopters.%%

• B2B%market:%track%record.%Even%if%there%is%a%list%of%features%that%customers%can%check,%they%always%want%to%know%more%about%products%they%buy,%like%their%reliability%and%if%they%have%been%tested%to%be%sure%of%their%real%features;%

• B2C%market:%the%perception%is%a%key%aspect.%

In%general,%customers%compare%the%offering%of%a%company%with%the%one%of%its%competitors%in%order%to%make%a%choice,%so%they%look%at%the%value(proposition%of%the%companies,%that%affects%the%perception%of%the%customers.%To%reach%a%solid%differentiation%companies%should%keep%their%value%proposition%perceived%by%customers%alive.%The%differentiation%analysis%is%different%from%the%cost%analysis%where%all%the%information%are%available%and%we%cannot%use%a%GAP%ANALYSIS%(listing%the%features%of%a%product%and%choosing%the%best%one)%because%this%method%doesn’t%concern%a%strategy%approach.%Companies%reach%differentiation%focusing%on%their%value%proposition,%that%in%general%is%focused%on%BRAND,%because%building%a%brand%means%dealing%with%customer%perception%and%gaining%power%through%it,%so%perception%is%a%key%aspect%that%influences%the%positioning%of%a%company.%

1. First%of%all,%a%company%should%decide%the%positioning%of%its%products%according%to%customers’%perception;%2. Then,%it%should%decide%the%right%features%of%it%products%according%to%its%positioning.%

The%world’s%most%valuable%brand%corporations%are:%1.%Apple,%2.%Google,%3.%Coca%Cola%company.%

EX)%Blackberry%doesn’t%sell%only%mobile%phones,%but%also%technical%features,%security%and%a%status%(if%you%have%a%blackberry%you%are%at%the%top%management).%→%The%importance%of%the%brand.%

EX)%iPod:%iTunes%is%a%real%feature,%while%the%new%design%and%the%new%community%are%a%perceived%feature.%

EX)%Nintendo%Wii:%the%possibility%to%play%actively%and%doing%fitness%is%a%real%feature,%while%the%possibility%to%play%with%someone%else%in%the%same%place%is%a%value%proposition%of%the%company%(perceived%feature).%

In%general,%companies%can%reach%differentiation%in%different%ways,%focusing%on:%

• Brand;%• Products:%Apple%sells%well%packaged%products%with%clear%disposition.%

# Design%# Presentation%# Quality%%

• Price;%• Promotions;%• Place;%• Personal%selling;%


lOMoARcPSD|2751981

www.andreadd.it

• Customer%service:%ING%bank%has%a%fast%and%always%available%service,%better%than%its%competitors%and%this%creates%a%different%customers’%perception.%In%some%cases%there%could%be%a%gap,%because%a%certain%segment%of%customers%prefers%always%ING%rather%than%other%banks,%thanks%to%ING%value%proposition.%

• Publicity:%• Distribution%methods:%AVON%sells%products%through%people,%without%hiring%them%but%only%creating%a%solid%

network%of%people,%so%it%doesn’t%have%any%store.%People%sell%products%to%friends%with%some%discounts%and%this%creates%a%value%proposition%based%on%trust%and%friends,%thanks%to%the%closed%network.%This%is%a%unique%distribution%method%and%it%doesn’t%have%any%link%with%the%features%of%the%products.%

• Innovative%actions.%

Steps%of%differentiation:%

1. Customers%perceive%differences%(real%or%“imaginary”);%2. Customers%develop%brand%preferences;%3. The%brand%becomes%more%welllknown%and%stronger;%4. The%brand%can%use%its%“market%power”;%5. The%brand%can%command%higher%prices%(“premium%price”);%6. Product%differentiation%becomes%a%barrier%to%the%entry%of%new%competitors.%

The%only%way%to%make%differentiation%powerful%is%to%make%customers%aware%of%it,%through%marketing(investments%that%focus%on%customers’%perception.%Without%marketing%investments%companies%can’t%even%attempt%to%be%different.%

Differentiability:-is%the%distance%that%companies%can%create%between%them%and%their%competitors%and%it%a%function%of%products’%features%and%perceptions.%

B2B:%%20%%perceptions,%80%%features%

B2C:%%80%%perceptions,%20%%features%%

Strategic(product(positioning(

There%are%four%main%objectives:%

1. To%understand%which%factors%customers%use%to%evaluate%the%offerings%(value%proposition)%in%a%particular%sector/market,%starting%form%the%data%obtained%by%the%external%analysis;%

2. To%understand%the%importance%of%each%of%these%factors%in%the%customer’s%decision%process,%using%a%Pareto%Analysis;%

3. To%evaluate/understand%the%customer’s%attitude%towards%competitors’%offerings%with%relation%to%the%factors%identified;%

4. To%identify%the%spaces%available%for%a%“distinctive”%positioning.%This%means%looking%at%things/values%not%really%clear%to%customers%and%use%them%to%differentiate.%

EX)%MACY’S:%once%defined%the%target%(25l55,%women),%what%makes%the%target%buying%at%Macy’s?%%

• Brand%perception;%%• Location;%• Variety%of%products;%• Convenience.%

%

0

1

2

3

4

5

Brand%perception

Location Variety%of%products

Convenience


lOMoARcPSD|2751981

www.andreadd.it

The%most%relevant%features%are%convenience%and%variety%of%products,%so%Macy’s%has%to%focus%more%on%its%technical%features%rather%than%on%its%brand%(when%it%changed%the%name%of%all%its%department%stores%and%people%need%time%to%get%used%to%it).%

STEPS:%%

1. To%identify%which%attributes%the%customer%considers%important%for%purchase%2. To%relate%the%product/service(to%these.%To%carry%out%the%same%operation%on%the%competitors’%products/services.%

To%follow%these%steps,%we%can%use%different%tools%like:%

PERCEPTUAL(MAP:%it%is%a%graph%with%two%axis%referred%to%two%different%factors%of%differentiation%and%all%the%points%in%the%graph%represent% the%company%and% its%competitors% in%order% to%define% the%different%areas%where%companies%are%positioned.%%

%

EX)%BEER:%%key%variables%are%sweetness%and%alcohol%content.%Guinness%is%in%a%good%position%because%it%is%alone%with%no%competitors.%If%all%companies%were%concentrated%in%the%same%area%there%wold%be%no%differentiation%at%all.%

VALUE(CURVE:(it%is%a%curve%where%the%key%variables%of%the%products/services%are%considered%from%the%most%to%the%less%relevant%in%order%to%define%their%relative%positioning.%%

%

EX)%Cirque%du%Soleil:%it%follows%a%completely%different%path%from%competitors%in%order%to%differentiate%more.%%

To%choose%the%key%variables%we%should%take%into%account%the%specific%for%each%product/market,%and%they%could%be%technical,%functional,%economic,%imageldriven%in%nature.%%

%


lOMoARcPSD|2751981

www.andreadd.it

The%critical(success(factors%(CSF)%are:%

1. Addressed%to%a%specific%target;%2. Corresponding%to%a%mental%category%already%existing%in%customer’s%mind;%3. Relevant%for%that%segment’s%customers;%4. Circumscribed,%even%though%it%seems%to%make%it%limitative;%5. Simple,%clear,%univocal;%%6. Able%to%offer,%in%customers’%perception,%an%exclusive%advantage,%or%at%least%superior%if%compared%to%

competitors’;%7. Durable,%in%order%to%keep%the%positioning%safe%from%competitors%is%time;%8. Consistent%in%time,%in%order%to%avoid%confusing%consumers%of%a%certain%segment%and%to%create%a%solid%

perception.%

EX)%Illycafè%case%study,%Tesco%case%study,%Commerce%bank%case%study%

Other%sources%of%competitive%advantage%are:%delivery,%timeltolmarket%and%variety%of%products/services.%

%

Summary:(Porter’s(value(chain(((

Cost%and%differentiation%advantages%can%be%summarised%by%looking%at%their%linkages%with%the%activities%of%the%company%that%stand%behind%their%existence.%An%effective%way%of%representing%these%linkages%is%the%Porter’s(Value(Chain,%an%activity%based%representation%of%the%company%that%defines%what%are%the%activities%of%the%company%and%what%contributions%they%give%to%the%company.%It%is%not%a%real%representation%of%the%company.%

%

We%distinguish%between:%

• Primary(Activities(are%the%activities%involved%in%the%physical%creation%of%the%product%and%its%sale%and%transfer%to%the%buyer,%as%well%as%afterlsale%assistance;%


lOMoARcPSD|2751981

www.andreadd.it

• Support(Activities(support%the%primary%activities%and%each%other%by%providing%purchased%inputs,%technology,%human%resources%and%various%companyl%wide%functions.%

The%five%primary%activities(are:%

# Inbound(logistics:(these%are%activities%such%as:%receiving,%storing,%listing,%and%grouping%inputs%to%the%product.%Included%are%functions%such%as:%materials%handling,%warehousing,%inventory%management,%transportation%scheduling%and%managing%suppliers;%

# Operations:(including(machining,%packaging,%assembly,%maintenance%of%equipment,%testing,%operational%management,%etc;%

# Outbound(logistics:(they(refer%to%activities%such%as:%order%processing,%warehousing,%scheduling%transportation%and%distribution%management;%

# Marketing(and(sales:(they(are%all%activities%that%make%or%convince%buyers%to%purchase%the%company’s%products.%Included%are:%advertising,%promotion,%selling,%pricing,%channel%selection,%retail%management,%etc;%

# Service:(it(is%linked%to%maintaining%the%product%after%sale.%Service%enhances%the%product%value%and%also%allows%for%afterlsale%(commercial)%interaction%with%the%buyers.%

The%four%support%activities(are:%

" Procurement:(it(includes:%purchasing%raw%materials%and%supplies,%negotiating%contracts%with%suppliers,%etc;%" Technology(development:%it(refers%to%such%activities%as:%R&D,%product%and/or%process%improvements,%

(re)design,%developing%new%services,%etc;%" Human(resources(management:(it(includes%recruitment%and%education,%as%well%as%compensation,%employee%

retention…;%" Company’s(infrastructure:%it%refers%to:%general%management,%planning%procedures,%finance,%accounting,%public%

relations….%

Some%comments:%%

o The%nature%of%the%value%chains%and%the%relative%importance%of%the%activities%vary%by%industry;%o The%relative%importance%of%value%chain%activities%can%vary%by%a%company’s%position%in%a%broader%value%system%

which%includes%the%value%chains%of%upstream%suppliers%and%downstream%customers;%o The%value%chain%has%to%be%examined%in%relation%to%the%type%of%competitive%advantage%that%the%company%

pursues.%%There%is%a%tradeloff%between%the%cost%advantage%and%the%differentiation:%%%

% Cost%advantage%% % +% l%

Differentiation% +% Star% Tradeloff%l% Tradeloff% Emergency%plan%

! Tradeloff:%Is%it%valuable?%Am%I%ok%or%I%want%to%change?%! Star:%I%need%to%keep%pushing%in%this%activity%! Emergency%plan:%I%need%to%avoid%this%activity%because%it%affects%negatively%the%result%in%both%sides%

GUCCI’S(CASE(

THE(ROLE(OF(RESOURCES(AND(COMPETENCES(

Strategy%is%a%complex%set%of%decisions%and%it%has%one%or%more%resources%that%drives%the%differentiation%and/or%the%cost%advantage.%In%order%to%defend%the%foundations%of%the%longlterm%(defendable)%competitive%advantage,%each%company%should%find%the%CORE(RESOURCES(and(COMPETENCES%that%maintain%the%sustainability%of%its%strategy.%The%important%


lOMoARcPSD|2751981

www.andreadd.it

features%for%a%resource%to%be%strategically%important%are%defined%by%the%VRIN(model:%Valuable,%Rare,%Inimitable,%Nonlsubstitutable.%

VALUABLE:%one%resource%is%valuable%if%it%brings%a%valuable%contribution%to%the%cost%advantage%or%to%the%differentiation%of%a%firm,%so%in%general%to%its%competitive%advantage.%What%makes%a%resource%valuable%is:%

• Relevance:%the%resource%or%skill%which%is%critical%to%fulfill%a%customer’s%need%better%than%that%of%a%firm’s%competitors;%

• Scarcity:%resource%which%is%in%short%supply%or%not%easily%substituted.%%

RARE:%one%resource%is%rare%if%it%difficult%to%find%the%same%resource%on%the%market;%it%is%not%unique%but%is%close%to%be%unique.%Rare%resources%deliver%a%unique%strategy%to%provide%a%competitive%advantage%to%the%firm%as%compared%to%the%competing%firms.%Consider%the%case%where%a%resource%is%valuable%but%it%exists%in%the%competitor%firms%as%well.%Such%a%resource%is%not%rare%to%provide%competitive%advantage.%

INIMITABLE:%one%resource%is%inimitable%if%it%cannot%be%supplied%outside%the%company,%so%anyone%can’t%find%the%same%resource%outside.%Inimitable%resources%can%be%sources%of%sustained%competitive%advantage%only%if%competing%firms%cannot%obtain%them.%Consider%the%case%where%a%resource%is%valuable%and%rare%but%the%competing%organizations%can%copy%them%easily.%Such%resources%also%cannot%be%sources%of%competitive%advantage.%There%are%four%characteristics%(isolating(mechanisms)%that%make%resources%difficult%to%imitate:%

o Unique((physical)(resources(%o Path(dependent(resources((resources%which%can%not%be%instantaneously%acquired%but%rather%must%be%created%

over%time)%o Causal(ambiguity((it%is%difficult%for%competitors%to%understand%how%a%firm%has%created%the%advantage.%This%

often%occurs%when%at%the%origin%of%a%competitive%advantage%there%are%organisational%capabilities%rather%than%single%resources)%

o Economic(deterrence((the%market%size%is%not%able%to%support%two%players)%

EX)%I’m%the%only%one%company%able%to%sell%a%certain%technology,%because%I%bought%the%certification%to%sell%it%from%another%company.%This%technology%is%valuable%and%rare%(because%I’m%the%only%one%able%to%sell%it),%but%it’s%not%inimitable%because%I’m%not%the%only%owner%of%the%technology%so%I%haven’t%got%the%unique%control%over%it.%

NONlSUBSTITUTABLE:%one%resource%is%nonlsubstitutable%if%it%is%not%able%to%be%replaced%by%any%other%strategically%equivalent%valuable%resources.%If%two%resources%can%be%used%separately%to%implement%the%same%strategy%then%they%are%strategically%equivalent.%Such%resources%are%substitutable%and%so%are%not%sources%of%sustained%competitive%advantage.%On%the%contrary%when%a%resource%is%nonlsubstitutable%there%are%no%other%chances%at%a%reasonable%cost%to%get%the%same%advantage%with%something%different.%

EX)%Gucci’s%brands%and%Tom%Ford’s%design%are%a%core%resource%because%they%have%all%the%features%described%by%the%Vrin%model.%

EX)%Macy’s:%its%location%doesn’t%suit%all%the%features%of%the%Vrin%model:%it%is%valuable%because%it%affects%the%business,%it%is%inimitable%because%Macy’s%owns%the%land,%but%it%is%not%rare%because%in%its%same%area%there%are%similar%stores,%so%others%can%copy%its%location.%%

In%the%X%axis%there%is%the%strategic(importance%(relevance),%that%goes%from%1%(critical)%to%10%(crucial).%It%is%the%importance%of%the%resource%for%the%company%to%compete%in%the%industry.%In%the%Y%axis%there%are%the%relative(strengths%that%goes%from%1%to%10.%They%represent%the%level%of%control%and%ownership%of%the%resource,%exercised%by%the%company.%


lOMoARcPSD|2751981

www.andreadd.it

To%understand%better%the%sources%of%competitive%advantage,%so%for%example%why%I%make%more/less%profit%than%my%competitors%there%are%two%different%approaches:%the%“Harvard/product%based%approach”%and%the%“Resource/competence%based%approach”.%%

# Harvard/product(based(approach:%it%is%a%TOP%DOWN%approach%that%starts%its%analysis%from%the%external%analysis,%so%from%the%existing%products%and%industries%and%then%it%moves%to%the%internal%analysis%to%analyse%what%a%certain%company%is%doing%and%what%are%its%crucial%and%sustainable%activities,%competences%and%resources.%→(What%are%the%key%values%to%run%a%certain%business?(%

# Resource/competence(based(approach:%it%is%a%BOTTOM%UP%approach%that%starts%its%analysis%from%the%core%competences%and%resources%of%a%company%in%order%to%design%a%strategy%that%focuses%on%what%a%company%is%good%at%and%exploit%it%on%the%market.%%→(Once%I%know%the%core%values%of%a%company,%what%can%I%do%in%the%industry?%

Until%90s%these%two%approaches%were%put%one%against%the%other,%while%more%recently%they%are%used%together.%Today%we%use%the%last%steps%of%the%TOP%DOWN%approach%and%we%use%the%BOTTOM%UP%approach%for%doing%the%portfolio%analysis.%%

EX)%If%I%sell%clothes,%bags%and%shoes,%I%kwon%my%advantages%and%my%core%resources%(design):%TOP%DOWN.%Are%there%any%areas/industries%that%can%be%accessed%with%these%resources%and%competences?:%BOTTOM%UP.%Like%Armani%did,%creating%hotel%and%restaurants.%%

%

The%Harvard%approach%and%the%competence%approach%have%many%differences:%%

If%the%H%approach%defines%a%strategy%limited%to%certain%aspects,%the%C%approach%defines%a%strategy%well%structured%and%inspired%by%future%scenarios.%%

%

%%

%

%


lOMoARcPSD|2751981

www.andreadd.it

Moreover,%they%(H(approach%and%C%approach)%are%different%in%term%of:%

! Long(run%vs%short%run%competitiveness:%the%short%run%competitiveness%derives%from%the%price/performance%attributes%of%current%products%(i.e.%the%structure%of%the%value%chain).%The%long%run%competitiveness%derives%from%core%competencies%and%resources;%%

! Company%as%a(portfolio(of(core(competences/resources%vs%a%portfolio%of%SBU:%SBU%managers%tend%to%underinvest%in%developing%core%competencies%and%resources,%while%SBU%managers%tend%to%imprison%people%carrying%core%competencies%(Individual%SBU%are%not%able%to%catch%hybrid%business%opportunities);%%

! Creative(strategy%vs%evolutionary%strategy:%proactive%approach%to%the%external%environment%(“Reinventing%industries%and%regenerating%strategy”,%Prahalad%&%Hamel,%1994)%%

! Stretch(strategy%vs%Fit%strategy:%stretch%in%the%company’s%aspirations%in%comparison%to%available%resources%(strengths/weaknesses).%Four%guidelines:%(i)%concentrating%resources%(ii)%accumulating%resources%(iii)%complementing%resources%(iv)%recovering%resources%%

! “Subjective”%vs%“objective”%sources%of%competitive%advantage:%based%on%human%resources%and%organisational%learning%more%than%on%value%chain%structure%(e.g.%economies%of%scale)%

%EX)%3M%case%study:%they%were%the%first%company%that%put%magnetic%material%on%a%paper%surface%creating%the%first%floppy%disk.%They%needed%a%strong%and%reliable%adhesive%without%creating%any%interaction%with%the%magnetic%camp.%At%that%time,%it%was%a%critical%and%a%core%technology,%because%it%is:%

$ valuable:%3M%products%have%a%high%quality;%$ rare:%3M%was%the%first%company%to%deal%with%this%technology;%$ inimitable:%the%technology%was%owned%by%the%company;%$ nonlsubstitutable:%there%were%no%alternatives%at%that%time.%

Today%we%use%CDs%that%are%based%on%laser/optical%technologies,%so%they%are%floppy%disk%substitutes%and%easily%substitutable%nowadays.%

GENERATION(OF(STRATEGIC(ALTERNATIVES(

The%generation%of%strategic%alternative%is%focused%on%strategies%and%strategic%decisions.%To%generate%strategic%alternatives,%we%have%to:%

1. Draft%the%SWOT%%2. Generate%“generic”%strategies%3. Roadmap%our%strategy%

SWOT(analysis(%

The%SWOT%analysis%aims%to%define%the%strengths,%weaknesses,%opportunities%and%threats%of%a%company%starting%form%the%results%of%the%external%and%internal%analysis.%We%have%to%list%all%of%them%in%a%matrix,%starting%from%the%most%relevant%to%the%less%relevant.%%

%

%

%


lOMoARcPSD|2751981

www.andreadd.it

$ Strengths:(strengths%are%companies’%advantages,%so%what%a%company%is%good%at%(its%core%competences).%For%example,%Gucci’s%top%strength%is%its%design.%A%strength%could%be:((! a%specialist%marketing%expertise;(! a%new,%innovative%product%or%service;(! the%business%location;(! the%quality%of%processes%and%procedures;(! any%other%aspect%of%the%business%that%adds%value%to%the%product%or%service.(%

$ Weaknesses:%weaknesses%are%companies’%disadvantages.%A%company%without%weaknesses%doesn’t%exist.%A%weakness%could%be:%! lack%of%marketing%expertise;%! undifferentiated%product%or%service%(relative%to%competitors);%! poor%quality%of%products%or%services;%! damaged%reputation.%%

$ Opportunities(and(threats:(they%all%come%from%the%external%analysis,%like%the%context,%the%segments,%the%competitors%and%the%value%chain.%They%represent%what%are%the%main%drivers%that%increase/decrease%the%profitability.((Opportunities:%! Can%you%introduce%your%current%products%into%new%markets?(! Are%demographic%changes%taking%place%that%might%increase%demand%for%your%products?(! Can%you%license%your%technology%(or%patents)%to%other%players?%(

Threats%

! Are%new%regulations%going%to%be%introduced%that%will%lower%your%level%of%efficiency?%! Do%you%foresee%new%technologies%becoming%available%that%might%diminish%your%competitive%advantage?%

Due%to%the%fact%that%there%is%always%a%TRADElOFF%between%the%cost%advantage%and%the%differentiation,%there%are%always%strengths%and%weaknesses%for%each%company,%because%they%represent%the%the%tradeloff%that%each%company%has%to%face%in%finding%and%defining%its%own%strategy.%

Once%the%SWOT%analysis%is%done%we%check%all%the%possible%pairs,%where%S%means%what%I’m%good%at,%W%what%I’m%not%good%at,%O%what%is%driving%the%growth%of%the%market%and%T%what%are%the%threats%of%the%market.%

SlO:%there%are%2%available%options:%%

• There%is%a%match%between%S%and%O:%my%strengths%are%in%line%with%my%opportunities.%I%have%to%reinforce%and%keep%my%strengths;%

• There%is%no%match%between%S%and%O:%my%strengths%haven’t%got%any%relationship%with%my%opportunities.%I%should%avoid%keeping%these%strengths%and%changing%them%or%take%care%in%maintaining%the%same%level%on%them%(not%investing%on%it);%

SlT:%2%options:%

• There%is%a%match:%my%strengths%match%my%threats%because%they%are%against%them.%For%example,%if%my%strength%is%the%ability%to%negotiate%with%suppliers%and%my%threat%is%the%rising%power%of%suppliers,%I%should%make%contracts%more%longer%and%durable.%

• There%is%no%match:%my%strengths%can’t%defend%me%against%my%threats,%because%maybe%the%market%is%going%in%another%direction%and%my%strengths%are%not%so%relevant%ad%in%the%past.%I%should%avoid%keeping%these%strengths;%


lOMoARcPSD|2751981

www.andreadd.it

WlO:%2%options:%

• There%is%match:%my%weaknesses%are%against%my%opportunities,%so%I%should%do%something%to%eliminate%my%weaknesses%or%improve%them%investing;%

• There%is%no%match:%my%weaknesses%are%not%affecting%the%opportunities.%%%

WlT:%2%options:%

• There%is%match:%my%weaknesses%are%in%line%with%my%threats,%so%I%have%to%change%something%because%I%am%threatened%by%my%threats%and%by%market’s%threats;%

• There%is%no%match:%my%weaknesses%are%not%affecting%the%threats.%

EX)%If%one%of%my%strength%is%my%brand,%and%it%is%also%an%opportunity,%I%should%reinforce%my%brand,%taking%some%actions%like:%

$ Increasing%advertising%$ Find%testimonials%$ Reinforce%positioning%$ Create%new%needs%$ Increasing%the%introduction%of%new%products%%

These%are%some%options,%created%trough%a%brainstorming,%to%reach%the%same%goal.%

Generating(“generic”(strategies(

Strategies%are%generated%on%the%basis%of%the%SWOT%analysis%and%Porter’s%generic%strategies%are:%

• Cost(Leadership:(low%cost%position%achieved%through%aggressive%cost%reduction%and%high%market%share%(e.g.%Ryanair);(

• Differentiation:(differentiate%the%product%or%service%in%order%to%be%perceived%as%unique((e.g.%Mercedes);(

• Focus:(concentrate%on%a%particular%customer%group,%segment%of%product%line%or%geographical%market%(e.g.%GorelTex).((

COST(LEADERSHIP(strategy((

Advantages:%

# Can%frighten%off%new%entrants%due%to%their%need%to%enter%on%a%large%scale%in%order%to%be%cost%competitive.%# Can%mitigate%buyers’%power%by%driving%prices%far%below%competitors,%causing%them%to%exit%and%shifting%power%

with%buyers%back%to%the%company.%# Can%mitigate%suppliers’%power%by:%

! being%able%to%absorb%cost%increases%due%to%low%cost%position;%! being%able%to%make%very%large%purchases,%reducing%chance%of%supplier%using%power.%

# Cost%leader%is%well%positioned%to:%! make%investments%to%be%first%to%create%substitutes;%! buy%patents%developed%by%potential%substitutes;%


lOMoARcPSD|2751981

www.andreadd.it

! lower%prices%in%order%to%maintain%value%position.%# Can%use%cost%leadership%strategy%to%advantage%since%competitors%avoid%price%wars%with%cost%leaders,%creating%

higher%profits%for%the%entire%industry.%

Risks:%

# Technological%change%that%nullifies%past%investments%or%learning.%# Lowlcost%learning%by%new%players%(or%followers)%through%imitation.%# Inability%to%see%required%products%or%marketing%change%because%of%attention%placed%on%cost.%# Inflation%in%cost%that%narrows%the%price%differential.%

DIFFERENTIATION(strategy(

It%could%be%composed%by:%

" Value%provided%by%unique%features%and%value%characteristics.%" Command%premium%price.%" High%customer%service.%" Superior%quality.%" Prestige%or%exclusivity.%" Rapid%innovation.%

We%can%distinguish%between:%

" Tangible(differentiation:(it(is%concerned%with%the%observable%characteristics%of%a%product%or%service%that%are%relevant%to%the%customers%(i.e.%size,%shape,%color,%weight,%design,%material,%technology,%reliability,%consistency,%taste,%speed,%durability,%safety…)(

" Intangible(differentiation(concerns%the%social%,%emotional,%psycological%considerations%that%affect%customers’%choices%(i.e.%status,%exclusivity,%individuality,%security…).%When%a%product%or%service%is%meeting%complex%customer%needs%(e.g.%cosmetics,%medical%services%and%education)%differentiation%choices%involve%the%overall%image%of%the%company’s%offering.%%

Risks:%

" Cost%differential%with%lowlcost%competitors%becomes%too%great%undermining%brand%loyalty.%" Customers%become%more%sophisticated%and%their%need%for%the%differentiating%factor%falls.%" Imitation%narrows%perceived%differentiation.%" Makers%of%counterfeit%goods%may%attempt%to%replicate%differentiated%features%of%the%company’s%products.%

FOCUS(strategy(

The%focus%strategy%rests%on%the%premise%that%the%company%is%able%to%serve%its%narrow%strategic%target%(customer%segment,%geographic%market,%“niche”),%more%effectively%or%efficiently%than%its%competitors.%The%company%achieves%either%differentiation%from%better%meeting%the%needs%of%the%particular%target%or%lower%cost%in%serving%the%target,%or%both.%The%focus%strategy%always%involves%a%tradeloff%between%profitability%and%sales%volume.%%

Risks:%

o The%cost%differential%with%broadlrange%competitors%widens%and…%! …%it%eliminates%the%cost%advantage%of%serving%a%narrow%target;%or%! …%it%offsets%the%differentiation%achieved%by%focus.%

o The%differences%in%desired%products%(or%services)%between%the%strategic%target%and%the%market%as%a%whole%narrow.%

o Competitors%find%submarkets%within(the%strategic%target%and%out%focus%the%focuser.%


lOMoARcPSD|2751981

www.andreadd.it

Road(mapping(the(strategy(

Once%we%have%generated%all%the%strategies,%we%can%firstly%assess%them%against%two%conditions%(on%a%quality%based%approach):%

the%expected(economic(impact((in%terms%of%generated%profit/reduced%loss)% the%expected(implementation(problems((in%terms%of%organizational%changes/number%of%activities%involved/….)%

thus%creating%a%potential(roadmap.%In%this%map%we%have:%

! %Marginal%actions:%low%impact%and%low%implementation;%

! Standlby%actions:%low%impact%and%high%implementation;%

! High%priority%actions:%high%impact%and%high%implementation,%for%example%business%planning% activities;%

! Quick%win%actions:%high%impact%and%low%implementation,%they%are%the%best%to%be%addressed%at.%

%

(%

%(

(

((((

%

%(%

%%


lOMoARcPSD|2751981

www.andreadd.it

CORPORATE(STRATEGY!

To(measure(the(rate(of(return(above(the(cost(of(capital!(how!do!we!make!money?)!until!now!we!have!focused!on!the!comparative!advantage!of!each!company!(how!should!we!compete?)!using!the!business!strategy,!now!we!focus!on!the!industry!attractiveness!(which!industries!should!I!be!in?)!and!we!use!the!corporate!strategy.!The!results!reached!until!now!are!not!static,!but!every!year!the!situation!changes.!I!have!to!answer!the!following!questions:!!

! WHAT!ELSE!CAN!I!DO?!Are!there!some!businesses!outside!mine!that!I!can!be!interested!in?!(why,!how,!where,!risk)!

! SHOULD!I!STAY!WHERE!I!AM?!

and!to!do!that!I!use!the!corporate!strategy.!

The!CORPORATE(STRATEGY!tells!me!the!portfolio!of!business!units!where!I’m!in.!The!decision!to!entry!or!exit!a!specific!business!unit!has!to!deal!with!two!decisions:!

" Product(scope:!how!specialised!should!the!company!be!in!terms!of!the!range!of!product!it!supplies?!(ex.!Coca!Cola!is!specialised!while!GE!is!diversified)!

" Geographical(scope:!what!is!the!optimal!geographical!spread!of!activities!for!the!company.!

(We!want!to!enter!in!a!new!market!with!one!of!our!products?!Or!we!want!to!exit!from!an!existing!market!with!one!of!our!products?)!Remember!that!at!the!beginning!I!have!to!decide!if!I!should!start!or!quit!and!then!if!I!should!stay!or!not.!

PRODUCT(SCOPE(

Starting!from!what!I!have!(products),!there!are!three!possible!dimensions!to!enlarge!and!modify!the!product!scope:!

# CONCENTRIC(STRATEGY:(it!consists!in!introducing!new!related!products!or!more!services!in!a!BU!that!offers!something!similar.!I!enter!in!a!new!business!unit!offering!complementors!or!additional!services!to!an!existing!product,!improving!the!chances!to!get!revenues!and!more!profits!(BUNDLING).!The!bundling!effect!consists!in!increasing!profit!thanks!to!the!transaction!fee!applied!to!customers.((EX)!Ryanair:!it!doesn’t!sell!only!fly!tickets!but!also!services!for!hotels!and!cars!renting.!EX)!Tripadvisor:!it!moved!from!the!original!vision!of!advertising!(a!user!can!check!the!reviews!and!see!if!he’s!going!in!the!right!place)!to!booking!(establishing!a!relationship!between!hotel!and!restaurant)!because!it!needed!to!know!the!customers!well!to!sell!them!something!(the!users!became!customers).!!We!use!a!concentric!strategy!when:!

!!!

# HORIZONTAL(STRATEGY:(it!consists!in!introducing!new!unrelated!products!for!existing!customers,!leveraging!the!same!customers!to!sell!other!things.!We!use!the!horizontal!strategy!when:((

# CONGLOMERATE(STRATEGY:(it!consists!in!introducing!new!unrelated!products,!entering!in!new!industries!to!exploit!money!in!order!to!create!a!bigger!company.!In!general,!this!action!has!a!low!relationship!with!what!I’m!regularly!doing.!!We!use!the!conglomerate!strategy!when:(((((


lOMoARcPSD|2751981

www.andreadd.it

In!general,!we!use!these!strategies!in!different!stages!of!the!enlargement!of!the!company:!

1. I!stay!in!the!arena!with!the!concentric!strategy!2. I!use!the!horizontal!strategy!3. I!start!something!new!entering!in!a!new!industry!using!a!conglomerate!strategy.!

EX)!LVMH!uses!the!horizontal!strategy,!while!Virgin!and!Google!the!conglomerate!strategy.!!Normally!it!is!a!more!complex!picture!than!the!three!specific!dimensions,!because!company!usually!have!a!mix!of!these!types!of!strategies.!!!There!are!two!main!typologies!of!BUSINESS(PORTFOLIOS!(but!real!portfolios!are!a!mix!of!the!two!extreme!solutions):!!$ Unrelated!(conglomerate)!portfolios:!

! Advantages:!1. Risk(diversification:!it’s!the!chance!in!a!given!period!of!balancing!increasing!and!decreasing!markets,!

that!means!being!less!volatile,!because!if!a!business!is!booming!and!another!one!is!going!down!you!can!balance!the!volatility!of!the!market;!

2. Bank(effect:!it!is!a!kind!of!saving,!assessing!the!internal!rate!against!external!one.!If!you!have!two!businesses,!A!requires!50!bln!$!and!B!offers!50!bln!$!of!positive!cash,!you!should!decide!if!investing!in!business!A!providing!cash!to!the!business!that!is!burning!cash!in!a!growing!market!or!asking!to!a!bank!debt.!They!both!have!a!cost,!the!bank!has!8!%!of!interest!rate,!but!also!the!internal!investment!has!a!cost!associates!to!the!opportunity!cost!of!i.e.!5!%.!It’s!better!to!use!internal!cash!to!sustain!business!growth,!because!it!provides!a!saving!of!–!3!%!that!is!the!bank!effect.!!(EX)!CDE:!provide!water!in!France,!if!you!have!a!stable!business!(few!investment,!many!customers,!infrastructure!already!depreciated)!you!can!use!cash!to!sustain!other!growing!businesses!in!order!to!exploit!the!bank!effect;!!

3. Transfer(of(HR!(human!resources)!and!sharing(of(infrastructural(activities!(a!bit!of!synergy!among!the!infrastructure,!like!IT!services).!!

! Disadvantages:!1. Few(synergies:!it!means!that!the!most!of!the!value!chain!is!different,!because!not!sharing!

operations,!marketing!or!channels!between!the!company!makes!it!to!have!to!replicate!stuff;!2. Very(complex(organisation!and!cultural(heterogeneity;!

!$ Related!portfolios:!

! Advantages:!1. Synergies:!it’s!easy!achieving!economies!of!scale!in!distribution,!marketing,!operations,!because!of!

the!sharing!of!resources!and!the!addressing!in!similar!target!markets;!2. Sharing!and!generation!of!strong(competences!(all!the!company!is!focusing!on!something!specific!all!

across!the!portfolio)!!

! Disadvantages:!1. High(risk:!because!all!the!business!is!addressing!at!similar!products!and!markets;!2. High(managerial(complexity:!synergy!in!order!to!be!exploited!should!be!managed!with!a!complex!

governance.!!These!characteristics!should!be!checked,!because!some!companies!may!not!exploit!all!of!them!and!the!list!of!PROS!and!CONS!should!not!be!taken!for!sure.!!!EX)!GUCCI!is!a!related!portfolio!that!doesn’t!exploit!synergies!at!the!operational!level,!but!only!at!managerial!level.!


lOMoARcPSD|2751981

www.andreadd.it

!Portfolio(analysis((The!Portfolio(analysis!has!been!designed!to!help!a!company!to!make!decisions!on!market!selection!and!direction!in!an!integrated!manner!for!all!its!businesses!(and!vice!versa!a!business!can!use!portfolio!analysis!to!develop!integrated!plans!for!its!products)!!The!question!of!market!selection!and!direction!are!about!in!term!of!two!primary!factors:!

# Some!measure!of!the!market’s!attractiveness;!# Some!measure!of!the!business’s!competitive!position!within!the!market;!

!Before!considering!specific!approaches,!it!is!important!to!understand!some!general(assumptions(underlying!portfolio!analysis:!!

1. There!are!certain!key!characteristics!on!which!products!and!markets!can!be!meaningfully!compared!(e.g.!market!share).!

2. These!key!characteristics!are!systematically!related!to!performance!measures!such!as!profitability!and!cash!flow.!

3. It!is!necessary!to!invest!in!a!product!to!achieve!these!desirable!characteristics.!4. Companies!are!limited!in!the!amount!they!can!invest,!because!both!financial!and!managerial!resources!are!

limited.!5. The!portfolio!can!be!internally!crosscsubsidized.!Products!receiving!investment!resources!today!will!

eventually!yield!surplus!resources!to!subsidize!other!products!in!turn.!(UNRELATED(PORTFOLIOS(!If!you!want!to!create!a!conglomerate!portfolio!you!need!both!growing'businesses!(that!are!burning!cash)!and!mature'businesses!(that!are!stable!and!generating!cash,!that!can!sustain!growing!businesses!in!order!to!achieve!risk!differentiation!and!exploit!bank!effect).!You!should!also!need!a!profitable'business!with!profit!potential.!The!conglomerate!portfolio!is!also!related!to:!

# RISK!DIVERSIFICATION!# BANK!EFFECT!!

!We!use!the!BCG(matrix((growthcshare!matrix)!that!describes!products!in!terms!of!two!factors!that!are!market!growth!rate!(measured!as!the!percentage!of!total!revenues!year!over!year)!and!relative!market!share:!!

!"# = % &'()*+%,ℎ'(*%./%&0%1.&2'30&'()*+%,ℎ'(*%./%+ℎ*%,+(.34*,+%1.&2*+5+.(!

!!The!relative!market!share!(RMS)!is!the!easiest!tool!to!measure!the!potential'profit!of!a!company!in!a!business!(if!you!are!the!leader,!with!RMS!>!1,!you!can!have!more!sales,!exploiting!economies!of!scales!gaining!cost!advantages,!but!also!make!profit!because!of!your!attractiveness).!!


lOMoARcPSD|2751981

www.andreadd.it

Positions!in!the!product!portfolio!chart!typically!correspond!to!a!business’s!cash!flow!characteristics.!Remember!that!a!low'growth'market!is!a!stable!market!(maturity!phase)!where!you!can!save!money!(a!part!from!the!amount!for!D&A!of!infrastructure),!while!a!high'growth'market!is!an!emerging!market!that!needs!investment!and!cash!to!increase!the!size!of!assets.!There!are!four!quadrants:!!!

# Stars:!high!growth,!high!share!products!which!may!or!may!not!be!self!sufficient!in!cash!flows;!

# Cash!Cows:!products!with!high!market!share!and!slow!growth,!which!generate!large!amount!of!cash;!

# Question!marks:!products!with!high!growth!and!low!share,!which!require!large!amounts!of!cash!to!maintain!market!share!and!larger!amounts!to!gain!share;!

# Dogs:!products!with!low!market!share!and!low!growth,!which!can’t!generate!and!require!significant!amount!of!cash,!maintaining!share!usually!requires!the!reinvestment!of!any!profits!and!also!additional!capital.!They!are!called!cash'traps.!

!The!justification!for!thinking!of!business!in!terms!of!the!growthcshare!matrix!rests!on!four(general(principles:!!

1. Both!margins!and!cash!generations!tend!to!increase!with!increasing!relative!market!share.!Experience!curve!and!scale!effects!link!high!margins!with!high!relative!market!share.!

2. Product!sales!growth!requires!cash!to!finance!added!capacity,!working!capital,!etc.!Thus!cash!input!is!needed!to!maintain!share!of!a!growing!market.!

3. An!increase!in!market!share!requires!cash!to!finance!increased!advertising!expenditures,!additional!plant!etc.!4. Growth!in!each!market!will!ultimately!slow!as!the!product!approaches!maturity.!Cash!generated!as!growth!

slows!must!be!reinvested!in!other!products!that!are!still!growing.!!

You!start!from!the!question!marks,!then!move!to!the!stars!and!finish!to!the!cash!cows,!and!after!the!stabilisation!of!a!market,!you!have!to!reinvest!the!cash!in!new!question!marks!(new!business!opportunity)!and!continue!the!cycle!(to!grow!your!business).!The!best!pair!of!products!in!a!portfolio!of!products!are!are!stars!and!cash!cows,!which!can!provide!fresh!cash!and!exploit!it!with!the!bank!effect.!Recommended!strategies:!

Stars:!hold!or!build!share! Cash!cows:!“milk”! Question!marks:!build!share!or!divest! Dogs:!harvest!or!divest!

!All!products!eventually!become!either!cashccows!or!dogs.!The!value!of!a!product!is!completely!dependent!upon!obtaining!a!leading!share!of!its!market!before!the!growth!slows.!The!balanced!portfolio!has:!! stars(whose!high!shares!and!high!growth!assure!the!future;!! cashRcows(that!supply!funds!for!that!future!growth;!! question(marks(to!be!converted!into!stars.!

Dogs!need!dedicated!strategies.!!In!a!segment!there!is!only!one!star!and!one!cash!cows!and!many!dogs!and!question!marks,!close!to!them.!!!Generally,!the!main!objective!of!a!company!is!to!find!sources!of!growth!and!to!make!profits!in!order!to!become!a!leader.!If!a!company!is!the!leader,!it!has!to!maintain!his!positioning!stable,!if!it!is!not!a!leader:!

• If!the!market!is!growing,!it!has!to!do!a!lot!of!investments!to!improve!its!position;!• If!the!market!is!not!growing,!it!has!to!exit!the!market.!


lOMoARcPSD|2751981

www.andreadd.it

The!idea!behind!the!matrix!is!that!you!search!for!a!conglomerate!portfolio,!so!it’s!a!GIGO!tool!that!doesn’t!tell!me!what!I!have!to!do,!but!gives!me!advice!for!my!positioning!(I!have!all!the!question!marks,!how!to!transform!them!in!a!star!or!how!to!buy!a!star!already!on!the!market!or!how!to!search!another!segment?).!The!matrix!helps!me!to!ask!the!question!“Should!I!stay?”!(If!it’s!a!dog!product!the!best!thing!to!do!is!selling!it!to!competitors.!They!buy!dogs,!because!they!can’t!buy!stars!and!in!this!way!they!increase!their!RMS!and!move!dogs!back!to!cash!cows).!!EX)!NOKIA:!it!was!a!star!business!that!became!a!dog!without!even!passing!through!cash!cow!and!every!year!it!becomes!more!and!more!dog.!!!=>!we!have!firstly!to!ask!ourselves!what!we!are!searching!for,!because!if!we!are!looking!for!synergies!and!for!related!portfolios,!we!have!to!use!another!matrix!(different!tools).!

CORRELATED(PORTFOLIOS!

If!you!want!to!create!a!conglomerate!portfolio!means!that!you!want!to!create!synergies!along!the!value!chain,!both!upstream!and!downstream!(in!production,!R&D,!purchasing,!marketing,!ecc)!

We!use!the!GE/McKinsey(matrix(that!was!developed!in!1971!by!McKinsey!at!the!request!of!GE.!It!uses!two!dimensions:!market!segment!attractiveness!and!business!strength.!These!measures!are!more!complex!than!those!of!the!BCG!matrix,!because!they!are!both!built!up!from!a!large!number!of!variables!mixed!together.!The!market!segment!attractiveness!is!based!on!variables!taken!from!the!external!analysis!while!the!business!strength!is!based!on!variables!taken!from!the!internal!analysis.!!

(

We!use!also!a!scorecard'to!systematically!weight!those!variables!to!define!the!most!relevant!ones.!For!each!variable!we!take!into!account!a!weight!factor!and!a!score!from!1!to!10!in!order!to!find!the!final!score!(1c3c5c7)!to!determine!the!partition!of!the!two!measures:!!

• LOW:!1!to!3!• MEDIUM:!3!to!5!• HIGH:!5!to!7!(max)!!

Each!business!(or!product)!is!classified!into!one!of!nine!cells!in!a!3!x!3!matrix!and!like!the!BCG!matrix,!this!approach!aims%to%compare%investment%opportunities.!The!difference!in!the!GE/McKinsey!matrix!is!that:!

" multiple!measures!are!used!to!assess!market!attractiveness!and!competitive!position;!" it!is!more!precise!(advantage):!in!term!of!market!attractiveness!and!competitive!strengths!that!comes!from!a!

wide!mix!of!different!variables.!The!market!growth!and!the!relative!market!share!are!not!enough!to!describe!exactly!the!business/product;!

" it!is!more!subjective!(disadvantage):!the!BCG!matrix!is!more!rational!because!it!uses!as!measure!MG!and!RMS!that!are!numbers,!while!in!this!case!this!matrix!refers!to!scores!defined!by!subjects!and!their!perceptions.!


lOMoARcPSD|2751981

www.andreadd.it

!

The!McKinsey!matrix!aims!at!defining!a!more!precise!positioning!for!the!company!and!the!main!areas!are:!

$ Investing/growing(area:!in!this!case!I!should!invest!in!these!industries.!$ Keeping(area((selectivity/earnings):!in!this!case!if!I’m!in!this!area!I!should!stay!in!my!business,!but!if!I’m!not!

in!there!are!no!reasons!to!invest!in!this!business.!$ Harvest/divest(area:!in!this!case!I!have!to!exit!from!these!businesses.!It!depends!on!the!positioning!if!

harvest!or!divest:!! Harvest:!you!should!wait!for!the!death!of!the!business!until!it’s!ready!to!divest.!! Divest:!you!should!exit!immediately!from!this!business.!

In!the!top!left!area,!the!business!is!strong!and!attractive,!that!means!a!lot!of!profit!and!a!strong!positioning.!If!you!invest!in!this!area,!your!investment!will!be!immediately!strong!and!attractive!as!your!actual!business,!thanks!to!the!strong!synergies!with!the!existing!position.!

EX)!If!Gucci!chooses!to!start!a!new!segment!of!shoes,!it!will!easily!become!strong!as!the!company!itself!thanks!to!the!optimal!position!of!the!company.!

Cash!cows????!

Question!marks???!

!


lOMoARcPSD|2751981

www.andreadd.it

1. Premium(Invest(/(Grow.(These!businesses!are!a!target!for!investment,!they!have!strong!business!strengths,!are!in!attractive!markets!and!they!should!therefore!have!high!returns!on!investment!and!competitive!advantage.!They!should!receive!financial!and!managerial!support!to!maintain!their!strong!position!and!to!continue!contributing!to!longcterm!profitability.!

2. Selective(Invest(/(Grow.!Businesses!in!this!box!have!good!business!strength!in!an!industry!that!is!losing!its!attractiveness.!They!should!be!supported!if!necessary!but!they!may!be!selfcsupporting!in!cash!flow!terms.!

3. Challenge(Invest(/(Grow.(Businesses!here!are!in!very!attractive!industries!but!have!average!business!strength.!They!should!be!invested!in!to!improve!their!longcterm!competitive!position.!

4. Protective(Selectivity(/(Earnings.!Strong!businesses!in!unattractive!markets!should!be!net!cash!generators!and!could!provide!funds!for!use!throughout!the!rest!of!the!portfolio.!Investment!should!be!aimed!at!keeping!these!businesses!in!a!dominant!position!of!strength!but!overcinvestment!can!be!disastrous!especially!in!a!mature!market.!

5. Prime(Selectivity(/(Earnings.(Businesses!with!average!business!strengths!and!in!average!industries!can!improve!their!positions!by!creative!segmentation!to!create!profitable!segments!and!by!selective!investment!to!support!the!segmentation!strategy.!The!business!needs!to!create!superior!returns!by!concentrating!on!building!segment!to!differentiate!themselves.!

6. Opportunistic(Selectivity(/(Earnings.(These!businesses!are!in!very!attractive!markets!but!their!business!strength!is!weak.!Investment!must!be!aimed!at!improving!the!business!strengths.!These!businesses!will!probably!have!to!be!funded!by!other!businesses!in!the!group!as!they!are!not!selfcfunding.!Only!businesses!that!can!improve!their!strengths!should!be!retained!if!not!they!should!be!divested.!

7. Restructured(Harvest(/(Divest.(They!have!average!business!strengths!in!an!unattractive!market!and!the!strategy!should!be!to!harvest!the!business!in!a!controlled!way!to!prevent!a!defeat!or!the!business!could!be!used!to!upset!a!competitor.!

8. Opportunistic(Harvest(/(Divest.!Businesses!with!weak!business!strengths!in!moderately!attractive!industries!are!candidates!for!a!controlled!exit!or!divestment.!Attempts!to!gain!market!share!by!increasing!business!strengths!could!prove!to!be!very!expensive!and!must!be!done!with!caution!

9. Harvest(/(Divest.!These!businesses!have!neither!strengths!nor!an!attractive!industry!and!should!be!exited.!Investments!made!should!only!be!done!to!fund!the!exit.!

Finally,!it!is!not!a!matter!of!what!is!the!better!matrix!to!use,!because!it!depends!for!what!purpose!we!use!it.!If!we!spot!the!same!industrial!segment!with!these!two!matrixes!we!obtain!different!results.!Generally!speaking,!there!are!periods!in!which!conglomerate!portfolios!are!considered!better!than!the!correlated!ones!and!the!contrary.!But!the!real!and!better!portfolio!is!the!mix!of!these!two!different!types,!because!it!depends!on!the!complex!purposes!of!the!companies.!

# In!an!economic(downturn!correlated'businesses!are!better!perceived,!because!their!synergies!help!keeping!under!control!costs!and!profits.!In!this!way!companies!have!more!chances!to!get!profit!in!comparison!with!specialised!competitors!or!a!mix!of!them!(conglomerated!businesses),!because!they!can!use!1!plant!for!more!than!1!process,!sharing!operations!and!production!processes.!If!I!want!to!differentiate!my!business,!as!an!investor,!I!can!buy!shares!in!other!correlated!businesses.!

# In!a!strong(economic(growth(conglomerated'businesses'are!better!perceived.!If!there!are!many!growing!businesses,!if!a!company!tries!to!expand!its!portfolio!buying!other!growing!business!and!becoming!a!conglomerate!business,!can!reach!a!higher!growth!and!as!a!consequence!it!can!provide!more!profit!to!its!shareholders.!

In!reality,!these!two!situations!are!cyclical!so!real!companies!are!a!mix!of!these!two!types!in!order!to!be!flexible.!

GEOGRAPHICAL(SCOPE((

Starting!from!the!actual!geographical!area!of!a!company,!we!can!define!the!optimal!geographical!spread!of!the!activities!only!according!to!the!TRANFERABILITY!of!the!advantages!of!the!company!in!other!markets.!The!international'expansion!of!a!company!is!determined!by:!


lOMoARcPSD|2751981

www.andreadd.it

% Expansion(of(the(business!when:!! Internal!markets!are!saturated;!! Internal!markets!are!too!small.!

% Access(to(resources(and(production(input,!like:!! Tyres!manufacturers!that!have!directly!managed!rubber!plants;!! Oil!companies!that!have!expanded!to!Canada!and!Venezuela!in!order!to!exploit!oil!deposits;!! Aluminium!producers!who!have!ensured!the!access!to!bauxite!deposits!through!international!expansion.!

% Business(portfolio(balancing!(balancing!risk),!in!order!to!find!growing!segments!outside!my!business!market,!like:!! Create!mediumclong!term!stability!and!growth,!given!that!the!same!product!can!be!at!different!stages!of!

its!lifecycle!in!different!countries.!! Balance!risks!related!to!economic/technological/sociocpolitical!cycles!in!different!countries.!

% Search(for(efficiency:!! Economies'of'scale:!extending!its!market!beyond!national!boundaries,!a!firm!is!able!to!increase!the!

production!scale!and!reduce!the!average!unit!production!cost;!! Economies'of'scope,!i.e.!efficiency!benefits!arising!from!the!sharing!of!some!resources!in!multiple!

markets!(typically!transportation!and!distribution!network);!! Efficiency'in'resources'purchasing.!

% Market(expansion,!thanks!to:!! Homogeneity!and!globalization!of!customers’!preferences!! Global!presence!of!customers!! Global!presence!of!distribution!channels!!!! Transferability!of!marketing!campaigns!

% Technological(innovation:!that!means!access!to!critical'technological'skills'for!innovating!and!sustaining!its!competitive!advantage.!Example:!firms!in!the!Silicon!Valley!in!order!to!exploit!the!expertise!on!semiconductors.!

% Benefits(of(positioning:!accepting!lower!levels!of!profitability!in!certain!geographic!areas,!against!higher!profitability!in!other!countries.!Example:!Samsung!has!been!able!to!enter!into!the!US!market!(which!is!strategically!important!for!the!company!image!and!access!to!external!expertise),!although!with!low!profits,!thanks!to!the!highest!profitability!obtained!in!Asia!and!South!America.!

EX)!Photovoltaic!company!in!Italy:!what!can!be!transferable!to!Germany?!Raw!materials,!plants,!technology!about!installation!can!be!easily!transferred,!while!logistics!and!the!distribution!channel!cannot!be!transferred.!

EX)!The!communication!services!(Vodafone):!they!lease!an!infrastructure!and!they!sell!the!same!service!to!the!final!customer!in!all!countries.!!

Internationalisation!usually!means!more!competition!and!lower!industry!profitability:!

# Entry!barriers!have!substantially!fallen!(tariff!reduction,!cost!of!transportation,!removal!of!exchange!controls,!internationalisation!of!standards,!convergence!of!customer!preferences);!

# Rivalry!among!existing!firms!increases!as!internationalisation!lowers!seller!concentration,!increses!competitor!diversity,!and!increases!excess!capacity;!

# Bargaining!power!of!buyers!increases!as!large!customers!can!exercise!their!buying!power!far!more.!

If!most!of!what!a!company!is!able!to!do!is!transferable!to!other!countries,!the!transferability!is!quite!easy.!To!assess!the!transferability!of!a!company!(the!transferability!is!an!issue!or!not?)!we!should!refer!to!the!traditional(strategicRorganizational(models!(of!a!firm!that!operates!on!a!global!scale).!Different!configurations!in!terms!of!the!location!of!production!facilities!and!assets!and!overall!strategic!guidance!are!related!to!these!models!and!they!are!three:!

Multinational!model! Global!model! International!model!

The!difference!between!them!is!the!transferability!of!advantages.!The!two!extremes!on!the!matrix!are!Global!and!International.!The!two!axis!of!the!matrix!are:!!


lOMoARcPSD|2751981

www.andreadd.it

• level!of!integration,!that!is!the!amount!of!activities!along!the!value!chain!that!can!be!shared!among!different!geographical!markets.!If!it!is!high,!global!operations!are!possible,!if!it!is!low!you!cannot!share!activities!at!local!level.!

• level!of!local!responsiveness,!that!is!the!amount!of!adaptation!you!need!to!provide!to!your!product!or!service!to!make!it!fit!with!the!local!demand.!If!it!is!high!I!need!to!change!significantly!the!product!characteristics,!for!reaching!the!customers!in!different!markets.!

EX)!Starbuck’s!entering!in!new!geographical!markets!(ITA).!The!level'of'local'responsiveness!(level!of!adaptation!of!the!product)!is!quite!low!due!to!the!same!characteristics!(processes,!products,!location,!services),!while!it!is!high!for!Nestlé!that!focuses!on!different!tastes!for!the!same!product!in!different!countries,!adapting!services!at!a!local!level.!If!you!check!the!same!product!in!2!different!countries:!if!it!is!the!same!the!level!of!local!responsiveness!is!close!to!zero,!if!it!is!different!it!is!high.!

Characteristics:!!

GLOBAL(MODEL(

It!tries!to!maximize!efficiency!on!a!global!scale!by!exploiting!the!economies!of!scale!and!neglecting!the!differences!among!the!various!countries!in!which!the!firm!operates.!This!implies!a!significant!resources!and!activities!concentration!(from!production!to!R&D)!in!a!single!country!(typically!the!headquarter).!Geographically!dispersed!units!have!a!role!only!regarding!sales!and!customer!support!activities.!

# Purely!Global!company:!it!sells!the!same!product!in!all!the!countries,!centralising!the!most!of!the!processes,!improving!the!feeling!of!being!a!single!company.!

The!global!model!is!the!preferred!by!companies,!because!all!the!potential!synergies!along!the!chain!are!exploited!and!the!impact!of!the!product!is!the!same!globally.!

The!main!advantages!are:!!! the!high!efficiency,!obtained!by!the!exploitation!of!economies!of!scale;!! the!easy,!quick!and!with!a!low!cost!model;!

while!the!main!disadvantages!are:!!

! the!limited!flexibility,!because!every!change!is!generated!centrally;!! the!risks!related!to!the!protectionist!policies!by!the!countries!that!import!the!firm’s!products;!! the!risk!related!to!the!exchange!rates!fluctuations.!!

!

!

Examples:!Japanese!companies!such!as!Honda,!Toyota,!Matsushita!until!the!80s.!Boeing,!RollscRoyce.!

• Why!we!do!not!always!choose!the!global!model?!It’s!a!matter!of!transferability.!The!higher!it!is,!the!more!possibilities!I!have!to!be!global,!international!and!then!multinational.!!

In!the!global!model!companies!centralize!almost!everything,!taking!decisions!globally!and!exercising!only!a!limited!control!in!the!local!units.!EX)!McDonald’s!Italia!headquarter!has!just!a!few!people!and!Intel!Italia!has!5!people.!The!local!activity!replicates!the!global!stuff.!It!is!the!model!for!the!high!level!B2B!and!B2C!market!(luxury).!

MULTINATIONAL(MODEL((

It!leverages!on!the!existing!differences!among!different!countries,!trying!to!differentiate!their!products/processes!in!line!with!local!customers!needs!and!with!economic!and!institutional!factors.!This!implies!the!localisation!of!the!firm’s!


lOMoARcPSD|2751981

www.andreadd.it

business!units!in!different!countries!(geographically!dispersed!and!resources),!which!manage!the!business!locally,!develop!innovations!locally!and!perform!activities!(from!production!to!sales)!with!relative!autonomy.!

# Purely!Multinational!company:!it!is!like!a!portfolio!of!small!independent!companies!in!different!geographical!markets,!related!to!different!tastes!of!costumers.!!

The!multinational!model!is!the!less!desired!by!companies,!because!you!have!to!replicate!the!value!chain!many!times!and!adapt!products!continuously!for!different!customers.!!

The!main!advantage!is!the!high!flexibility!and!ability!to!effectively!respond!to!local!needs,!while!the!main!disadvantage!is!the!low!efficiency!and!difficulty!in!exploiting!on!a!global!scale!knowledge!and!expertise!held!by!the!parent!company!and!the!local!subsidies.!!

Examples:!European!companies!such!as!Nestle,!Philips,!Unilever.!Until!the!'70s,!General!Motors!had!many!national!branches!(Opel!in!Germany,!Vauxhall!in!the!UK,!Holden!in!Australia)!that!operated!highly!autonomously.!

The!multinational!model!generates!new!products!and!compete!at!a!local!level!with!local!or!other!multinational!players.!One!important!usage!of!the!multinational!model!is!known!as!“multipoint(competition”.!In!a!mostly!multinational!context,!country!A!and!B!are!comparable!in!size:!

A:!a!is!the!main!player!!

B:!b!is!the!main!player!

Say!an!argument!for!company!a!to!enter!in!country!B?!a!would!enter!in!B!to!prevent!the!expansion!of!b!in!country!A,!because!a!expects!the!same!from!company!b!reaction.!Even!if!you!have!no!chances!to!win!in!entering!in!a!country!that!is!not!really!good!for!you,!like!B,!entering!is!a!preventive!action!to!avoid!other!companies!to!enter!in!your!own!country,!A.!This!is!not!a!real!chance!of!win!for!you,!but!it!is!a!defensive!action.!

INTERNATIONAL(MODEL((

It!aims!to!centrally!develop!new!products/processes!which!are!then!exploited!on!a!global!scale.!The!internationalization!process!consists!in!the!transfer!of!products!to!other!countries!where!they!may!be!adapted!to!local!needs.!It!requires!the!centralization!of!the!critical!resources!for!the!conception,!development!and!production!of!products!at!the!headquarters!and!the!development!in!foreign!countries!of!those!resources!that!are!necessary!to!adapt!the!new!products!and!services!to!local!needs!

# International!company:!it!is!in!the!middle.!

It!represents!the!rational!model!and!it!is!in!the!middle:!in!the!upstream!is!global!and!in!the!downstream!multinational,!in!order!to!exploit!the!value!chain!at!a!global!level!and!define!the!personalization!at!a!local!level.!!

EX)!Banks!are!typical!international!companies:!they!decide!to!use!customer!money,!interest!rates!at!a!global!level,!while!the!downstream!is!personalized!to!the!needs!and!taste!of!local!players!(they!compete!with!local!players,!rather!than!global).!!

EX)!Intesa!San!Paolo,!Unicredit.!!

The!better!way!you!mix!these!activities!the!better!you!are!international.!Being!in!the!middle!means!having!a!lot!of!synergies.!


lOMoARcPSD|2751981

www.andreadd.it

!The!main!advantage!is!the!ability!to!take!advantage!of!the!wealth!of!knowledge!and!expertise!of!the!parent!company!on!a!global!scale,!while!the!main!disadvantage!is!the!poor!flexibility!and!efficiency!compared!to!the!multinational!and!global!models.!!

Examples:!US!companies!such!as!General!Electric,!Procter!&!Gamble!and!Kraft.!

!


lOMoARcPSD|2751981

www.andreadd.it

BRANDING(MAIN(CONCEPTS(!“A#brand#is#a#brand#name,#a#term,#a#symbol,#a#design#or#a#combination#of#these,#that#aims#at#identifying#the#products#or#services#of#a#company,#or#of#a#group#of#companies#and#at#differentiating#them#from#those#of#competitors”#(Source:#American#Marketing#Association)#!Brand!is:!

• an!intangible!asset!that!needs!a!lot!of!investments!in!order!to!create!value!for!the!company;!• a!way!to!distinguish!products/services!of!a!company!from!those!of!competitors;!• a!way!to!protect!the!company,!because!products!under!a!certain!recognized!certification!(registered)!assure!

the!company!a!certain!value!against!competitors.!!EX)!someone!else!can’t!create!the!same!product!with!the!same!name,!but!he!can!use!the!same!name!to!create!different!products!(coca!cola!shoes).!Moreover,!protection!is!for!customers!in!the!process!of!decision,!making!them!aware!of!what!they!are!buying,!informing!them.!

!The!process!of!selection!for!customers!is!not!always!rational!and!brand!helps!to!select!easily.!If!a!product!doesn’t!have!a!brand,!it!is!difficult!to!evaluate!it.!Strong!brands!are!registered!in!the!minds!of!consumers!with!rational#and#emotional#associations.!A!brand!product!is!formed!by:!

! tangible(attributes:!the!brand!is!always!connected!to!real!products!and!their!attributes/features!(EX:!safety!for!Mercedes,!design!for!Bang!&!Olufsen,!ecc)!

! intangible(attributes(and(mental(associations:!the!brand!is!connected!with!the!idea!of!creating!feelings!and!emotions!(mental!associations).!The!stronger!the!brand,!the!more!intimate!is!the!relationship!with!customers!and!their!feelings,!so!brand!can!easily!enter!their!minds!(EX:!Mercedes!brand!personality!is!serious,!sober!and!cool.!The!country!of!origin.!Emotional!factors!like!personal!and!social!affirmation.)!

!Companies!can!protect!the!brand!through:(

o Name:!trademark!!o Manufacturing!process:!patent!o Packaging:!copyrights!

Protecting!these!elements!means!making!the!market!more!informed!and!advanced.!!THE(IMPORTANCE(OF(THE(BRAND((!Since!80s,!brands!are!more!important!than!plants,!employees!and!tangible!elements.!!!A!strong!brand!is:!

" source!of!competitive!advantage:!brand!creates!an!immediate!link!with!customers,!that!associate!to!the!brand!many!positive!features.!Moreover,!brand!create!value!for!the!company!and!its!shareholders.!(The!competitive!advantage!is!generated!from!the!KeySuccesFactors!and!the!performance!and!skills!of!a!company!in!searching!them!during!the!external!analysis);!

" a!barrier!to!entry!for!new!entrants;!" a!support!for!customers’!loyalty,!that!creates!constant!revenues.!!

The!importance!of!the!brand!is!defined!also!by!different!phenomena:!" the!hyperScompetitive!markets:!they!are!focused!on!consumers’!loyalty!and!they!create!a!clear!and!coherent!

value!proposition!to!be!transferred!to!the!market.!" the!effects!on!the!competitiveness:!“BrandSguided!companies!outperform!their!rivals,!thus!achieving!aboveS

industry!average!results”!(Booz#Allen#Hamilton,#2005),#“If#you#are#not#a#brand,#you#are#a#commodity.#Then#prices#is#everything#and#the#lowJcost#producers#is#the#only#winner”#(Philip#Kotler,#2004).!

!ADVANTAGES(OF(BEING(A(BRAND(((Recognizable�•!Loyalty�•!Improved!perception!of!performances�•!Less!vulnerability!competitors!marketing!actions�•!Less!vulnerability!to!marketing!crisis�•!Barriers!for!new!entrants�•!Protection!from!imitations�•!Premium!price!(20S25%,!Kotler!–!Marketing!Management)!•!More!inelastic!to!price!increases�•!More!elastic!to!price!


lOMoARcPSD|2751981

www.andreadd.it

increase�•!Greater!trade!cooperation!and!support�•!Increased!marketing!communication!effect�•!Licensing!opportunities�•!Brand!extensions!opportunities!•!Talents!recruiting!and!retention!!!?????!chiedi!!!We!can!define!a!brand!by!taking!into!account!these!elements,!choosing!if!using!all!of!them!or!only!some!of!them:!((

1. Memorable:!the!brand!should!be!easy!to!be!memorised;!2. Meaningful:!the!brand!should!have!a!meaning;!3. Likable:!the!brand!name!should!not!be!too!descriptive!or!close!to!the!category!of!products!the!company!

produces,!because!someone!else!can!have!the!same!brand!name,!reducing!the!brand!protection.!Ex)!Wardrobe!is!too!much!descriptive,!while!Apple!not;!

4. Transferable:!the!company!should!think!in!advance!of!what!can!be!the!possible!extensions!of!the!brand!(different!products!or!categories);!

5. Adaptable((6. Protectable((

(The!brand!name!can!come!from:!

" Funders:!like!Nestlé,!Levi’s,!Adidas;!" Location:!like!Nokia!and!Sammontana!!" Acronymous:!like!Fiat,!Upim,!BMW!" Mythology,!nature:!like!Twitter,!Nike,!Nivea!and!

LEGO.!!BRAND’S(ELEMENTS((

• Name:!should!not!be!too!much!descriptive;!• Colour:!what!is!the!perception!of!colors?!

Mental!associations;!• Slogan((payoff):!should!add!something!to!the!

brand!(just!do!it,!das!Auto,!think!different).!!M&A:(some!companies!acquire!other!brands!for!their!logo,!position!and!importance.!In!2003,!BMW!acquired!RollsSRoyce!brand!for!40$!mio!and!in!2005,!P&G!acquired!Gillette!for!54$!billion.!!BRAND(IDENTITY:(brand(as(a(set(of(attributes((Product!attributes!are!the!characteristics!by!which!products!are!identified!and!differentiated!and!they!usually!comprise!features,!functions,!benefits,!and!uses.!Brands!are!perceived!as!a!set!of!tangible!and!intangible!attributes!and!mental!associations.!This!set!of!information!form!the!brand(identity.!!(Kano(model((!

! MustQbe(attributes:(If!not!present!generate!dissatisfaction,!if!present!neutrality;!even!if!increased,!they!don’t!generate!satisfaction!(e.g.:!toilet!paper!in!a!hotel!room).!!

! Performance(attributes:(They!are!consciously!valuated!by!clients;!satisfaction!is!proportional!to!the!way!in!which!they!are!executed,!starting!from!dissatisfaction,!through!high!satisfaction!(e.g.:!km!per!litre!of!gas;!waiting!time!in!line,!etc.).!!!!


lOMoARcPSD|2751981

www.andreadd.it

! Delighters(attributes:(The!wows,!the!differentiators.!Clients!don’t!expect!them.!Their!absence!doesn’t!generate!dissatisfaction,!because!provides!a!normal!performance,!so!neutral!perception.!Their!presence!creates!excitement,!word!of!mouth,!etc.!(e.g.:!internet!access!on!a!plane).!This!is!related!to!the!way!a!company!is!competing,!but!it!is!easy!to!copy!this!strategy.!Generally,!when!a!delighter!attribute!is!present!even!if!it’s!not!perfect!creates!a!positive!effect!and!people!appreciate!it.!!!Clients!consider!multiple!(tangible!and!intangible)!attributes!to!valuate!a!brand!and!the!global!valuation!is!the!integration!of!the!valuation!done!by!the!client!on!each!attribute!(or!variable).!!Each!attribute!is!valued!for!its:!

o Importance:!the!importance!is!relative!to!a!client’s!desires,!aspiration,!system!of!values,!etc.!As!a!rational!agent,!the!client!desires!to!have!the!maximum!with!the!minimum!effort:!the!best!service,!the!best!performance,!at!a!low!price.!Clients!accept!tradeSoffs!based!on!their!priorities.!Companies!should!define!brand!concepts!to!satisfy!specific!customers!segments!!

o Performance:!the!performance!is!considered!ad!the!grade!of!perceived!presence.!# Even!if!present,!an!attribute!can!be!not!perceived!by!client!# Clients!base!their!assumptions!on!their!perception!based!on!past!!# Experiences,!word!of!mouth,!reviews,!advertising,!etc.!!# Perceptions!can!be!different!from!reality!# In!order!to!measure!performances!of!attributes,!companies!realize!qualitative!and!quantitative!market!

polls!!o Utility:(the!global#utility#for#a#brand!is!the!sum!or!the!product!of!single!attributes!utilities,!that!correspond!to!

a!utility!function!integrated!with!all!the!attributes.!The!value!of!a!single!attribute!depends!on!the!importance!and!grade!of!presence!of!that!single!attribute.!There!are!different!models:!compensative!and!additive;!disjoint;!conjoint.!

!BRAND(FUNCTIONS(in(a(B2C(market(!For(clients:(

1. Orientation:!a!brand!certifies!the!presence!of!a!set!of!attributes!and!guides!clients!in!the!selection,!thanks!to!the!colour,!the!logo!and!so!on.!!Clients!choose!a!product!because!of!these!attributes,!that!are!a!low!cost!way!to!know!possible!solutions!and!alternatives.!In!this!way!the!transparency!of!the!market!increases!and!the!amount!of!time!dedicated!to!purchasing!reduces.!

2. Warranty:!a!brand!certifies!the!quality,!the!origin!of!the!products!and!its!components.!It’s!a!sort!of!deal!between!the!producer!and!the!client!and!the!producer!is!committed!to!offer!the!best!possible!solution.!

3. Customization:!a!brand!is!a!way!people!use!to!communicate!their!values,!to!express!themselves!and!their!personality.!Differentiated!products!(through!tangible!and!intangible!attributes)!are!produced!to!satisfy!clients’!different!desires!and!needs!in!line!with!their!feelings.!

4. Fun:!a!brand!is!a!personality!that!fulfil!the!need!of!identification!and!fun.!Brands!create!changing!and!surprise!with!novelties.!!!

For(producers:(1. Positioning:!a!brand!defines!the!company’s!positioning!respect!with!competitors.!It!increases!the!

transparency!of!the!market!and!the!possibility!to!compare.!2. Communication:!a!brand!is!a!way!of!communication!used!by!companies!to!communicate!directly!with!final!

consumers.!It!helps!improving!the!bargaining!power!and!it!reduces!the!risk!of!commoditization.!3. Protection:!a!brand!includes!copyrights,!trademarks!and!patents!that!protect!companies!from!imitation.!The!

stronger!the!brand,!the!lower!the!chance!that!imitators!succeed.!4. Capitalization:!a!brand!is!an!intangible!asset!in!the!Balance!Sheet!that!capitalize!the!marketing!investment!

done!for!years.!5. Loyalty:!a!brand!creates!loyalty!with!clients,!establishing!a!relationship!based!on!a!promise.!The!cost!of!

consumer!acquisition!is!usually!higher!than!the!cost!of!customer!retention.!???!6. Barriers!to!entry:!an!incumbent!with!strong!brands!can!discourage!new!entrants!in!the!market.!If!the!TAM!is!

the!sum!of!incumbents!the!acquisition!of!new!clients!is!the!steal!of!a!competitors’!client.!Loyalty!is!fundamental.!???!

!


lOMoARcPSD|2751981

www.andreadd.it

BRAND(FUNCTIONS(in(a(B2B(market((The!characteristics!are!similar!to!those!of!B2C!market,!but!with!some!differences:!!

Final!clients!can/cannot!buy!the!industrial!product! Final!clients!can/cannot!use!the!industrial!product!

!Some!functions!are:!!

• Tracking:!a!brand!makes!the!components!being!tracked,!creating!a!sort!of!warranty.!!• Expectations:!simplification!on!production!performances,!innovation,!operating!marketing,!decisionSmaking!

process.!!Some!fears!linked!with!a!branded!supplier!are:!!

• High!price;!• Dependency;!• Heavy!intervention;!• Arrogance.!

!EX)!Shimano!uses!a!push!strategy!for!retailers!and!a!pull!strategy!for!consumers!(who!ask!products!to!retailers)!using!the!brand!to!communicate!with!them.!!EX)!Intel!has!a!pull!strategy,!in!fact!no!one!knows!its!competitors!because!it!is!too!strong.!(Positioning((Whether!you!like!it!or!not,!your!brand!is!positioned!along!criteria!that!customers!consider!important.!Buyers!use!these!criteria!not!just!to!decide!whether!to!purchase!a!brand,!but!also!to!organize!and!make!sense!of!the!brands!and!the!marketplace.!!Where#to#position#the#offer#to#meet#customers’#expectations?#You!have!to!answer!these!other!questions:#!•!!A!brand!for!what?!�!•!!A!brand!for!whom?!�!•!!A!brand!for!when?!�!•!!A!brand!against!whom?!�!!That!means:!Market'→(Segmentation'→(Targeting'→(Positioning'(!Brand(Identity((In!the!past!we!used!the!USP!(Unique!Selling!Proposition)!but!today!it!has!been!substituted!by!the!brand!identity.!It!represents!what!a!company!wants!the!brand!to!be!and!what!values!it!must!represent.!!The!brand!identity!is!the!whole!of!brand!mental!associations!that!a!company!wants!to!build!or!maintain!and!that!represent!the!motivation!of!brand!existence!and!imply!a!promise!from!the!company!to!its!customers.!!!Its!main!elements!are:!

! Physical!looking:!tangible!attributes!! Personality:!thinking!about!a!“persona”!! Culture:!value!and!references!of!the!brand!system!!! Relationship:!with!clients!!! Reflection:!how!consumers!desire!to!be!seen!! Self!image:!how!consumers!see!themselves!using!the!product!branded.!

!!

!!


lOMoARcPSD|2751981

www.andreadd.it

!!(

Brand(Image((!The!brand!image!is!the!sum!of!mental!associations!and!representation,!cognitive!and!affective!stimulus!that!a!person!or!a!group!of!people!has!while!thinking!of!a!specific!brand.!Brand!image!and!identity!are!different!and!usually!there!are!gaps!between!them.!!The!analysis!of!the!image!is!focused!on!3!levels:!

1. How!the!target!perceives!the!brand!(poll)!2. How!the!brand(is!(SWOT!analysis)!3. Desired!image!(how!the!brand!wants!to!be!perceived)!

!Gaps!can!be!generated!by!differences!between!the!perceived!and!the!real!image!and!the!desired!image;!these!gaps!can!be!covered!by!communication.!(Brand(Value(&(Brand(Valuation!(The!brand!value!is!connected!with!the!premium!price!a!consumer!is!willing!to!pay!for!a!specific!brand,!over!and!above!a!baseline.!For!example,!when!people!are!asked!in!brand!value!surveys!to!place!a!monetary!value!on!a!car,!the!Volkswagen!brand!is!seen!to!be!worth!more!than!that!of!Ford!while!the!Mercedes!brand!has!a!value!above!both.!It!is!important!to!not!to!be!confused!with!the!terms!"brand!valuation”.!

!!The!brand!valuation!is!the!estimate!of!a!brand's!"worth”:!that!is,!a!determination!of!that!brand's#fair#market#value.!In!this!case!the!brand!is!considered!as!an!asset.!This!type!of!estimate!is!often!used!in!buySsell!agreements!and!legal!disputes.!!(


lOMoARcPSD|2751981

www.andreadd.it

Brand(Equity(!The!brand!equity!can!be!defined!in!two!different!ways:!

1. Goodwill!capital!accumulated!by!a!brand,!as!a!consequence!of!previous!marketing!investments.!(Nerlow!&!Arrow)!!

2. The!set!of!associations!and!behaviours!on!the!part!of!the!brand’s!customers,!channel!members,!and!parent!corporation!that!permits!the!brand!to!earn!greater!volume!or!greater!margins!than!it!could!without!the!brand!name!and!that!gives!the!brand!a!strong,!sustainable!and!differentiated!advantage!over!competitors.!(Marketing!Science!Institute)!!

The!concept!has!a!double!face:!!! From!one!side,!it!is!an!economic!definition!and!it!is!used!to!measure!the!“financial!value”!of!a!brand.!!! From!the!other!side,!it!is!the!value!for!consumers,!as!it!is!composed!by!mental!associations!in!the!minds!of!

consumers!that!represent!the!power!of!the!brand.!!!INTERBRAND(BRAND(VALUATION(METHOD((The!value!that!brands!create!for!the!company!is!calculated!with!the!NPV!commanded!by!the!only!brand.!!�!

Starting!from!the!market!segment!we!do!a!financial!analysis!to!define!the!intangible!earnings!of!the!company!associated!to!the!brand.!Using!the!demand!driver!we!can!define!the!role!of!branding!and!finally!obtain!the!bran!earnings.!With!the!competitive!benchmarking!we!define!the!brand!strength!and!the!brand!discount!rate.!Finally,!starting!from!the!brand#earnings!and!the!brand#discount#rate!we!obtain!the!BRAND(VALUE,!that!represents!the!NPV!of!future!brand!earnings.!(The!brand!NPV!is!the!discounted!evaluation!of!the!future!cash!flows!that!the!brand!is!able!to!generate!itself).!!(!!!!!!!!

!(BRAND(ASSET(VALUATOR((To!evaluate!the!brand!as!an!asset!we!do!a!financial!analysis!and!a!marketing!analysis,!using!two!indicators:!

• Brand!strength!• Brand!stature!

!We!obtain!a!matrix!that!represents!the!relative!position!of!brands:!!!!

$ Leadership:!these!brands!are!widely!known!and!very!innovative!and!perceived!with!a!positive!sentiment.!They!have!become!irresistible,!combining!high!brand!strength!and!


lOMoARcPSD|2751981

www.andreadd.it

stature.!They!have!high!earnings,!high!margin!power!and!the!greatest!potential!to!create!future!value.!They!are!the!best!option.!

$ Eroding/declining:!these!brands!are!very!well!known,!but!they!are!not!perceived!so!strong.!They!are!in!a!mature!market!and!they!show!why!high!brand!stature!by!itself!in!insufficient!for!maintaining!a!leading!position.!They!struggle!to!overcome!what!consumers!already!know!about!and!except!from!them.!

$ Niche/momentum:!these!brands!have!a!limited!market!share,!low!brand!strength,!but!they!are!well!perceived,!so!they!have!a!high!potential.!They!have!built!some!energy!and!relevance,!but!are!known!to!only!a!relatively!small!audience.!Consumers!are!expressing!curiosity!and!interest.!

$ New/unfocused:!these!brands,!with!both!low!brand!stature!and!low!brand!strength,!are!not!well!known!among!the!general!population.!Many!are!new!entrants;!others!are!middling!brands!that!have!lost!their!way.!

!!

BRAND(VALUE(CHAIN((The!brand!value!chain!comprises!different!steps:!

1. Marketing(program(investment:!the!company!invests!in!products,!communication,!ecc!to!create!a!positive!awareness!of!customers!and!focuses!on!marketing!activities!to!connect!the!products!with!the!brand.!

2. Customer(mindQset:(once!the!brand!has!entered!in!the!customers’!minds,!the!market!managers!act!to!make!the!customers’!awareness!able!to!generate!a!possible!return!in!term!of!cash.(

3. Brand(performance:(the!brand!becomes!a!competitive!advantage!for!the!company!and!it!is!able!to!transform!its!strengths!into!more!value!for!the!company!and!its!shareholders.(

4. Shareholder(value:(the!brand!is!able!to!generate!itself!future!cash!flows!for!the!company.(

(!

!


lOMoARcPSD|2751981

www.andreadd.it

BRANDING(STRATEGY(((How!to!build!a!brand:!!

!!

Branding(positioning!!!It!consists!in:(

1. Defining!a!competitive!frame:!targeting!and!identifying!the!main!competitors.!Instead!of!asking!which!brands!you!consider!your!competitors,!ask!which!brands!the!customer!considers!before!making!a!choice.!The!list!inside!the!customer’s!mind!is!more!relevant!and!indicative!of!your!true!competition!than!the!one!prepared!by!your!own!analysis.!!

2. Defining!points#of#parity#(POP),!how!the!company!is!similar!to!competitors!and!points#of#difference#(POD),!how!the!company!is!different!to!competitors.!

!There!are!two!types!of!POP:!!

• Category(POP:!they!are!associations!and!features!perceived!as!necessary(for!a!brand!to!be!an!alternative!within!a!category!(EX:!if!a!bank!does!not!offer!accounts,!credit!cards,!ATM,!cheques,!etc.!it!is!not!considered!as!a!real!bank).!

• Competitive(POP:!they!are!associations!and!features!introduced!to!neutralize!competitors’!POD!(EX:!merchandising!in!snacks).!

!There!are!two!type!of!POD:!!

• Upstream(POD:!companies!seeking!a!wrinkle!to!exploit!in!the!upstream!tend!to!home!in!on!advantages!such!as!new!products,!technologies,!features,!lowScost!sources!of!supply,!and!efficient!production!processes.(

• Downstream(POD:(Downstream!sources!of!competitive!advantages!reside!in!the!firm’s!knowledge!of,!and!her!links!with,!her!customer!base!and!their!knowledge!of!her.!(

!The!brand!positioning!aim!is!to!“even!out”!the!associations!in!which!competitors!create!a!competitive!advantage!(POP)!and!“win”!through!POD.!!EX)!Female!perfume:!!

EX)!Chanel!POD!of!1921!in!2010!have!become!POP,!because!the!competition!has!changed.!In!2012!Chanel!n5!POD!are:!• Myth!• Outstanding!artist!• Testimonials!• Marketing!campaigns!!And!some!of!them!are!already!a!POP.!!

EX)!Visa!and!American!express:!their!POD!were!acceptability!and!prestige,!while!today!the!competition!has!changed!because!visa!has!a!card!with!high!acceptability!and!high!prestige,!so!prestige!is!not!anymore!a!POD!but!a!POP.!!Brand(portfolio(and(architecture(!The#way#different#brands#within#a#single#portfolio#are#related#and#differ#from#each#other.##!A!brand!architecture!defines:!!


lOMoARcPSD|2751981

www.andreadd.it

$ The!different!“brand!groups”!within!the!organization#�!$ The!way!the!corporate!brand!is!related!to!other!brands!and!how!synergies!are!created!among!them.!

!

�!Classification!of!brand!architecture:!

• Branded!house!• Endorsed!brands!• House!of!brands!

!BRANDED!HOUSE:!when!there!is!only!1!brand!in!a!company!(EX:!BMW).!The!brand!investment!is!concentrated!at!master!brand!level.!The!advantages!are!economies!of!scale,!a!clear!identity!and!a!strong!consciousness,!while!the!disadvantages!are!the!difficulty!in!differentiation!and!the!high!risk.!!ENDORSED!BRANDS:!when!the!endorsed!or!sub!brand!gives!substance!to!the!offering!and!the!parent!brand!support!the!son.!(EX:!Honda)!!!HOUSE!OF!BRANDS:!when!there!are!different!brands,!in!different!areas!and!for!different!targets.!Each!brand!has!a!unique!positioning!and!the!parent!brand!has!poor!visibility.!The!advantages!are!that!the!company!can!cover!different!segments!and!can!easily!introduce!new!products,!while!the!disadvantages!are!that!the!parent!brand!is!not!so!strong!and!the!company!has!to!invest!a!lot.!!Portfolio(roles((!

% Strategic!brands!% Linchpin!brands!% Silver!bullet!% CashScow!brands!% Endorser!and!subSbrands!roles!% Benefit!brands!% CoSbrands!

!Da!slide!94!!!BIKE(SHARING(CASE(!What!is!the!purpose!of!branding!analysis?!!What!is!the!role!of!a!manager?!!Managers!follow!these!steps:!

1. Analysis!of!a!case/series!of!phenomena:!analysts!collect!information!from!the!market!and!on!the!basis!of!this!they!create!scenarios;!

• They!collect!information!


lOMoARcPSD|2751981

www.andreadd.it

• They!organise!the!information!(using!text!analysis,!porter’s!5!forces,!ecc),!because!things!are!very!complicated!and!we!need!a!specific!vision!on!the!topic!

• They!interpret!the!phenomena,!doing!some!comparisons.!2. Decisions!making:!on!the!basis!of!the!info!collected!and!their!own!knowledge!they!take!decisions,!in!order!to!

set!objectives.!3. Planning!phase:!they!create!a!plan!(business!plan),!that!is!the!reinforcement!of!the!decision.!In!this!activity!

they!have!to:!• collect!and!organise!resources!(physical,!financial,!human,!technological)!that!are!used!to!get!the!

goal;!• divide!activities!and!tasks;!• coordinate;!• control.!

!How!to!use!tools!like!brand?!These!tools!assist!managers!in!all!these!steps.!!!What!is!the!potential!relationship!between!strategy!and!marketing!in!the!bike!sharing!case?!(

− They!collaborate!to!create!the!same!opportunities;!− They!focus!on!the!5Ps!(to!reach!objectives).!

The!information!of!the!document!has!been!collected!and!reorganised!in!this!way:!$ The!starting!point!is!a!problem/series!of!problems!setting:!like!pollution,!congestion!and!personal!health.!

Once!settled!the!problem,!then!comes!the!possible!solutions!proposed.!!$ Solution!proposed:!bike!sharing!programs.!!!$ Strategic!analysis!of!the!solution:!what!are!the!effects!and!the!potential!outcomes!of!the!solution.!From!this!

analysis!we!obtain!the!KSF!of!the!market!(like!existence!of!culture!of!biking,!the!weather,!ecc.)!the!SWOT!analysis!(strength!and!weaknesses)!and!the!PEST!analysis.!(There!are!some!external!factors!on!which!we!can!or!not!have!control!on).The!strategic!analysis!define!the!KSF!of!the!market!and!try!to!satisfy!most!of!them.!

EX)!!Mainz:!12%!to!17%!Lille:!2%!to!10%!!The!usage!of!bikes!and!their!culture!is!more!diffused!in!Mainz!rather!than!in!Lille!(12>2)!and!they!both!aim!in!increasing!the!usage!of!bikes.!The!number!of!bikers!is!increased!in!both!the!cases,!but!most!of!them!are!walkers,!so!this!is!a!sort!of!cannibalization!and!it!is!one!of!the!expected!outcomes!of!the!solution.!!

$ Marketing!manager!work:!managers!receive!the!goal/objective/value!proposition!of!the!strategy!and!they!transfer!it!to!customers,!that!are!the!final!users.!!First!of!all,!they!identify!the!segments:!the!segmentation!process!creates!groups!of!people!with!similar!characteristics,!like!channels,!needs,!etc.!Segmentation!is!the!first!way!to!understand!better!customers!and!their!needs.!!Thanks!to:!

# size#of#the#segments!# trend!(demand!growing!or!declining!market)!# competition#(lower!competition,!lower!attractiveness)!!

they!define!the!KSF!that!are!used!to!obtain!an!objective!idea!of!the!attractiveness!of!each!segment.!!Once!defined!the!most!attractive!segments,!they!choose!the!main!targets,!like!general!commuters,!students!or!tourists!(but!the!service!is!not!designed!for!them)!and!the!positioning,!how!the!company!competes!against!other!competitors!and!how!customers!perceive!their!proposition.!The!brand!is!a!very!useful!tool!to!clear!the!value!proposition,!so!the!positioning!of!the!company.!For!instance,!the!role!of!brand!in!Lille!is!to!communicate!the!idea!of!safety.!!Finally,!they!obtain!the!4Ps:(

# Product/service(# Price:!depends!on!the!service!(ex!30!min!1!€)!(# Place:!racks!and!stations,!it’s!a!matter!of!the!type!of!service!offered.!Rebalancing!stations!is!big!

issue.!(# Promotion(

!


lOMoARcPSD|2751981

www.andreadd.it

These!elements!are!defined!depending!on!the!positioning!and!the!targets.##!BRANDING(SUMMARY(!Last!time!we!saw:!

" What!are!brands:!to!create!a!brand!we!have!to!select!!# the!name!# the!logo!# the!payoff!!

depending!on!our!purpose,!in!order!to!communicate!something.!" What!is!the!brand(identity:!in!terms!of!image,!culture!and!other!aspects!in!order!to!make!the!brand!

identifiable!to!customers.!" When!the!brand!identity!is!communicated!to!customers,!becomes!the!brand(image,!in!order!to!align!the!

perception!to!reality.!!" Due!to!the!fact!that!all!the!investments!are!incorporated!in!the!brand,!the!brand(equity!is!made!of!all!the!

investments!and!of!the!strong!brand!image.!" The!competitive(advantage(associated(to(brand!is!the!main!goal!of!a!company.!

!EX)!Transpole:!!!

S Delay!S Filthy!S Ride!guy!!

First!of!all,!the!company!should!change!the!name!of!the!bike!sharing!service,!in!order!to!identify!more!clearly!all!its!services!(public!transportation!services).!The!only!way!is!to!fix!a!brand!for!each!service.!Completely!different!from!Armani!point!of!view,!that!uses!the!same!brand!for!different!segments!and!products.!House!of!branding!strategic!decision:!

# Transpole!(branded!house)!!# Transpole!Velò!# Velò!Lille!S>!the!brand!is!not!strength!and!not!stretchable.!The!brand!is!not!affected!by!the!same!problems!of!

other!brands,!like!the!parent!brand.!!!Sentimental!analysis:!emoticons!are!really!expressive!and!direct!to!communicate!feelings.!!!ROLES!are!connected!with!the!strategic!portfolio!of!a!company!and!are!the!roles!that!the!brand!has!to!set!in!terms!of!its!own!portfolio.!!!POD(and(POP:!to!be!part!of!a!category,!companies!should!have!a!POP!and!to!differentiate!from!competitors!they!should!have!POD.!!EX)!Car!sharing:!its!POD!in!Milan!it’s!characterised!by!small!movements,!small!fees.!When!Enjoy!entered!in!the!market,!it!had!already!the!same!characteristics,!so!POD!now!are!POP,!and!at!the!same!time!it!introduced!some!POD,!like!the!online!registration!with!the!card!data!mandatory.!CartoGo!did!the!same,!making!the!POD!of!Enjoy!POP.!!EX)!Wardroba:!Name:!very!descriptive!Payoff:!look#like#you,!that!means!something!unique!like!us!as!consumers.!!Colour:!the!idea!is!a!brand!for!young!people,!so!the!colour!is!not!black,!that!generally!is!linked!with!fashion!and!luxury,!but!fucsia.!!Marketing:!using!bloggers!Personality:!through!communicating!plan!!Ecc.!!!!


lOMoARcPSD|2751981

www.andreadd.it

MARKETING*MIX!!How!to!use!the!leverage!of!the!product!to!compete?!!Strategic!and!Operating!Marketing!!

! Strategic*marketing:*it!is!a!direct!consequence!of!the!company’s!strategy!and!it!consists!in!marketing*strategy*planning,!that:!

" Refers!to!the!company’s!corporate!strategy!" Aims!at!satisfying!the!needs!of!the!consumers!" Results!in!the!definition!of!a!suited!value!proposition!

! Operating*marketing:!its!role!is!to!translate!the!marketing!strategy!into!decisions!about!concepts,*prices,*promotions*and*distribution!of!the!products!and!services!offered.!The!process!starts!with!the!strategy,!then!we!analyse!the!market!demand!and!we!set!the!value!proposition.!At!the!end!we!make!decisions!at!an!operational!level,!considering!other!P!like!people.!!

!Market*demand*Once!identified!a!certain!segment,!we!consider!the!market!demand!that!is!characterised!by!exogenous!and!endogenous!variables.!!

# The!exogenous*variables*are!contingent!factors!that!affects!the!demand!and!we!cannot!change!them,!we!can!only!consider!them.!

!!

# The!endogenous*variables!are!marketing!efforts!that!affects!the!demand.!They!are!those!variables!(external!and!internal!factors)!that!can!be!modified!to!obtain!a!certain!goal.!!

!!

!!!!!!!!!!!

This!graph!represents!the!relationship!between!demand!and!marketing*effort,!showing!that!there!is!a!max!potential!that!each!company!can!reach.!When!demand!is!affected!only!by!endogenous!variables,!if!marketing!effort!increases!also!the!demand!increases,!but!marketing!effort!increases!only!until!a!certain!value!and!then!it!remains!almost!


lOMoARcPSD|2751981

www.andreadd.it

constant.!When!the!demand!is!affected!also!by!exogenous!variables,!the!curve!changes!and!it!almost!reaches!the!max!potential.!!!The!set!of!marketing!factors!and!variables!constitutes!the!soJcalled!“marketing*vector”!or!“marketing*effort”.!The!“marketing*plan”!is!a!plan!that!integrates!the!marketing!mix!variables!to!provide!potential!customers!with!a!product,!a!service!or!an!idea.!!Marketing!Mix!!Marketing!mix!is!a!combination!of!marketing!levers!in!order!to!give!customers!a!tangible!offer.!The!most!famous!model!of!marketing!mix!is!the!soJcalled!4P*model!(McCarty,!1981)!that!stands!for:!Product,!Price,!Place,!Promotion.!

!There!are!also!some!models!that!have!expanded!the!McCarty’s!model,!like!5P:!Personal*Selling*or*Relationship.*The!service!marketing!Ps:!People,!Process,!Physical!Evidence.!!!PRODUCT* !!Today!the!concept!of!product!has!been!expanded:!a!product!is!a!tangible!object,!while!a!service!is!something!intangible.!Moreover,!we!distinguish!between!service!and!experience.!The!difference!between!service!and!experience!is!that!the!experience!transmits!feelings!and!relationships.!Generally,!good!products!offer!experiences,!establishing!strong!relationships!with!customers!and!gaining!a!premium!price.!!!

Consumers)want)products)with)basic)features)and)with)a)unique)experience.)!EX)!Post!offices!are!services!and!there!is!no!experience!because!everyone!is!not!excited,!while!Amazon!Prime’s!goal!is!to!offer!a!unique!experience!to!its!customers!(1h!delivery).!!Consumers!starts!analysing!a!product!from!its!core!benefits,!then!they!search!for!additional!services!and!a!certain!price.!Potential!product:!what!can!be!created!in!the!future.!

*Product:!marketing!definitions!!!

1. A!product!is!the!object!resulting!from!transforming!activities!using!materials!into!a!good!that!can!be!offered!on!the!market!to!satisfy!wants!or!needs.!(Giacomazzi,*2002)!*

! narrow*view:*the!product!is!simply!the!result!of!a!process!of!creation.*


lOMoARcPSD|2751981

www.andreadd.it

*2. A!product!is!something!that!can!be!offered!to!a!market!to!satisfy!a!want!or!a!need.!Products!that!are!

marketed!include!physical!goods,!services,!experiences,!events,!persons,!places,!properties,!organizations,!information!and!ideas.!(Philip*Kotler)!!

! broader*view,!that!includes!services!and!incorporates!the!concept!of!a!commercial!offering.!The!product!is!the!satisfaction!of!a!desire.!!

!

!!In!the!centre!there!is!the!core!concept!of!the!product.!!On!the!right!side:!pov!of!the!production.!On!the!left!side:!pov!of!users.!!In!the!internal!circle!there!are!the!characteristics!and!in!the!external!circles!there!are!the!pox!extensions!of!the!characteristics!of!the!product.!!!PRODUCT!CLASSIFICATION!!The!classification!has!the!goal!to!define!the!actions!to!take!for!the!specific!good.!!

$ Durability!and!tangibility:!!• Durable*goods!(clothing,!refrigerators,!cars,!etc.,):!they!remain!the!same!for!a!lot!of!time,!depending!

on!the!purchasing!power!of!the!company;!• Nondurable*goods!(food,!soap,!etc.,):!they!are!consumed!many!times!during!the!production;!• Services!(repairs)!�!

!$ Consumer!goods:!!

" Convenience*goods!(purchased!frequently!and!with!minimum!effort.!e.g.:!cigarettes,!newspapers,!etc.,)!!• staples!(purchased!on!a!regular!basis)!J>!toothpaste!!• impulse!goods!(purchased!without!any!planning)!J>!candy!bar!!• emergency!goods!(purchased!when!a!need!is!urgent)!J>!umbrella!during!a!rainstorm!!

" Shopping*goods!(goods!the!customer!compares!on!such!bases!as!quality,!price!and!style)!J>!furniture,!clothing,!major!appliances!!

" Specialty*goods!(have!unique!characteristics!for!which!buyers!are!willing!to!make!a!special!purchasing!effort)!J>!Mercedes!!

" Unsought*goods!(goods!a!customer!does!not!normally!think!of!buying)!J>!smoke!detector,!gravestones.!�!

!$ Industrial!goods:!they!are!sold!to!another!business,!they!enter!in!the!production!process!like!raw!materials,!

capital!items!(they!are!fundamental!but!they!don’t!enter!in!the!final!product).!" Materials*and*parts*(enter!the!product!completely)!!!


lOMoARcPSD|2751981

www.andreadd.it

• Raw!materials!!• Manufactured!materials!and!parts!�!

" Capital*items*(enter!the!product!partially):!longJlasting!goods!that!facilitate!developing!or!managing!the!finished!product.!

• Installations!• Equipment!�!

" Supplies*and*business*services*(do!not!enter!the!product):!shortJlasting!goods!and!services!that!facilitate!developing!or!managing!the!finished!product!!

• Maintenance!!• Repair!items!!

PRODUCT!DIFFERENTIATION!

We!want!to!differentiate!to!create!barriers!and!a!competitive!advantage.!Differentiation!is!done!through!form,!customization,!performance!and!so!on.!This!is!not!enough!nowadays,!in!addition!we!can!add!brand!(personality!and!identity),!services,!design!(designing!the!whole!experience,!not!only!the!product.!Increasing!the!number!of!users!of!a!product!like!bike!sharing,!is!done!by!increasing!the!bike!paths).!

!PRODUCT!HIERARCHY!!

• Need*family!(EX:!security,!the!same!need!is!satisfied!by!different!products)!• Product*family!(EX:!savings!and!income,!the!product!and!the!category!answer!the!same!needs!with!different!

products!and!all!of!them!are!divided!in!classes)!• Product*class!(EX:!financial!instruments,!it’s!a!category!with!products!with!similar!characteristics)!• Product*line!(EX:!life!insurance,!it!is!a!big!category!with!specific!functionality)!!• Product*type!(EX:!time!life!insurance,!it’s!the!potential!form!through!which!the!line!can!appear)!• Item!(EX:!prudential!renewable!life!insurance.!It!can!be!SKU!or!a!product!variant.!It’s!the!customization,!the!

real!product)!!!

% PRODUCT*SYSTEM:!a!group!of!diverse!but!related!items!that!function!in!a!compatible!manner.!(EX:!iPod!system)!

!PRODUCT!MIX!!The!product!mix!is!the!set!of!all!product!lines!or!products!that!a!seller!offers.!(Microsoft!programs)!Products!in!a!system!are!correlated,!so!there!is!consistency!and!synergies.!The!dimension!of!the!system!is!characterised!by:!

o Width:!how!many!different!product!lines!!o Length:!total!number!of!items!in!a!mix!/!line!!o Depth:!how!many!variants!per!product!line!!o Consistency:!how!closely!different!lines!are!related!in!end!usage,!channels,!product!requirements!!

!And!it!can!be!modified!to!approach!new!markets!or!areas!not!previously!covered,!increasing!the!coherence.!Some!expansions!strategies!can!be:!

• Add!a!product!line!(widening!product!mix)!�!• Lengthen!product!lines!�!• Add!more!product!variant!(deepen!product!mix)!�!• Increase!consistency!�!

!EX)!P&G:!length!20!Width!5!Depth!not!shown.!The!consistency!is!set!defining!a!scale!and!parameters.!!!


lOMoARcPSD|2751981

www.andreadd.it

PRODUCT!LINE!STRETCHING!!Lengthen!product!line!beyond!current!range.!!

1. Down!market!stretch!(e.g.:!from!middle!market!to!lower!priced!line)!�!2. UpJmarket!stretch!(e.g.:!entering!the!highJend!from!middle!market)!�!3. TwoJway!stretch!4. Line!filling!5. Line!modernization,!featuring!and!pruning!

!DownNmarket*stretch*(from*middle*market)*!3!main!reasons:!

• Growth!opportunity!in!the!lower!end!!• Stagnating!middle!market!�!• TieJup!lowerJend!competitors!that!could!rise!up!�!

There!are!many!alternatives!to!do!it:!!− Only!parent!brand!�!− A!subJbrand!name!�!− Introduce!a!new!brand!�!

Pro’s!and!Con’s?*��

UpNmarket*stretch*(from*middle*market)**The!main!reasons!are:!

• Increase!margins!!• More!growth!�!• Change!positioning!�!

Alternatives:!!− Only!parent!brand!�!− A!subJbrand!name!�!− Introduce!a!new!brand!�!

Pro’s!and!Con’s?!!EX)!CORBIS!DILEMMA:!Corbis!distribute!video,!photo!and!contents!for!advertising.!There!are!2!competitors!in!2!different!sectors.!Trunk!has!a!good!quality,!large!database,!collecting!photos!and!videos!only!of!top!photographers!and!video!producers,!thanks!to!a!large!number!of!licenses,!negotiating!on!the!price.!Shutter!has!a!low!quality!and!a!small!database!and!you!can!buy!photos!or!services.!!*RECAP:*!

1. Major!role!of!branding:!to!create!competitive!advantage,!loyalty,!barriers,!command!higher!prices,!positioning!of!the!product!and!different!types!of!associations.!It!means!investing!in!something!that!creates!a!value!durable!in!time.!

2. Branding!strategies:!portfolio!roles,!brand!architecture.!3. Product:!clients!search!for!a!product!and!related!services.!Product!classification!is!linked!with!strategies,!like!

positioning!the!product.!!PRODUCT!DIFFERENTIATION!!It!is!a!key!element!to!raise!power.!Additional!product!differentiation!elements!are!packaging,!labelling,!warranties!and!guarantees.!!PRODUCT!LIFECYCLE!JJJJ>!!!!!


lOMoARcPSD|2751981

www.andreadd.it

EX)!Lille!service!is!at!the!introduction*stage,!because!they!address!to!innovators!(their!main!target)!and!the!users!are!a!small!number!of!people.!The!innovation!risk!is!related!to!the!fact!that!maybe!people!are!not!able!to!use!the!new!product,!so!companies!have!to!explain!how!to!use!it.!!

!SALES*AND*PROFITS*during*the*product*lifecycle*!!!!!!!!!!

INNOVATION!!Innovation!is!the!generation!of!an!idea!(invention)!+!its!conversion!into!a!business!opportunity!(business!model).!!!

% An)invention)without)a)business)model)which)foresees)its)application)to)create)value)for)both)the)inventor)and)the)user,)it’s)not)innovation)*

!EX)!APPLE!is!an!innovator!or!a!inventor?!It!is!an!innovator,!because!the!mobile!phone!already!existed,!they!modelled!their!main!features,!like!ergonomics.!!!The!role!of!innovation!is!to!introduce!always!something!different,!stretching!lines.!Launching!innovations!is!useful!to!maintain!the!leadership.!!Enterprises!innovate!because:!!

• They!want!to!create!or!maintain!a!competitive*advantage,!that!can!be!obtained!through:!" a!reduction!of!costs!" differentiations�!" increased!goJtoJmarket�!" a!combination!of!the!previous!ones!!

• They!want!to!use!the!Value*Ladder*Tool!to!assess!the!competitive!advantage!!• Innovation!is!getting!faster*and*faster!!

!This!represents!the!rate!of!adoption!of!an!innovation!during!the!product!lifecycle:!

!!

!Innovators!are!those!people!that!have!a!need!and!they!possibly!found!solutions,!just!for!themselves.!They!have!a!problem!and!they!have!to!find!a!solution.!J>!GUARDA!MONTANARI!stampante!3D!per!le!altre!descrizioni!


lOMoARcPSD|2751981

www.andreadd.it

!After!a!certain!period!of!time!(small)!each!innovation!doesn’t!improve!its!performance,!that!remains!flat!in!time,!because!a!lot!of!innovations!are!introduced!faster!and!faster.!!!!!!!!!!

!!Innovation*process:!it!is!the!role!of!innovation!in!a!product.!

!**************Innovation*types:!innovations!can!be!classified!in!!MARKET!PULL:!they!are!innovations!that!are!requested!by!the!market;!TECHNOLOGY!PUSH:!they!are!innovations!in!which!changes!are!driven!by!technology;!DESIGN!DRIVEN:!they!are!innovations!where!changes!are!driven!by!design.!


lOMoARcPSD|2751981

www.andreadd.it

Innovation*products*and*markets*NNNN>!*!DISRUPTIVE!INNOVATION!*It!is!a!technology!whose!application!significantly!affects!the!way!a!market!functions.!They!are!innovations!that!create!different!types!of!interaction!between!people!and!products,!so!they!are!focused!in!how!people!interact!with!the!product.!!EX)!An!example!of!a!modern!disruptive!innovation!is!the!Internet,!which!significantly!altered!the!way!companies!did!business!and!which!negatively!impacted!companies!that!were!unwilling!to!adopt!it.!!EX)!Uber:!it!changed!completely!the!environment!of!the!car!service.!!EX)!WII:!it!a!design!driven!innovation!that!changed!the!way!people!use!videogames.!It!opened!a!wider!market!and!changed!the!competition.!EX)!iTunesJiPod!environment:!they!created!a!new!business!model,!changing!the!terms!of!competition!and!creating!a!new!language.!!INCREMENTAL!INNOVATION!!It!is!an!innovation!that!improves!functionalities,!features!and!performances!of!a!product.!!

% Scheming!pricing:!scheme!to!maximizing!the!price!targeting!a!specific!segment!in!a!specific!period,!to!get!the!max!prom!a!specific!target.!With!a!new!product!you!should!use!a!scheming!price.!!

% Penetration!pricing:!focused!on!market!share.!With!mature!and!perfect!products!related!to!economies!of!scale,!you!should!adopt!a!penetration!price.!

!When!you!have!a!product!you!have!to!know,!who!are!you!targets!and!how!to!modify!the!other!elements,!in!order!the!get!the!max!from!each!segment.!!!SERVICE*!

! A!service!is!an!activity*or!series!of!more!or!less!intangible!activities!which!usually,!but!not!always,!involve!an!interaction*between!the!customer*and!the!providing*personnel*and�or!individuals!or!goods!and/or!systems!of!the!providing!entity,!for!the!purpose!of!providing!solutions*to!a!customer’s!problem.!(Giacomazzi,*2002)**

*! A!service!normally!involves!goods!and!people!in!a!set!of!organizational!and!composition!rules!that!establish!

the!proportions,!functions,!methods!and!timing!of!use.!(Giacomazzi,*2002)**DEFINITION!!A!service!consists!of!facts,!produced!by!a!combination!of!means!or!people.!It!has!no!form!or!stable!structure.�It!cannot!be!possessed!or!stored!but!only!provided.!!�

Goods!and!services!are!two!completely!different!entities:!• GOODS!are!individual!objects,!defined!and!mastered,!with!an!established!form!and!which!can!therefore!be!

measured!at!any!given!moment.!With!use,!goods!change!their!ability!to!serve!for!three!principal!reasons:!wear!and!tear,!technological!advances,!passing!of!the!use!function.!

• SERVICES!are!actions!or!retroactions!of!goods!on!the!subject,!of!the!subject!on!goods!or!from!goods!to!other!goods.!(Martini*and*Vairetti,”Terziario*avanzato”)**

The!main!difference!between!goods!and!services!is!the!experience.!


lOMoARcPSD|2751981

www.andreadd.it

!!The!concept!of!service!expresses:!

• What!it!does!(ex:!logistical!warehouse!outsourcing!spare!parts);!• Who!it!is!aimed!at!(ex:!externalization!of!the!recording!of!supplier!accounting!invoices);!• What!it!means!for!customers!(ex:!LAN!network!technical!assistance!with!remote!assistance!and!intervention!

in!loco!within!two!hours).!

!CLASSIFICATION!OF!SERVICES!!It!depends!on!the!interaction!and!the!number!of!clients:!!


lOMoARcPSD|2751981

www.andreadd.it

• Professional*services:*they!are!dedicated!personal!assistance*services,*like!management!consulting!or!corporate!banking!(an!accountant!that!gives!his!time!exclusively!to!his!client!and!he!knows!he/she).!They!are!focused!on!people,!through!a!face!to!face!interaction;!

• Service*shop:!they!are!self!services,!like!hotels,!retails,!retail!banking.!They!are!focused!on!people/tools;!• Mass*service:!they!are!assembly!line!services,!like!trains,!marketplaces!and!supermarkets!(they!need!

platforms!to!interact!with!a!large!number!of!persons).!They!are!focused!on!tools.!!NB)!Service!is!an!interaction!among!people,!tools,!machines!and!organizations.!!SERVICE!PROVIDERS!AND!USERS!

Example!of!organizations!that!provide!services!are:!• Public*institutions:!police!and!fire!department,!post!office,!public!administrations,!hospitals,!etc.!• Private*notNforNprofit*organizations:!schools!and!universities,!charity,!museums,!etc.!�!• Industrial*organizations:!banks,!airlines,!hotels,!law!firms,!consultancy,!telecommunication,!etc.!�!

Services!have!also!become!an!important!valueJadding!and!differentiating!strategy!for!products!manufacturers,!distributors!and!retailers.��

!

CHARACTERISTICS!OF!SERVICE!

Method*of*provision:*services!with!the!same!function!may!be!offered!and!provided!in!different!ways,!depending!on!the!philosophy!of!the!service!provider;!Speed*of*provision:!it!influences!the!duration!of!the!intervention;!Assurance*of*results:*tendency!to!go!from!a!“provision!logic”!to!a!“result!logic”.!(Example:!business!consultancy,!financial!consultancy.!It!is!not!applicable!in!certain!cases:!e.g.!medical!care).!*Characteristics:!

− Intangibility:!it!means!that!in!the!service!there!is!nothing!tangible.!For!example,!slides!used!during!lessons!are!used!to!make!the!service!more!tangible,!to!give!students!something!tangible!to!maintain!the!idea!and!the!memory!of!the!event.!Intangibility!is!a!high!risk!element.!Services!can!be!tangible!through:!

• Place!• People!• Equipment!• Communication!material!• Symbols!• Price!

− Inseparability:*it!means!that!the!production!and!the!consumption!are!simultaneous!and!contextual*− Variability:!how!to!reduce!it:!

• Invest!in!good!hiring!and!training!procedures!• Standardize!the!serviceJperformance!process!throughout!the!organization.!!


lOMoARcPSD|2751981

www.andreadd.it

SERVICE*BLUEPRINT:!what!is!the!behaviour!of!the!customers!and!what!can!be!the!interactions!with!them.!The!elements!of!variability!can!be!controlled!only!until!a!certain!level.!With!this!instrument!you!can!have!in!mind!all!the!possible!variables.!!!Line!of!interaction:!actions!of!the!client.!!Line!of!visibility:!what!the!client!see!or!don’t!see.!!Line!of!internal!interaction:!!

− Perishability/NonNstoreability!(fluctuations!in!demand):!it!refers!to!the!fact!that!the!service!doesn’t!last!forever!and!the!demand!fluctuates!a!lot.!If!you!sell!a!service!one!day!and!the!other!day!no,!like!a!cinema,!it!is!a!loss!because!you!can’t!recover!the!loss!another!day.!If!you!sell!tangible!things,!you!can!sell!them!another!day.!!!EX)!McDonald’s:!they!fix!opening!hours!from!the!early!morning!till!midnight!(4am),!typically!when!the!variability!of!the!service!is!very!high,!so!you!have!to!find!ways!to!create!a!more!homogeneous!audience.!Also!if!you!are!a!hotel!or!a!flying!company,!the!demand!fluctuates!a!lot!so!they!create!special!offers.!In!the!case!of!McDonald’s,!they!created!new!products/services,!like!breakfast.!The!service!provider!transforms!a!fluctuant!demand!in!a!more!stable!demand.!!You!can!find!solution!to!avoid!the!fluctuation,!like!pushing!on!the:!!

" Demand*side:!!♦ Differential!pricing!(hotel!discounts!lower!seasons)!�!♦ Cultivation!of!nonpeak!demand!(breakfast!McDonalds)!!♦ Complimentary!services!(cocktail!lounges!in!restaurants)!�!♦ Reservation!system!(airline,!hotels) �!

!" Supply*side:!

♦ PartJtime!employees!!♦ PeakJtime!efficiency!(reduce!activities!during!peaks)!�!♦ Increased!consumer!participation!(bag!your!items!in!supermarket)!�!♦ Shared!services!(with!other!companies)!�!♦ Invest!in!future!expansion �!

!If!the!fluctuation!of!the!demand!is!very!high,!people!and!assets!(fixed),!are!not!really!exploitable,!so!you!are!maybe!losing!money.!EX)!Airbnb!solved!this!problem!because!they!don’t!own!the!assets!and!they!retain!the!profits,!in!the!accommodation!market.!The!risk!of!perishability!is!very!high,!so!this!is!a!very!good!solution.!!

− Labour*intensity*− Higher*difficulty*in*gaining*customer*loyalty*

*

*


lOMoARcPSD|2751981

www.andreadd.it

SERVICE!PURCHASING!BEHAVIOUR:!!!To!create!a!great!service,!you!have!to!evaluate!all!the!variables!before!and!after!the!service!itself.!!BEFORE!PURCHASING:!

• Internal!factors:!needs,!past!experience,!expectations,!level!of!involvement!• External!factors:!alternatives,!peer!influence,!wordJofJmouth!• FirmJproduced:!promotion,!price,!distribution!

!SERVICE!ENCOUNTER:!

• Service!environment!• Personnel!• Roles!• Script!• Support!services!

AFTER!PURCHASING:!• Evaluation:!ask!your!clients!what!is!the!relative!importance!and!you!can!map!them;!the!importance!of!the!

performance!is!more!relevant!in!the!service.!• Satisfaction!

!SERVICE!AND!RISK!FACTOR!!From!the!point!of!view!of!the!customer,!the!service!purchasing!process!is!intimately!connected!with!risks.!!Risk!dimensions!are:!•!Performance!•!Financial�•!Time!Loss!•!Opportunity!•!Psychological!•!Social�•!Physical.!The!risk!factor!impacts!the!decision!process!of!the!client!and!the!way!the!company!creates!safety!in!its!clients.!The!risk!of!uncertainty!is!more!present!in!the!services!rather!than!in!products.!!!

% The!more!the!complexity!and!the!intangibility!of!a!service,!the!more!is!the!risk.!

!RISK!MANAGEMENT:!managing!expectations!

BEFORE!PURCHASING:!1. Understanding!customer!needs!2. Explaining!what!is!going!to!happen!3. Providing!the!service!consistently!in!time!!SERVICE!ENCOUNTER:!1. Communicating!with!the!customer!during!the!service!�!2. If!possible,!customize!!3. If!it!is!not!possible,!at!least!explain!why!�!!!!


lOMoARcPSD|2751981

www.andreadd.it

AFTER!THE!PURCHASE:!1. Communicate!to!verify!whether!expectations!were!encountered!�!2. Developing!a!followJup!program!!3. Developing!a!customer!satisfaction!monitor!�!!EXPERIENCE*!With!goods!is!difficult!to!differentiate,!but!with!services!you!have!delight!elements!already!at!the!beginning.!Providing!services!can!more!easily!create!an!experience.!!Experience!is!irrational!and!it!touches!elements!difficult!to!be!evaluated.!It!creates!a!parallel!world!during!the!service!providing,!keeping!the!memory!of!it.!There!are!different!levels!of!involvement!like!rational/cognitive,!emotional,!sensoria,!etc.!!

! Economists!have!typically!lumped!experiences!in!with!services,!but!experiences!are!a!distinct!economic!offering,!as!different!from!services!as!services!are!from!goods.!(Pine*and*Gilmore,*1998)!!

The!ability!to!offer!a!relevant!customer!experience!is!a!source!of!competitive!advantage.!!Adding!elements!that!create!experience,!means!adding!value,!shifting!from!service!to!experience,!capturing!a!premium!price!and!more!loyalty.!!EX)!Bar:!having!a!coffee!in!a!bar!is!a!service,!but!it!is!highly!related!to!the!experience!of!the!customer.!!EX)!Disneyworld!is!an!experience!of!living!in!a!parallel!world.!!!!!!!!!

DEFINITIONS!!

! Customer!experience!originates!from!a!set!of!interactions*between!a!customer!and!a!product,!a!company,!or!part!of!its!organization,!which!provoke!a!reaction.!This!experience!is!strictly!personal*and!implies!the!customer’s!involvement*at!different*levels*(rational,!emotional,!sensorial,!physical,!and!spiritual)!(Gentile!et!al.,!2007)!

! Customer!experience!is!defined!by!the!direct!contact!of!the!customer!with!the!different!touchpoints*in!order!to!generate,!through!the!five*senses,!changes!that!may!be!functional,!cognitive*and!emotional*in!nature.!Interaction!after!interaction,!the!value!perceived!by!the!customer!in!terms!of!quality!of!the!experiences!tends!to!enhance!(Boaretto!et!al.,!2007)!!

!CUSTOMER!EXPERIENCE!!!We!live!in!a!world!where!attention!and!retention!are!the!real!scares!resource.!Customer!remember!and!value!great!experiences:!word!of!mouth,!loyalty,!customer!involvement!with!the!brand.!The!customer!experience!is!built!along!a!time!horizon,!called!“relationship!cycle”!between!the!customer!and!the!firm.!!V!PRINGLES!SLIDE!


lOMoARcPSD|2751981

www.andreadd.it

BUSINESS'MODEL'CANVAS'!For!the!evaluation!and!choice!of!the!strategic!alternatives!we!make!reference!to!the!business!model.!!A!Business'Model!is!a!comprehensive!set!of!strategic!decisions!defining!the!way!a!company!creates!value.!Drafting!a!business!model!is!a!powerful!tool!to!evaluate!strategic!alternatives,!by!checking!in!particular!their!soundness!and!their!coherence!with!the!overall!structure!of!the!company.!!Quite!recently!(2010)'Osterwalder!developed!a!way!of!representing!the!business!model!that!goes!under!the!name!of!Business'Model'Canvas'and!today!it!is!the!most!used!tool!for!representing!strategic!decisions!in!big!companies.!!The!Canvas!model!is!a!representative!tool!(visual!tool)!used!to!better!shape!the!strategy!of!a!company!and!to!set!all!the!questions!that!a!company!should!ask!itself!before!creating!a!program.!Moreover,!it!is!used!to!check!the!coherence!between!the!different!alternatives.!The!process!of!creating!a!Business!Model!starts!with!an!idea!that!comes!from!the!company’s!strategy,!then!it!defines!a!set!of!decisions!coherent!each!other!and!then!if!finishes!with!the!creation!of!a!project,!making!the!idea!real.!!To!test!the!initial&strategic&idea!of!the!business!model,!the!company!has!to!check!9!blocks,!each!one!of!them!focused!on!a!specific!decision.!The!model!is!read!from!right!to!left.!

!!

1. Customer'segments:!Our!groups!of!customers!with!distinct!characteristics.!!2. Value'proposition:!The!bundles!of!products!and!services!that!satisfy!our!customer!segments’!needs.'!3. Distribution'channels:!The!channels!through!which!we!communicate!with!our!customers!and!through!which!

we!offer!our!value!propositions.!4. Customer'relationships:!The!types!of!relationships!we!entertain!with!each!customer!segment.!5. Revenue'streams:!The!streams!through!which!we!earn!our!revenues!from!our!customers!for!value!creating!

and!customer!facing!activities.!6. Key'resources:!The!key!resources!on!which!our!business!model!is!built.�!7. Key'activities:!The!most!important!activities!performed!to!implement!our!business!model.�!8. Partner'network:!The!partners!and!suppliers!we!work!with.!9. Cost'structure:!The!costs!we!incur!to!run!our!business!model.!!!

CUSTOMER'SEGMENTS''Customers!are!the!heart!of!any!business!model.!Successful!companies!know!how!to!turn!satisfied!customers!into!revenue!streams.!A!clear!description!and!understanding!of!a!company’s!customers!is!an!integral!part!of!every!business!model.!!!!


lOMoARcPSD|2751981

www.andreadd.it

•!Key'Questions:'!• Who!do!we!create!value!for?!�!• Do!any!of!these!customer!merit!to!be!grouped!into!a!distinct!category,!because...�V!

...!we!propose!them!a!distinct!offer?�!

...!we!reach!them!through!different!communication!and!distribution!channels?�!

...!we!entertain!different!relationships!with!them!(e.g.!more!personal)?!!

...!they!have!a!substantially!different!profitability?!!!VALUE'PROPOSITION''The!value!proposition!is!the!reason!why!customers!turn!to!one!company!over!another.!It!solves!a!customer!problem!or!satisfies!a!customer!need.!Each!value!proposition!consists!of!a!selected!bundle!of!products!and/or!services.!Some!value!propositions!may!be!innovative!and!represent!a!new!or!disruptive!offer.!Others!may!be!similar!to!existing!market!offers,!but!with!added!features!and!attributes.!!!•'Key'Questions:��1.!What!do!we!offer!the!market?��2.!What!is!the!specific!bundle!of!products!and!services!you!offer!each!of!our!customer!segments?��3.!Which!customer!needs!does!each!value!proposition!cover?��4.!Do!we!offer!different!service!levels!to!different!customer!segments?!!'DISTRIBUTION'CHANNELS''A!company!reaches!its!customers!through!various!communication!and!distribution!channels.!They!represent!the!interface!between!a!company,!its!value!propositions!and!its!customers.!Communication!and!distribution!channels!have!become!increasingly!important!in!business!model!design.!For!example,!cost!intensive!channels!should!be!used!for!very!profitable!clients,!while!unprofitable!clients!should!be!served!through!cost!efficient!channels.!!!•!Key'Questions:��

1. Through!which!communication!and!distribution!channels!do!we!reach!our!markets?!!2. How!well!does!each!channel!work?!�!3. How!expensive!or!cost!efficient!is!each!of!our!channels?!�!4. Through!which!communication!and!distribution!channels!do!we!promote!and!deliver!each!value!

proposition?!5. Through!which!channels!do!we!reach!each!customer!segment?!!

'CUSTOMER'RELATIONSHIPS''Getting!relationship!management!right!in!our!business!model!is!crucial!today!to!satisfy!customer’s!expectations.!For!instance,!customers!paying!a!high!price!for!a!product!or!service!will!expect!a!high!touch!relationship,!while!customers!paying!a!cheap!price!do!not!expect!more!than!automated,!yet!customized!relationships.!A!sound!business!model!has!a!clear!strategy!for!customer!relationship!management!for!each!customer!segment.!!!•'Key'Questions:�!

• Do!we!develop!and!maintain!different!types!of!client!relationships!in!our!business!model!(e.g.!more!or!less!intense,!more!or!less!personal)?�!

• How!resource!intensive!is!each!of!these!client!relationship!types!in!terms!of!time!consumption!and!other!costs?�!

• For!each!client!segment,!which!client!relationship!types!and!mechanisms!do!we!develop!and!maintain?!!!REVENUE'STREAMS'''If!customers!comprise!the!heart!of!a!business!model,!revenue!streams!are!its!arteries.!Revenue!streams!come!from!one!or!several!segments!of!clients!who!are!willing!to!pay!for!the!value!they!get!from!our!offer.!!These!revenue!streams!come!in!the!form!of!selling,&lending,&licensing,&commissions,&transaction&fees&or&advertising&fees.&&


lOMoARcPSD|2751981

www.andreadd.it

!•'Key'Questions:!!

• What!are!our!revenue!streams?!�!• What!are!the!revenue!streams!from!each!customer!segment!and!value!proposition?�!• How!much!is!each!revenue!stream’s!contribution!to!overall!revenues!in!terms!of!percentages?!!

'KEY'RESOURCES'!At!the!basis!of!every!business!model!there!is!a!set!of!key!resources!a!company!must!dispose!of!to!make!its!business!model!work.!These!key!resources!include!classical!ones!such!as!human&resources&and&tangible&assets.!Increasingly,!business!models!are!also!built!on!intangible&assets!that!are!difficult!to!quantify,!such!as!brand!equity!and!expertise!of!a!specific!domain.!!!•'Key'Questions:''

• What!are!the!key!resources!we!rely!on!to!run!our!business!model?!�!• How!does!each!of!these!resources!relate!to!our!value!propositions!and!their!corresponding!customer!

segments,!channels!and!relationships?!!'KEY'ACTIVITIES''To!implement!a!business!model!a!company!needs!to!perform!a!number!of!key!activities.!It!may!perform!these!activities!itself!or!get!them!done!through!a!network!of!partners.!!!•'Key'Questions:''

• What!are!the!main!activities!we!operate!to!run!our!business!model?!�!• On!which!key!resources!do!they!rely?!�!• To!which!value!propositions,!channels!or!relationships!do!they!contribute?!�!

'PARTNER'NETWORK''Today’s!Business!Models!are!more!and!more!the!result!of!a!network!of!partnerships,&joint&ventures,&cooperation&and&alliances&between&different&companies.&Every!company!must!ask!itself!if!and!how!it!can!leverage!its!own!business!model!by!partnering!with!other!companies.!This!includes!the!question!of!what&a&company&wants&to&do&by&itself&and&what&it&wants&to&do&with&partners.!It!also!includes!the!question!of!levering!one’s!own!value!proposition!by!combining!it!with!the!value!proposition!of!strategic!partners.!!&•'Key'Questions:''

• Which!partners!and!suppliers!do!we!work!with?!�!• Which!key!resources!do!they!relate!to?!�!• To!which!value!propositions,!channels!or!relationships!do!they!contribute?!�!

'COST'STRUCTURE''The!cost!structure!is!a!direct!result!of!all!the!other!building!blocks!of!the!business!model.!Ideally&costs&should&be&traceable&back&to&each&business&model&block.&&!•'Key'Questions:''

• What!are!the!most!important!cost!positions!in!our!business!model?!�!

• Can!the!cost!positions!be!easily!connected!to!a!business!model!building!block?�!

• Can!costs!be!calculated!for!each!customer!segment?!!

!


lOMoARcPSD|2751981

www.andreadd.it

PRICING'AND'DISTRIBUTION'!PRICING'!The!role!of!pricing!is:!

• To'determine'positioning'and'distinctiveness,!in!order!to!give!value!to!a!product,!positioning!it!on!the!market;!

• To'determine'the'business'profitability!• To'determine'the'demand,!in!order!to!compete!in!the!market.!The!difference!between!positioning!and!

competition:!positioning!can!change!but!it!is!a!long!process,!so!it!is!more!static,!while!competition!changes!continuously.!!

DEFINITION!!The!price!put!in!relationship!the!total!costs!of!the!product!with!its!benefits,!so!it!not!always!a!matter!of!the!price,!but!a!matter!of!the!total!costs!and!benefits.!

! = #$%&'($)%*$+(',-.%/-.-*,%) !

The!price!is!based!on!the!objectives'of'the'company:!increase!shareholders’!value,!increase!the!market!share,!creating!a!positioning,!profitability!(in!the!mid!or!long!term).!In!order!to!fix!the!price!of!something!you!always!need!to!take!into!account:!

• Its!cost!• The!demand!of!the!market!• The!competitors!

!The!main!drivers!that!affect!pricing!are:!

− General!economic!situation:!in!period!of!economic!downturn!it!is!possible!to!witness!a!decrease'of'prices’'growth!(diminished!inflation)!and!a!decrease'of'prices!(deflation).!

− Product!lifecycle:!for!example,!the!first!HD!cost!43000€!while!now!they!cost!400€.!Moreover,!firstly,!iPhone!price!was!very!high,!because!only!the!innovators!bought!it,!now!the!price!is!slowing!down.!To!become!downstream!you!have!to!maintain!your!distinctiveness,!gaining!additional!market!share!and!reducing!price.!!

− Cost!structure:!if!cost!increases,!you!can!suffer!lower!margins,!so!you!have!to!charge!more!clients!or!charge!suppliers.!!

− Laws!and!norms:!they!define!the!upper!and/or!lower!boundaries!for!pricing!and!they!may!modify!the!cost!structure!(ex!for!the!environmental!impact).!

− Competitive!system:!high!competition!creates!a!price!pressure!and!it!diminishes!the!degrees!of!freedom!in!price!setting.!!

CONSUMERS!!Clients!need!to!perceive!a!fair!price,!so!they!have!to!find!elements!to!justify!it.!The!fair!elements!are!fundamental!in!the!price!policy.!Customers!use!price!as!an!explicit!indicator!of!product!quality!(priceWquality!schema),!as!a!tool!to!compare!different!brands!and!for!purchase!decisions.!They!refer!to:!!

Price'index'''''012 = 3023/3056789:;<!!where!price!is!a!matter!of!positioning:!once!a!category!is!selected,!you!choose!price!between!the!price!of!the!category.!!PRICING'POLICY''Pricing!policy!is!about!establishing!criteria!and!guidelines!for!setting!product/service!price.!It!related!to!decisions!about:!!


lOMoARcPSD|2751981

www.andreadd.it

! General!level!of!prices!for!the!company!and/or!the!product!categories;!! Variability!of!prices!in!response!to!external!factors!(e.g.,!inflaction);�!! Pricing!along!the!lifecycle�!

Generally,!we!follow!6!steps:!1. Defining'pricing'objectives:''

• Market'3'Volume:!reaching!large!volumes,!can!create!economies!of!scale!(barriers)!and!economies!of!learning.!!

• Survival'3'Cash'flows:!companies!in!bad!situations!want!to!catch!money,!using!discounts!for!prepayments!that!give!to!the!company!fresh!money.!!

!2. Demand'forecasting:!the!demand!is!determined!by!price,!

so!it!is!a!circular!reasoning!and!you!have!to!do!approximations.!Normal!products!have!this!kind!of!demand!curve.!Changing!the!price!create!a!change!in!demand!and!the!variability!of!demand!(elasticity)!is!measured!by:!!

• Inelasting!products!(If!I!increase!the!price!a!lot,!the!quantity!sold!is!reduced!in!small!quantities).!

• Elasting!products!(If!I!increase!the!price!in!a!small!quantity,!the!quantity!sold!decreases!a!lot.!I!loose!money).!

3. Cost'analysis:!it!is!used!the!cost!accounting,!based!on!logic!and!on!a!method!of!organization.!It!is!the!most!deterministic!part.!

4. Analysis'the'competitors’'behaviour:!generally,!every!product!has!a!limited!market!price!range!set!by!the!competition.!If!a!certain!product!is!distinctive,!it!can!obtain!a!premium!price.'

5. Selection'of'the'pricing'method:!!• traditional!methods!• innovative!methods:!yeld!

management:!!TRADITIONAL!METHODS!!

1. COST!BASED!PRICING!! MarkNup'price:!expected!profit!! Break'even'price:!BEP!W>!profit!=!0!! Target'return'price:!it!is!the!expected!

return!on!investment!

!!!!!

!2. CUSTOMERWBASED!PRICING:!!

! Perceived'value'price'


lOMoARcPSD|2751981

www.andreadd.it

! Price'based'on'elasticity'(ε):'ε>0!for!luxury!products!and!ε<0!for!normal!products.!

'!!

!3. COMPETITORWBASED!PRICING!

! GoingNrate'pricing:'the!price!is!fixed!analysing!competitors.!It!is!easy!and!widely!adopted,!even!if!in!the!industrial!market!competitors’!prices!are!difficult!to!know.!It!needs!a!deep!analysis!not!to!lose!important!opportunities.'

!INNOVATIVE!METHODS!!

1. Dynamic'pricing:!every!transaction!has!ideally!a!different!price!(for!example!eCost.com!fixes!price!at!the!lowest!competitors’!price!in!that!moment)!

2. Auctions'(aste)'3. Yeld'management:!the!price!is!determined!according!to!the!availability!of!the!service.!It!is!used!when!there!

is!a!fixed!service,!when!there!re!high!fixed!costs!and!a!variable!demand.!4. Group'pricing:!it!exploits!quantity!discount!by!grouping!buyers!5. Price'along'the'product'lifecycle:!!

" Skimming!pricing:!high'entry'price!aims!at!acquiring!segments!low!in!elasticity!and!successive'reduction!aims!at!enlarging!the!customer!base.!It!is!good!when!there!are!entry!barriers,!bad!if!customer!segments!are!unclear.!

" Penetration!pricing:!low'entry'price!aims!at!acquiring!the!highest!market!share!to!accomplish!economies!of!scale!and!scope.!!

!6. Pricing'decision:!there!are!several!factors!involved!like!psychological!factors,!marketing!decisions,!

company’s!pricing!policies!and!possible!customer!reactions.!!PRICING'TACTICTS'!Pricing!varies!significantly!in!time!due!to:!

• Change!in!the!cost!structure!• Willingness!to!acquire!more!customers!than!competitors!• Willingness!to!follow!the!leader!• Economic!conjunctures!

When!price!decreases,!also!margin!decreases!and!to!recover!it!you!can!increase'sales!or!diminish'costs,!but!they!are!only!partially!controllable!by!marketing.!!DEFINITION:!the!set!of!actions!concerning!pricing!management!go!by!the!name!of!price!tactics.!!DISCOUNTS!!In!the!business'to'business'market'there!is!often!a!list!price!that!is!known!to!customers!and!competitors,!but!which!is!different!from!that!effectively!paid!by!customers.!The!explanation!lies!with!the!existence!of!different'types'of'discount,!which!are!generally!related!to!the!commercial!position!of!the!buyer.!!Generally,!companies!use!discounts!when!someone!buys!large!quantities!or!pay!before,!because!in!this!way!they!assist!you!to!enter!in!the!market.!!Categories!of!discounts:!


lOMoARcPSD|2751981

www.andreadd.it

# Quantity'discounts:!they!are!applied!to!customers!that!buy!high!volumes,!to!retain!important!customers!that!are!attractive!to!the!competition!and/or!to!take!advantage!of!any!economies!of!scale!(the!size!of!the!order!influences!the!size!of!the!job!order,!with!consequent!reductions!in!cost.!Administrative!costs!weigh!less!upon!the!product!unit!cost!if!the!order!is!substantial).!Sometimes!this!type!of!discount!turns!into!a!loyalty'discount:!discounts!are!progressive!in!line!with!the!increase!in!quantity.!

# Commercial'discounts:!they!favor!commercial!intermediaries!and!they!vary!according!to!the!sector!and!the!type!of!service!provided!by!the!intermediary.!

# Financial'discounts:!they!are!applied!if!payments!are!made!in!advance!of!the!conditions!stated!on!the!price!list,!according!to!the!different!value!of!money!over!time.!

# Seasonal'discounts:!the!price!changes!in!relation!to!the!higher!or!lower!availability!of!the!product!related!to!the!season.!They!try!to!attract!customers!when!the!demand!is!low,!in!order!to!reduce!the!fluctuant!deman.!!

!PROMOTIONS!!Promotions!are!incentives!to!manufacturers!or!retailers!that!serve!to!change!a!brand’s!perceived!price!or!value!temporarily.!They!are!shortWterm!oriented!and!they!are!able!to!influence!behaviors.!They!can!be!directed!to:!!

$ Retailers:'(push)!!Obj:!make!retailers!display!and/or!advertise!the!brand!�!Discounts,!advertising!support!programs,!allowances!�

$ Consumers:'(pull)�!Obj:!make!consumers!buy!the!brand!�!

! Coupons,!samples,!premiums,!contests!�!!

To!cut!the!final!price:!∆> = ?

@∗BC ∗ 100!!!where!x'='%'price'variation,!M*'='gross'margin'before'increase'of'price'!EX)!x=!9%,!M*=!30%!∆> = F,FH

F,IBF,FH ∗ 100 = 42,86%!W>!to!cover!the!reduction!in!margin,!due!to!a!slight!9%price!reduction,!you!have!to!increase!sales!by!42%.!!To!increase!the!final!price:!

∆> = ?@∗OC ∗ 100!!

!EX)!∆> = F,FH

F,IOF,FH ∗ 100 = −23,08%!W>!To!maintain!the!previous!margin!(30%),!the!company!can!suffer!a!volume!reduction!of!max!23%.!!DISTRIBUTION'!Communication!and!channels!have!changed!a!lot!during!the!years!(the!digital!revolution!has!changed!everything).!Nowadays!distribution!is!becoming!more!and!more!complex!because!channels!have!increased!a!lot.!!EX)!Apple!store!in!New!York!and!in!FNAC!(a!distributor):!Apple!decided!to!reach!its!customers!in!different!ways,!with!its!own!stores!and!through!distributors,!that!means!also!positioning!the!company!in!a!specific!type!of!communication!with!clients.!!

# Producer!to!final!user:!direct'channel!!# Distributor!to!final!user:!indirect'channel''

!When!companies!have!to!choose!between!these!two!different!types!of!distribution!channels!they!have!to!take!into!account:!

1. Opportunity'costs!to!reach!the!final!customers!directly!or!indirectly,!focusing!on!those!parameters!that!represents!the!relative!costs;!

2. Different!levels'of'control!(with!direct!channel!companies!can!control!everything,!while!with!distributors!they!can’t!control!the!activity!of!product!selling)!!


lOMoARcPSD|2751981

www.andreadd.it

In!order!to!design!the!distribution!channel!(ex:!choosing!one!distributor!instead!of!another),!there!can!be!different!levels:!

− Direct!channel!− Indirect!channel:!

$ Retailers!$ Wholesalers!$ Final!client!

How!to!choose!between!the!alternatives?!What!are!the!variables!that!companies!need!to!take!into!account?!Number!of!clients,!the!resources,!the!type!of!products,!etc.!!!Definition:!A!distribution!channel!is!a!structure!formed!by!partner!intermediaries!that!make!goods!and!services!available!to!final!clients,!whatever!industrial!clients!or!consumers.!!They!exist!because!of:!

− Geographic!and!demographic!development!of!markets!− Specialization!and!better!service!− Economies!of!scale!− Diminished!number!of!contacts!(and!transactions)!necessary!to!put!into!contact!demand!and!supply!− Better!service!(economies!of!learning)!− Lack!of!financial!resources!to!preside!the!market!directly!− Reduction!of!disparities!in!supply!and!demand!lot!sizes,!times,!seasonality,!place,!...!

!CHARACTERISTICS'OF'THE'DISTRIBUTION'CHANNEL'!Functions!

1. Transportation:!companies!have!to!deliver!the!products!from!the!production!line!to!the!final!consumer,!so!they!refer!to!intermediaries.!!

!!!!!!

2. Gather!information!on!current!and!potential!customers:!companies!or!intermediaries!(the!presence/absence!of!intermediaries!depends!on!the!number!of!customers,!the!distance,!the!nature!of!the!products)!have!to!collect!information!during!the!passages!from!plants!to!customers,!in!order!to!better!know!the!customers!needs!and!not!to!lose!control!on!them.!To!avoid!the!loss!of!control!over!customers,!companies!eliminate!or!integrate!intermediaries,!in!a!vertical!integrated!channel.!!

!3. Gather!information!on!competitors!and!on!the!environment!(the!market):!companies!that!want!to!enter!in!

new!markets!usually!use!intermediaries,!because!they!know!almost!nothing!about!it,!so!they!rely!on!someone!else.!Companies!have!always!to!consider!the!size!of!the!market:!if!it!is!big,!it!makes!sense!in!invest!the!majority!of!the!profit!in!it;!if!it!is!small,!it!doesn’t’!make!sense!to!invest!in!something!that!you!don’t!know!exactly,!so!they!use!local!representations,!like!agents!that!are!selected!depending!on!their!knowledge!of!local!markets.!


lOMoARcPSD|2751981

www.andreadd.it

!4. Management!of!the!direct!touch!point!with!customers:!the!selection!of!intermediaries!that!are!in!direct!

connection!with!customers!is!critical,!because!they!can!affect!the!brand!image!and!the!positioning!of!the!company.!Imagine!that!you!are!an!environmental!friendly!company!and!your!intermediary!not,!this!will!obviously!affect!your!image.!

!5. Receive!orders!and!negotiate:!the!major!risk!for!the!company!that!produce!products/services,!if!the!

intermediary!negotiate!the!final!price,!is!the!loose!control!of!the!final!price!and!if!intermediaries!do!promotions,!this!can!affect!the!company’s!position,!for!example!with!luxury!products.!Companies!want!to!manage!their!own!promotions.!!

!6. Manage!the!inventories:!they!can!store!items!and!distribute!them!closer!to!the!final!customers.!The!main!

consequence!is!that!they!can!create!a!wider'variety!of!items!for!retailers!and!final!users.!The!variable!on!which!the!variety!depends!is!the!type!of!product:!if!you!want!to!buy!a!car!you!go!to!a!car!seller,!while!if!you!want!to!buy!a!toothpaste!you!can!find!a!big!variety!of!products.!Another!consequence!is!the!size!of!products,!because!intermediaries!try!to!reach!economies!of!scale:!it!is!better!to!distribute!a!lot!of!products!with!low!value!to!reduce!the!fixed!costs.!!

!7. Manage!payments!involving!also!banks:!they!receive!payments!!

!


lOMoARcPSD|2751981

www.andreadd.it

# Distribution!channels!create!assortment!to!give!products!to!final!customers,!creating!an!alignment!with!the!needs!of!the!customers,!opening!new!markets!and!using!economies!of!scale!and!learning!to!manage!more!effectively!the!channel.!

!Flows!After!having!defined!the!intermediaries!and!their!roles,!we!focus!on!flows!of!information!and!goods!that!are!really!relevant!to!design!the!distribution!channel.!Organizing!the!channel!means!defining!who!takes!care!of!each!flow!in!every!stage.!!!

$ Title:!who!has!the!title!of!the!ownership!of!the!goods!(in!any!moment)?!In!case!the!product!is!stolen,!broken!or!damaged!

$ Physical:'what!is!the!flow!of!goods?!Drop'shipping:!when!we!receive!an!order!we!go!the!WH!to!pick!the!item!to!give!it!to!customers.!In!other!cases,!companies!create!their!own!inventories!and!stores!to!better!manage!the!orders!

$ Orders:'they!represent!the!willingness!to!buy!a!product!$ Payments:'who!keep!the!money?!Skyscanner!is!used!to!redirect!customers!directly!to!the!company’s!

website!$ Information:'who!informs!the!client!about!products?!

!Actors!

Wholesalers:!they!are!B2B!companies!that!buy!from!producers!or!other!wholesalers!to!sell!products!to!retailers.!They!create!assortment!for!retailers,!buy!large!quantities,!big!lots.!Retailers:!they!serve!final!consumers,!so!they!buy!smaller!slots!and!sell!units!to!final!users.!Agents:!they!differ!from!wholesalers!because!they!don’t!have!the!title!of!the!product!(the!ownership),!so!they!only!do!commissions.!They!gain!small!profit!because!they!don’t!take!the!risk!to!buy!products.!!Service'companies:'they!give!support!for!specific!

actions,!like!DHL!or!other!carriers.!!

# What!kind!of!flows!a!simple!carrier!manages?!He!doesn’t!manage!the!flow!of!payments!and!he!doesn’t!have!the!title!of!ownership,!but!he!manages!products!only.!There!are!specialize!partners!that!manage!only!special!actions,!like!Paypal,!used!to!enable!secure!transactions!online,!that!manage!only!the!flow!of!payments.!

!Modern!distribution!Since!XIX!century,!the!distribution!channel!has!evolved.!Starting!from!producerWwholesalerWretailersWclients!that!is!the!typical!distribution!channel,!the!number!of!retailers!has!reduced!a!lot!in!recent!years,!even!if!Italy!is!a!traditional!country!where!there!are!already!many!of!them.!Historically,!new!forms!of!distribution!of!products!and!services!have!been!developed,!so!instead!of!having!a!lot!of!retailers!with!direct!contact!with!customers,!nowadays!we!have!big!points!of!sale,!like:!

• Department!stores:!they!are!specified!in!many!categories!of!products!in!order!to!have!vast!assortment,!high!turnover,!price!tag,!but!low!margins.!(EX!La!Rinascente,!Coin,!Lafayette)!

• Chain!stores/retail!chain:!they!focus!on!economies!of!scale!and!they!are!nearer!to!clients!(EX!Benetton,!Armani,!Hilton)!

• Midmarket!department!stores:!they!are!department!stores!targeting!middle!and!low!end!of!the!market,!with!large!volumes!and!lower!margins!and!prices!(EX!UPIM,!Standa)!!

• Supermarket:!they!are!large!grocery!stores!that!manage!for!the!first!time!different!resources!and!change!the!relationship!with!customers!thanks!to!selfWservice!

• Superstores!and!hypermarket:!they!are!large!department!stores.!Department!store+!supermarket!=!hypermarket.!They!have!large!assortment,!discounts!with!large!volumes!and!selfWservice!in!oneWpoint!shopping!

• Shopping!mall:!concentration!of!supermarkets!and!retailers!in!a!single!place!• Hard!discounts:!they!are!grocery!stores!with!limited!variety!and!unbranded!products,!limited!marketing!and!

store!staff;!the!prices!are!20W25%!lower!


lOMoARcPSD|2751981

www.andreadd.it

• EWcommerce:!the!eWcommerce!sellers’!functions!are:!aggregation,!information!(and!comparison)!simplification!and!trust.!

!Competition!along!the!channel!and!across!the!channels!!How!different!actors!compete?!!

• Horizontal'competition:!same!type!of!intermediaries!competes!in!the!same!level,!like!two!supermarkets!(Esselunga!and!Carrefour!compete!on!price,!variety!of!products/brands,!services,!like!bars)!

• Horizontal'intertype'competition:!different!types!of!intermediaries!compete!in!the!same!level,!like!supermarket!and!hard!discount!(Esselunga!and!Lidl,!the!first!one!is!focused!on!specialization!and!quality!and!the!other!one!has!lower!variety!with!lower!price)!

• Vertical'competition:!intermediaries!compete!at!different!levels,!like!wholesalers!and!producers!!• Competition'between'networks:!the!entire!channel!can!be!in!competition!with!another!one,!like!the!direct!

channel!vs.!the!intermediary!!!Types!of!distribution!channels!

o Direct'channel:!the!producer!directly!approaches!the!final!consumer.!!o Indirect'channel:!the!producer!approaches!the!distributors.!The!channel!can!be!short!or!long,!depending!on!

the!number!of!intermediaries!involved.!!The!length!and!type!of!distribution!channel!depend!on!several!characteristics,!like!the!market,!the!product!and!the!company.!!

!!Strategy!of!market!coverage!Companies!have!to!decide!the!intensity'of'the'distribution,!that!means!the!number!of!point!of!sales!where!the!product!is!available:!

• Intensive'distribution:!it’s!very!easy!for!consumers!to!find!the!product.!It!is!related!to!convenience!goods!that!have!low!value!with!a!limited!purchase!selection;!if!people!don’t!find!the!product!they!easily!change!it!(emergency!goods,!cigarettes,!chewing!gums,!candies).!

• Selective'distribution:!it!is!related!to!shopping!goods!that!customers!choose!from!a!comparison!with!other!products,!so!they!have!been!carefully!selected.!In!this!case!the!point!of!sale!doesn’t!matter!so!much!(mobile!phones,!clothes).!

• Exclusive'distribution:!it!is!related!to!exclusive!goods!that!clients!select!starting!from!the!carefully!selection!of!the!point!of!sale,!like!luxury!goods.!!

!Strategy!of!communication!Push:!marketing!effort!toward!distributors!Pull:!marketing!effort!toward!final!clients!!!The!strategy!selected!depends!on!the!type!of!market,!product,!distributors,!competitors,!but!also!on!the!financial!strength!of!the!company,!which!can!sustain!a!pull!strategy!only!if!it!has!large!financial!resources.!!!


lOMoARcPSD|2751981

www.andreadd.it

DESIGNING'THE'DISTRIBUTION'CHANNEL''The!design!starts!from!the!characteristics!listed!until!now!then!moves!towards!these!steps:!

1. Determining'the'customer'service:!how!the!final!users!want!to!receive!the!goods?!It!depends!on!these!key!variables:!!

− Lot!size!!− Delivery!time!(when!people!are!expected!to!receive!the!products)!− Spatial!distribution!(distribution!intensity)!− Product!variety!− Complementary!services!

EX)!Supermarket:!!− Lot!size:!1!unit!− Delivery!time:!immediate!− Spatial!distribution:!intensive!distribution!− Product!variety:!high!variety!− Complementary!services:!selfWservice,!selfWpayment,!parking,!etc.!

2. Setting'objectives'and'fixing'constraints'(for'all'the'actors):'the!main!objective!is!to!obtain'the'required'service'at'the'lowest'cost,!remembering!that!different!segments!have!different!service!requirements!and!often!the!channel!is!determined!by!the!product!features!(ex:!perishable!goods!require!quick!service).!The!main!constraints!are:!

− Customer!characteristics!− Product!features!− Competitors!− Corporate!strategy!− Strengths!and!weaknesses!of!intermediaries!− Distribution!channels!adopted!by!competitors!!− Norms!and!laws!

3. Identifying'alternatives:'the!main!factors!that!describe!a!channel!are:!the!type!of!channel,!its!size!and!the!roles!and!responsibilities!(who!takes!the!orders?)!along!the!channel!

4. Evaluating'alternatives:'the!main!criteria!adopted!to!evaluate!alternatives!are:!!− Financial:!estimated!incomes!and!costs!!− Channel!control!(EX:!to!get!more!control!W>!vertical!integration)!− Flexibility!and!adaptation!in!time!!− Ability!to!provide!the!service!designed!!− Consistence!to!corporate!strategy!!− Compliance!to!constraint!

!Managing!the!distribution!channel!It!is!one!of!the!most!critical!part!and!it!consists!in:!

$ Selecting'the'actors:'the!selection!depends!on:'− Experience!− Reputation!and!potential!− Product!portfolio!− Localization!and!competences!

EX)!A!highWcouture!brand!looking!for!selective/exclusive!distribution:!− Strong!experience!− Reputation!and!potential:!retailers’!experience,!setting!and!personnel!supporting!the!shopping!

experience!− Product!portfolio:!adequate!and!distinct!positioning!of!the!other!products!offered!− Localization!and!competences:!close!to!city!centres!

$ Training'the'actors:!it!is!relevant!because!it!updates!actors!about!product!and!process!innovation,!it!spreads!corporate/brand!culture!and!makes!it!possible!to!get!a!customer!experience!compliant!to!the!standards!

$ Motivating'the'actors:'intermediaries!are!somehow!customers!so!they!have!needs!and!desires,!they!have!to!be!supported!in!achieving!their!objectives!and!they!can!be!awarded!with!incentives'

$ Assessing'the'actors’'performances:'companies!periodically!evaluate!their!performances!about:'


lOMoARcPSD|2751981

www.andreadd.it

− Market!share'− Sales'− Service!quality!provided'− Level!of!inventories!− Cooperation!and!goodwill!

!NEW'TRENDS''Distribution!partnerships!Companies!usually!have!to!manage!fluctuations!in!the!demand!and!this!creates!a!lot!of!problems,!especially!in!the!first!part!of!the!distribution!channel.!This!leads!to!conflictual!relationships!which!only!solution!is!to!create!cooperative!relationships,!like!partnerships!(for!example,!Toyota!focuses!on!total!cost!reduction!all!along!the!distribution!chain,!or!even!better!cooperative!and!competitive!relationships,!like!coopetition!(private!labels).!!Distribution!of!value!Customer!value!is!created!also!by!the!distribution!network!(through!physical,!communication,!information!and!financial!distribution).!The!value!network!is!considered!as!a!competitive!advantage!for!the!company!(Apple’s!value!network!is!composed!by!the!developer!of!apps!for!iPhone,!iPod!and!iPad!provided!also!through!App!Store).!!Marketing!systems!

♦ Vertical'marketing'systems:!focal!firms!extend!their!control!along!the!distribution!channel!and!they!aim!at!eliminating!dysfunctional!behaviours.!The!solution!gets!closed!to!vertical!integration!and!the!channel!works!as!a!unique,!consistent!system.!

♦ Horizontal'marketing'systems:!it!consists!in!partnership!among!companies!at!the!same!tier!of!the!supplyWchain.!There!are!synergies!in!marketing!efforts,!an!increased!effectiveness!and!companies!extend/complete!their!product!set.!

!# EWcommerce!

!Direct!channel!with!rapid!growth.!There!is!not!only!eWcommerce,!but!also!m3commerce!and't3commerce.!!Challenges:!

• Traditional!fulfillment!should!be!restructured:!distribution!centres!become!critical!to!deliver!a!good!customer!experience!

• Increasing!selection!of!merchandise!• Consumers!purchase!process!is!different!• Consumers!switch!between!online!and!traditional!channels!along!the!purchase!process!

!PROS:!

" Savings!by!reducing!the!intermediaries’!role!" Savings!thanks!to!online!promotion/advertising!" New!customers!" Direct!control!on!the!final!market!" Not!limited!geographically!" Possibility!to!provide!abundant!information!on!products!" Create!market!for!niche!products!

CONS:!" Greater!competition:!there!are!international!companies!and!consumers!have!more!information!and!can!

directly!compare!products!" Not!everybody!uses!online!channels:!there!is!still!the!need!to!keep!traditional!channels!" Inability!to!experience!the!product!(luxury!products!need!to!be!experienced)!

!!


lOMoARcPSD|2751981

www.andreadd.it

! 15/12/15!!Canvas,!is!not!related!to!develop!new!businesses!or!strategies,!but!it!used!only!to!be!sure!that!all!the!parts!of!the!strategy!are!coherent!with!each!other.!!

BLUE!OCEAN!STRATEGY!!Promotion!strategies!are!a!set!of!tools!for!making!questions!about!taking!strategic!alternatives.!When!you!do!EA!and!IA!and!you!do!the!swot,!matching!strengths!and!threats!and!so!on!we!make!questions!and!discuss!opportunities.!!The!key!point!raised!by!the!author!of!the!book!in!2004,!is!that:!!

! Red!Oceans!represent!all!the!industries!in!existence!today!–!the!known!market!space.!In!red!ocean!industry!boundaries!are!defined!and!accepted,!and!the!competitive!rules!of!the!game!are!well!understood.!Here,!companies!try!to!outperform!their!rivals!in!order!to!grab!a!greater!share!of!existing!demand.!Each!company!is!like!a!ship!fishing!in!a!known!ocean,!where!red!stands!for!the!blood!of!the!fishes.!If!the!ocean!is!very!crowded!of!fish,!the!water!gets!red!because!each!company!is!competing!against!its!competitors!attempting!to!catch!the!bigger!number!of!fish!and!to!increase!profit!and!market!share.!!!

(AUDIO)!Instead!of!driving!the!ship!where!there!is!a!crowded!competition!in!the!known!market!space,!companies!should!go!for!Blue!oceans,!that!are!new!market!spaces!where!there!are!more!possibilities!to!get!more!profit!and!market!share.!!!

! Blue!oceans!denote!all!the!industries!not!in!existence!today!–the!unknown!market!space,!untainted!by!competition.!In!blue!oceans,!demand!is!created!rather!than!fought!over.!There!is!ample!opportunity!for!growth!that!is!both!profitable!and!rapid.!

There!are!two!ways!to!create!blue!oceans:!!

• In!a!few!cases,!companies!can!give!rise!to!completely!new!industries!(i.e.!eBay!did!with!the!online!auction!industry);!

• In!most!cases,!a!blue!ocean!is!created!from!within!a!red!ocean!when!a!company!alters!the!boundaries!of!an!existing!industry!(i.e.!Cirque!du!Soleil!did!with!the!circus!industry)!�!

The!logic!behind!blue!ocean!strategy!is!counterintuitive:!!

• It!is!not!about!technology!innovation.!Blue!oceans!seldom!result!from!technological!innovation.!Often,!the!underlying!technology!already!exists!T!and!blue!ocean!creators!link!it!to!what!buyers!value.!In!fact!technological!innovation!is!more!related!to!innovation!strategies,!while!blue!ocean!uses!existing!assets!for!creating!new!industries!with!new!rules.!!

• You!do!not!have!to!venture!into!distant!waters!to!create!blue!oceans.!Most!blue!oceans!are!created!from!within,!not!beyond,!the!red!oceans!of!existing!industries.!They!are!companies!that!do!not!create!something!new!in!new!markets,!but!it!is!about!companies!that!create!something!new!in!existing!markets,!using!the!same!assets,!business,!etc.!For!instance,!Ikea!has!not!changed!the!industry,!but!it!has!addressed!to!a!boundary!segment.!!!

Example:!This!example!has!been!used!at!the!beginning!of!the!book!“Blue!ocean!strategy”.!We!consider!two!companies:!!

" Southwest:!it!is!the!first!low!cost!flying!carrier!that!started!its!business!in!UK,!also!known!as!the!grandfather!of!low!cost!carriers!in!the!flying!market.!(like!Ryanair)!!Traditional!airline!carriers’!best!solution!is!to!have!full!booked!planes!to!cover!all!the!fixed!costs!of!the!company.!In!this!way!they!can!also!improve!services,!to!make!customers!to!pay!a!little!bit!more!for!a!better!service.!(Less!people!paying!more)!!On!the!contrary,!low!cost!airline!carriers!cut!all!the!services!that!are!not!real!value!for!customers,!making!their!offering!very!cheap!and!essential,!addressed!in!particular!to!young!generations,!so!more!people!pay!less!instead!of!less!people!paying!more.!This!is!a!typical!blue!ocean:!they!use!the!same!assets!(planes,!fuel,!


lOMoARcPSD|2751981

www.andreadd.it

etc)!(not!launching!new!technologies)!in!a!new!industry,!where!flight!operators!compete!on!prices!and!services!to!serve!a!new!set!of!customers!(young!generations),!different!from!the!one!of!traditional!airlines.!Nowadays,!low!cost!carriers!are!a!red!oceans!and!they!are!competing!against!the!traditional!carriers!in!the!same!market!place.!!

" Ikea:!the!selling!point!of!Ikea!is!“do!it!yourself”.!Before!Ikea,!typical!furniture!businesses!were!made!of!top!players!(luxury,!high!level),!with!all!the!services!and!the!best!quality!stuff,!and!middle!and!low!level!players,!cheap!and!with!low!quality!stuff.!They!all!were!red!oceans,!with!a!lot!of!companies!at!local!level!taking!profit!from!the!same!business.!On!the!contrary,!Ikea!sells!good!designed!products!at!low!price,!taking!out!the!services!(customers!have!to!build!their!own!stuff,!assembling!all!the!parts).!With!this!agreement,!customers!have!the!design!but!not!the!service,!obtaining!something!in!the!middle.!(Designed!and!cheap!products).!!The!blue!ocean!market!created!by!Ikea!is!different!from!the!one!of!traditional!top!players,!because!it!is!more!related!to!affordable!luxury!(with!an!affordable!price)!and!its!target!is!young!generation!or!new!and!young!families.!This!is!another!typical!blue!ocean!idea,!because!Ikea!is!not!competing!in!an!existing!industry,!but!in!a!new!industry!with!cheap!furniture!and!no!services.!!

!When!companies!enter!in!a!blue!ocean!market!they!take!the!risks!of!the!new!unknown!arena,!because!when!other!companies!enter!in!it!they!can!easily!destroy!them.!For!this!reason,!companies!have!to!design!their!business*model!in!order!to!be!sustainable,!like!presenting!every!year!a!new!collection!as!Ikea!does,!to!sustain!its!business.!!

!RED!OCEAN!STRATEGY:!!

• make!the!most!out!of!the!value/cost!tradeToff!(cost!and!differentiation!are!a!tradeToff:!less!attractive!or!less!costly?).!

• goes!in!one!direct!or!another:!low!cost!or!differentiation.!!!BLUE!OCEAN!STRATEGY:!

• creates!a!market!space!with!no!one!there.!!• finds!a!way!to!put!together!the!vale!and!the!cost:!keeping!lower!costs!with!the!same!attractiveness.!• This!alignment!is!kept!in!the!whole!system!of!the!company!

!SIX!PRINCIPLES!OF!BLUE!OCEAN!STRATEGY!!In!the!strategic!process!of!creating!alternatives,!instead!of!looking!to!the!SWOT!analysis,!we!should!look!at!these!6!principles!(6!steps)!to!generate!alternatives,!that!are!different!from!the!typical!SWOT!analysis.!!The!first!three!are!the!most!relevant:!

1. Looking!outside!the!red!ocean!2. Defining!the!blue!ocean:!its!design!3. Making!a!sustainable!play!

!SPECIFIC!TOOLS:!

1. Canvas!2. ERRC!grid!


lOMoARcPSD|2751981

www.andreadd.it

!1. Reach!beyond!existing!demand!

!Blue!ocean!companies!go!for!the!largest!catchment!of!nonTcustomers,!looking!for:!

# First!tier:!“soon!to!be”!nonMcustomers!are!a!new!set!of!customers!ready!for!something!differentre,!on!the!edge!of!the!market!waiting!to!jump!ship.!For!example,!the!new!generation!for!airline!companies!(there!are!enough!soon!to!be!customers!to!eliminate,!reduce,!ecc.?).!They!can!be!geographical*areas/markets!not!already!reached,!but!that!are!going!to!be!next!reached!(like!Nigeria,!one!the!10!largest!countries!of!the!world,!very!young)!or!new!customers!that!can!be!different!from!the!actual!customers.!!

o WHY?!HOW?!we!have!the!tools!to!answer!these!questions!# Second!tier:!“refusing”!nonMcustomers!are!those!customers!who!consciously!choose!against!your!market!(a!

sample!of!the!substitutes).!They!are!not!in!the!mainstream!of!a!company,!because!they!buy!substitutes!refusing!some!values!of!the!company!that!are!against!their!perception.!Those!customers!are!interesting!to!study,!because!we!want!to!understand!what!they!want!and!the!reason!of!their!refusing!attitude,!in!order!to!decide!what!the!company!should!modify!to!reach!their!choice!(what!are!those!factors!that!create!the!refusing!attitude).!

# Third!tier:!“unexplored”!nonMcustomers!are!those!customers!who!are!in!markets!distant!from!yours!in!term!of!price,!quality,!products!and!time.!This!means!that!there!is!always!something!else!for!targeting.!

!EX)!Yellow!tail:!it!is!an!Australian!wine.!If!you!are!an!Australian!producer!of!Yellow!tail,!you!have!alternatives!like!Tavernello!(low!quality!wine!in!a!brick,!very!cheap!and!produced!in!large!quantities!to!run!a!cheap!production!systemT>!cheap!blue!ocean)!or!luxury!wines!with!special!etiquettes!and!design!T>!red!ocean,!because!in!Australia!there!are!already!a!lot!of!top!producers.!Getting!out!of!the!red!ocean!(existing!customers)!you!can!position!the!Yellow!tail!for!the!young!generations!(soon!to!be),!eliminating!all!the!elements!like!branding,!aging,!labelling,!but!using!only!two!types!of!wine!(Shiraz!and!Chardonnay)!creating!a!community!of!fun!cool!young!people.!The!blue!ocean!is!not!changing!the!rules!of!the!game,!but!creating!only!a!new!positioning!(funny!and!cheap)!not!already!present!in!the!market.!!

EX)!Nintendo!Wii:!the!rules!of!the!game!in!the!mainstream!market!(young!antisocial!males)!are!the!power!of!the!definition!and!the!quality!of!the!video,!community!around,!being!alone!and!challenging!someone!else!around!the!world!through!a!web!community.!The!refusing!nonTcustomers!are!those!who!maybe!like!games,!but!don’t!want!to!buy,!like!girls.!Nintendo!don’t!gain!these!customers,!because!maybe!they!prefer!playing!alone!instead!of!with!friends.!Playing!for!fun!with!friends!and!the!physical!activity!are!the!main!effects!

created!by!Wii,!something!new!related!to!new!customer!segments!like!parents.!!!

2. Reconstruct!market!boundaries!!Blue!oceans!need!specific!boundaries,!because!if!we!suppose!that!there!are!other!customers!interested!in!our!products,!we!should!take!them!into!account!after!having!analysed!them!with!accuracy!in!order!to!avoid!useless!results.!For!example,!if!we!target!the!young!generations,!we!need!to!be!sure!that!they!are!a!separate!segment!from!


lOMoARcPSD|2751981

www.andreadd.it

the!other!customers!(targeted!with!the!same!strategy),!in!order!to!create!a!new!industry!with!new!rules.!This!means!targeting!in!a!different!way!customers.!We!can!use!two!different!tools:!Strategy!Canvas!and!EliminateTReduceTRaiseTCreate!(ERRC)!grid.!!!STRATEGIC!CANVAS!!It!is!a!way!to!represent!the!rules!of!the!game.!On!the!x!axis!there!are!the!main*factors*that*define*the*offer*of*the*competitors,!while!on!the!y!axis!there!are!the!levels*of*the*factors*pursued*by*competitors*(Low,!Medium,!High).!Looking!at!the!Canvas,!with!all!the!Value!Curves!created!from!the!information!collected!in!the!external!analysis,!we!should!ask!the!questions!of!the!4!actions!frameworks.!!!EX)!Analysis!of!traditional!airline!industry!The!main!factors!for!competition!are:!

• Price!• Choice!of!seats!• Frequency!• Location!!• CheckTin!service!at!the!airport!• Baggage!• Lounge!services!

!If!we!do!the!analysis!for!Lufthansa:!

• Price:!high!!• Choice!of!seats:!middle!!• Frequency:!high!!• Location:!high!!• CheckTin!service:!high!!• Baggage:!high!!• Lounge!services:!high!!

!We!could!do!the!same!for!other!airline!companies!(like!Alitalia),!representative!of!the!industry,!obtaining!different!value!curves.!This!analysis!comes!from!the!external!analysis,!taking!the!same!information!but!using!them!in!a!different!way.!!4!actions!framework:!The!design!of!the!blue!ocean!strategy!starts!from!here,!asking!questions!about!these!4!topics.!There!are!4!quadrants:!!

1. Eliminate:!analysis!of!what!the!industry!takes!for!granted!and!ask!questions!about!their!elimination.!For!example,!if!it!is!common!for!the!airline!industry!to!have!something,!like!the!lounge!services,!you!can!think!to!eliminate!it.!Companies!could!serve!the!customers!in!the!same!way,!but!eliminating!the!lounge!service!and!the!choice!of!seats,!that!are!extraTservices,!they!can!cut!costs.!

2. Reduce:!what!are!the!factors!that!can!be!reduced!well!below!the!industry’s!standard?!It!is!about!cutting!stuff,!cost!of!assets!and!fixed!costs,!but!this!means!also!reducing!the!quality!of!the!service.!For!example,!we!can!reduce!baggage,!check!in,!location,!frequency!and!price.!!

3. Raise:!what!are!the!factors!that!can!be!raised,!instead!of!reducing!them?!Something!not!really!relevant,!but!that!can!be!raised.!For!example,!we!can!raise!the!choice!of!the!seats.!


lOMoARcPSD|2751981

www.andreadd.it

4. Create:!what!are!the!factors!that!I!can!add!to!the!list!of!written!factors,!for!example!the!WiTFi!service!and!the!online!checkTin,!in!order!to!cut!costs!and!increase!the!service.!(reducing/eliminating!the!services!at!the!airport,!but!increasing!the!ones!online).!!

!In!this!way!we!can!create!a!new!“swot”!structure!called!ERRC!grid.!!!

! After!the!analysis!of!the!existing!industry!(External!Analysis),!we!have!all!the!information!to!create!the!value!chain.!Then!we!ask!what!we!can!do!to!change!the!picture!of!the!value!chain!to!create!a!blue!ocean,!also!to!reduce!the!gap!from!the!leader!of!the!industry.!

!EX)!Cirque!du!Soleil:!!

!!

! Price!is!defined!after!the!4!actions!definition.!!After!having!defined!the!tools,!we!have!to!follow!a!framework!with!6!pathways!to!reconstruct!the!market!boundaries:!

!

!1. Look!across!alternative!industries:!

Alternatives!include!products!or!services!that!have!different!functions!and!forms!but!the!same!purpose.!!Air!Asia:!it!adopts!a!low!cost!strategy,!offering!a!service!with!a!low!price!as!the!one!of!the!train!ticket,!eliminating!a!lot!of!costs!in!order!to!survive!in!the!airline!business.!This!industry!is!in!the!middle!of!industries!going!in!one!direction!and!in!the!other.!Blue!oceans!are!across!the!industries.!


lOMoARcPSD|2751981

www.andreadd.it

!!!!!!!!!!!

!!!1. Look!across!strategic!groups!within!industries:!

Strategic*groups!are!groups!of!companies!within!an!industry!that!pursue!a!similar!strategy.!For!instance,!in!the!automobile!industry!all!those!that!are!part!of!the!luxury!group!(Mercedes,!BMW)!or!economical!group!(Toyota,!Proton).!Curves:!it!looks!at!two!different!groups,!the!first!is!Home*Exercise!(the!target!is!women!that!don’t!have!time!to!spend!doing!physical!activity)!and!the!second!is!Traditional*Health*Clubs!(the!target!are!

women!that!go!to!clubs!to!do!physical!activity!followed!by!personal!trainers).!Curve!is!a!blue!ocean!because!it’s!for!women,!the!activity!is!quick!(close!to!home!exercises)!but!it!is!organized!in!a!specific!place,!cheaper!than!clubs,!that!creates!the!atmosphere!of!being!part!of!a!club!with!instructors!that!help!them!doing!exercises.!The!idea!is!to!mix!the!characteristics!of!the!two!strategic!groups!to!create!a!blue!ocean!with!specific!boundaries.!!!

!!!!!!!!!!!

2. Look!across!the!buyer!groups:!There!is!a!chain!of!‘buyers’!who!are!directly!or!indirectly!involved!in!the!buying!decision,!like!purchasers!(pay!for!the!product!or!service),!users!(use!the!product!or!service)!and!influencers!(influence!the!decision!in!the!purchase).!For!example,!Novo!Nordisk!that!from!insulin!producer!became!a!diabetes!care!company.!Wii:!different!buyer!groups!are!linked!together!and!they!all!use!the!product.!Instead!of!pointing!a!specific!target,!they!put!it!together!with!all!the!other!groups!of!buyers.!(Everyone!is!a!gamer)!!!!


lOMoARcPSD|2751981

www.andreadd.it

!!

3. Look!across!complementary!scope!of!products!and!services!offerings:!Foxconn:!the!chain!for!electronic!and!manufacturing!services!does!mass!production!and!logistics,!offering!third!part!service.!It!was!the!first!to!create!a!full!service,!starting!from!the!design!of!the!final!product!until!its!selling.!The!blue!ocean!idea!is!starting!contracting!with!big!players!to!get!the!blue!ocean!fixed,!even!if!other!companies!can!copy!you!quickly,!you!are!safe!for!a!while.!!

!!

4. Look!across!functional!or!emotional!appeal!to!buyers:!Some!industries!compete!principally!on!price!and!function,!so!their!appeal!is!rational,!while!other!industries!compete!largely!on!feeling!and!their!appeal!is!emotional.!!QB!house:!it!is!a!hair!saloon!that!wants!to!eliminate!all!the!additional!services,!reducing!time!of!procedures,!offering!cheap!services.!The!blue!ocean!targets!the!same!target!with!a!different!functional!approach.!Some!players!in!the!same!business!will!offer!the!same!services,!but!the!potential!new!segments!created!are!the!real!power!of!the!blue!ocean.!

!!

5. Look!across!time:!Blue!oceans!are!able!to!create!something!which!is!independent!from!trends,!so!the!business!stays!the!same!across!time!periods,!because!it!is!not!affected!by!trends.!!


lOMoARcPSD|2751981

www.andreadd.it

YouTube:!it!is!a!broadcasting!service!and!it!is!a!blue!ocean.!Typical!broadcasting!services!(like!television)!are!based!on!a!schedules,!where!businesses!decide!the!schedule!in!which!they!have!to!resume!all!the!information!in!the!best!way.!The!blue!ocean!of!this!broadcasting!service!has!been!created!by!making!the!time!frame!irrelevant,!selecting!independently!the!content!in!all!kinds!of!platforms.!!

!!!!!!!!!!!!

!There!first!two!points!described!until!now!create!a!sort!of!check!list,!in!order!to!analyse!all!the!possibilities!to!fill!the!grid!to!create!a!blue!ocean!strategy.!!!

! There!is!always!a!blue!ocean!strategy!for!all!the!industries?!Yes,!potentially.!

! All!of!them!are!profitable?!No,!the!blue!ocean!perspective!is!a!structured!strategy!for!any!industry!that!is!an!alternative,!but!you!have!to!check!if!it!is!profitable!or!not.!!

!3. Focus!on!the!big!picture,!not!the!numbers!

!The!four!steps!of!visualizing*strategy!builds!on!the!six!paths!of!creating!blue!oceans!and!involves!a!lot!of!visual!stimulation!in!order!to!unlock!people’s!creativity.!The!four!steps!include:!

!!

• Visual!awakening:!compare!your!business!with!your!competitors’!one!by!drawing!your!“as!is”!strategy!canvas,!in!order!to!see!where!your!strategy!needs!to!be!changed.!!

• Visual!Exploration:!go!into!the!field!to!explore!the!six!paths!to!create!blue!oceans.!Observe!the!distinctive!advantages!of!alternative!products!and!services.!See!which!factors!you!should!eliminate,!create,!or!change.!!

• Visual!Strategy!Fair:!draw!your!“to!be”!strategy!canvas!based!on!insights!from!field!observations.!You!should!create!a!preTscreening!of!the!idea,!starting!from!feedback!on!alternative!strategy!canvases!from!customers,!competitors’!customers,!and!noncustomers!(they!all!are!potential!customers)!in!order!to!design!the!value!of!the!blue!ocean.!The!best!you!can!try!to!is!to!check!with!customers!and!competitive!customers!if!they!like!this!blue!ocean!approach.!If!you!ask!young!generations!if!they!like!your!flight,!you!should!go!whether!you!can!find!them!trying!to!get!info!from!them:!how!much!they!will!spend!for!travelling,!where!they!will!travel,!what!


lOMoARcPSD|2751981

www.andreadd.it

services!can!be!useful!for!them!(online!checkTin,!ticket!offices!inline).!The!soon!to!be!customers!need!to!be!analysed!in!the!HOW!process:!if!they!focus!only!on!ticket!offices,!you!should!create!something!to!serve!this!need.!!

− In!the!traditional!SWOT!process,!you!don’t!need!to!evaluate!the!feedbacks!of!potential!customers,!because!you!can!look!at!existing!customers!and!competitors!of!a!known!market!place.!!

− In!the!blue!ocean!case!you!refer!to!a!new!market!place!and!a!new!industry,!so!you!need!to!check!if!your!new!idea!is!feasible!or!not.!The!risk!of!failure!is!bigger!than!in!red!oceans,!because!the!rate!of!unknown!features!is!higher.!

EX)!Doing!surveys!with!400.000€!within!young!generation!is!always!less!expensive!than!buying!directly!an!airplane!and!then!doing!surveys.!!! It!is!more!about!being!effective!and!not!efficient.!!Sometimes!it!is!easier!if!you!don’t!need!a!capital!requirement,!for!example!if!you!serve!only!a!small!area!you!can!test!if!your!idea!works!and!see!what!it!happens.!Getting!some!feedbacks!is!crucial!because!you!are!going!in!a!new!direction.!At!the!end!you!use!feedback!to!build!the!best!“to!be”!future!strategy.!Visual!communication:!distribute!your!beforeT!andTafter!strategic!profiles!on!one!page!for!easy!comparison.!Once!you!have!a!defined!concept!and!you!can!describe!your!idea!clearly,!you!can!design!and!do!the!calculations!for!business!plan,!checking!if!the!idea!is!worth!to!investing!(blue!oceans!approach!is!high!impact!in!term!of!changes!and!investments).!At!the!end!support!only!those!projects!and!operational!moves!that!allow!your!company!to!close!the!gaps!to!actualize!the!new!strategy.!

!4. Get!the!strategic!sequence!right!

!!

An!important!part!of!blue!ocean!strategy�is!to!“get!the!strategic!sequence!right.”�This!sequence!fleshes!out!and!validates!blue!ocean!ideas!to!ensure!their�commercial!viability.!This!can!then!reduce!business!model!risk.!In!this!model,�potential!blue!ocean!ideas!must!pass�through!a!sequence!of!buyer!utility,!price,�cost,!and!adoption.!At!each!step!there�are!only!two!options:!a!“yes”!answer,!in�which!case!the!idea!may!pass!to!the!next�step,!or!“no”.!If!an!idea!receives!a!no!at�any!point,!the!company!can!either!park�the!idea!or!rethink!it!until!you!get!a!yes.!!

The!process!is!mixed:!who!and!how,!price,!cost,!how!can!I!reach!them.!Cost!and!price:!can!you!gain!a!premium!price!over!your!competitors!and!you!can!maintain!a!low!cost?!One!or!the!other,!lower!costs!or!higher!margins.!!!EX)!Wii:!it!is!a!blue!ocean!with!good!points.!There!are!soon!to!be!customers,!parents,!teenagers!and!children.!It!creates!a!new!approach!of!gaming.!But!Wii!is!mostly!based!on!a!technological!innovation:!the!idea!of!getting!a!remote!control!that!is!visual!creates!a!new!interface!between!you!and!the!consol.!More!human!based!interaction,!that!is!completely!new!between!the!traditional!consol.!In!fact,!Wii!is!also!named!as!a!Disruption!innovation.!So!Wii!is!a!blue!ocean,!disruption!innovation!or!a!traditional!strategy?!Children!can!be!a!segment!opportunity,!also!from!the!SWOT!strategy.!!!When!you!put!a!blue!ocean!strategy!in!the!market,!what!is!your!goal?!(For!example,!if!you!publish!a!new!book!you!have!to!provide!successful!stories.)!One!good!way!is!revising!all!the!successful!companies!of!the!past!(Southwest,!Ikea,!Wii)!and!putting!questions!in!a!different!way!than!in!the!traditional!SWOT!analysis,!because!blue!ocean!strategy!should!not!follow!a!label,!but!you!should!create!the!value!based!on!new!questions!put!in!a!different!way,!starting!from!new!ideas!and!be!creative!to!


lOMoARcPSD|2751981

www.andreadd.it

implement!them.!When!you!see!the!blue!ocean!example,!you!should!not!memorise!its!label,!but!you!should!start!from!it!to!create!new!questions.!!NB)!!!

• CC!(core!competence)!is!mostly!about!portfolio!(what!other!existing!arena!can!be!touched!by!your!competences?!What!can!you!do!in!the!other!existing!arenas?)!and!existing!arenas.!LESS!RISKY!

• SWOT!analysis!is!mostly!based!on!the!existing!output.!AVERAGE!• Blue!oceans!can!be!about!portfolio!(adding!something!new,!going!out!with!the!existing!output!and!finding!

way!to!increase!the!profit),!but!they!are!mostly!based!on!searching!new!arenas.!MOST!RISKY:!if!you!only!look!at!it,!you!generate!an!idea!but!the!problem!is!that!probably!the!idea!is!too!risky!and!maybe!it!can’t!get!enough!profit.!

All!these!aspects!comprise!ideas!about!new!businesses,!new!ways!to!get!in!the!business!and!how!to!keep!the!profitability!in!the!existing!area.!You!should!try!to!balance!these!aspects.!If!you!want!to!grow,!when!you!run!an!analysis!the!best!way!is!to!set!all!the!alternatives!and!evaluate!the!most!promising!and!valuable.!The!two!main!points!are:!

! GENERATING!ALTERNATIVES:!the!more!you!are!able!to!generate!alternative!the!best!it!is,!depending!on!the!industry!and!on!the!level!of!risk.!

! DECIDING!WHERE!TO!INVEST!!!


lOMoARcPSD|2751981

www.andreadd.it

STRATEGIC)INNOVATION:)DISRUPTION)!DEF)!A!disruption!happens!when!an!established!company,!well!respected!and!well!positioned!on!the!market!(incumbent),!is!beat!(from!a!competitive!standpoint)!by!a!newcomer,!usually!a!new!venture,!that!took!then!the!lead!of!the!market.�!A!disruption!is!something!that!happens!when!an!innovation!brought!to!the!market!is!so!strong!than!the!existing!companies,!so!they!are!disrupted!by!the!new!coming!and!the!market!share!of!the!main!companies!change!significantly.!!!

! How!is!it!possible!that!a!large,!established!(and!normally!financially!strong)!company!is!beat!by!a!smaller,!unknown!company!new!to!the!market?!Should!have!the!management!and!the!director!of!the!functions!(marketing,!R&D,...)!prevented!the!newcomer?!�!

!EX)!APPLE:!It!entered!in!the!market!with!something!completely!new.!The!old!companies!are!always!in!the!market!nowadays,!but!they!are!no!more!the!market!leader,!for!instance!Nokia,!Motorola!and!Sony!Ericson,!that!were!very!well!established!companies,!now!they!have!been!disrupted.!!EX)!Kodak!has!been!disrupted!by!digital!cameras!EX)!Google)and)Microsoft:!when!Google!was!founded,!Microsoft!was!trying!to!do!the!same!as!Google!(searching!engine!based!on!words).!Before!of!this,!everything!was!organised!in!folders,!like!a!computer,!that!took!the!idea!from!archives!where!papers!are!collected!in!folders.!The!main!point!was!indexing!and!categorising!in!the!web!architecture,!so!people!had!to!find!the!right!folder!to!find!something.!When!in!Microsoft!was!proposed!the!new!idea!of!searching!based!on!words,!the!team!was!fired,!but!after!some!months!Google!created!the!idea.!!Why!people!were!not!able!to!see!what!was!going!around?!!Because!they!missed!a!part!of!the!analysis.!!CASE)HISTORIES)!CASE)HISTORY:)the)hearing)aid)industry)!From!1958!to!1985!Oticon,!a!Danish!hearingSaid!company,!dominated!its!market!in!the!USA!and!Europe!with!the!best!products.!It!was!among!the!most!innovators!and!every!new!product!was!improving!the!main!features!of!the!products!of!the!hearing!aid!industry.!At!that!period!the!main!objective!to!put!this!kind!product!on!the!market!was!the!audio!performance.!Every!new!product!was!getting!better!in!term!of!quality!of!sound!heard!by!people.!!The!firm!had!a!tradition!of!great!technical!and!manufacturing!excellence.!Its!behind'the'ear+(BTE)!hearing!aid!was!both!technologically!sophisticated!and!reasonably!priced.!Over!time,!Oticon!had!acquired!specific!characteristics:��

− Emphasis!on!NPD!focused!on!technical!superiority!(under!the!belief!that!a!technically!superior!product!would!sell!itself)�!

− Technologists!spent!more!time!talking!with!each!other!than!interacting!with!their!diverse!and!increasingly!global!customers�!

− Managers!were!good!at!improving!their!products!incrementally,!but!their!cultural!arrogance!and!insularity!blinded!them!to!radical!technologies!!

!In!1985!Starkey,!a!small!USSbased!player,!reconfigured!BTE!components!to!produce!an!in'the'ear+(ITE)!hearing!aid.!!It!came!out!with!an!idea:!instead!of!working!on!the!audio!performance,!working!on!something!comfortable!and!not!visible.!They!created!a!product!inside!the!ear,!not!visible,!but!with!lower!quality!of!the!sound!and!cheaper.!This!new!product!sacrificed!sound!quality!a!bit,!but!it!was!smaller!and!less!intrusive.!The!market!for!the!ITE!aid!was!fashionSoriented,!rather!than!hospitalS!or!physicianSoriented.!In!the!first!90s!one!of!the!first!users!of!Starkey’s!products!was!Ronal!Regan!USA!president.!He!wanted!something!not!visible!and!comfortable!instead!of!focusing!on!its!quality!of!the!sound.!!!Oticon!reacted!defensively!and!actively!resisted!ITE!products.!They!felt!that!the!new!products!were!technically!inferior!and!could!not!be!mass!produced.!!The!established!processes,!structures!and!culture!prevented!Oticon!from!taking!seriously!an!innovation!that!violated!their!assumptions!about!the!hearingSaid!market.!!!The!innovation!curve!(V!quad)!


lOMoARcPSD|2751981

www.andreadd.it

!The!market!for!ITE!hearing!aids!boomed.!By!1986,!80%!of!the!American!market!shifted!to!ITE!products.!!Oticon!historical!prosperity!evaporated.!In!the!face!of!dramatic!loss!in!market!share!(from!15!%!to!9!%!between!1985!and!1986)!and!profits,!a!new!management!team!was!brought!in.!This!team!initiated!a!revolutionary!change!in!the!structure!and!culture!of!the!company,!that!brought!fruit:!by!1995,!Oticon’s!profits!were!up!to!10!times!from!their!1990!level.!The!firm!had!developed!a!breakthrough!product!(digital!hearing!aids),!that!would!become!over!the!years!a!dominant!solution!in!the!market!!Starkey:!

• Cheap!• Low!in!the!main!feature!(quality)!• High!in!alternative!features!(comfort!and!visibility)!!

! The!next!point!will!be!technological!innovation:!investing!in!it!you!will!cover!the!gap!with!the!existing!technology!about!quality,!the!main!feature.!

!They!are!very!dangerous!systems!for!established!companies,!because!they!start!from!cheap!and!low!quality!products!and!then!they!reach!alternative!features!of!value,!in!term!of!technology,!so!established!companies!are!too!late!to!react!in!the!right!way,!because!there!are!already!companies!with!high!technology!products.!!!If!those!substitutes!with!these!characteristics!(low!level!and!cheap!substitutes)!have!a!technology!behind!that!will!support!them!in!the!future,!they!can!become!very!dangerous!and!the!disruption!market!suggests!to!analyse!them!carefully!(they!will!be!the!leader,!thanks!to!the!progress!of!their!main!features).!When!there!is!no!technology!behind!they!are!not!a!threat.!!!CASE)HISTORY:)the)failure)of)Swiss)watch)firms))

• At!the!beginning!of!the!1970s,!quartz!movement!watches!replaced!mechanical!watches.!Even!though!Swiss!firms!had!invented!both!the!quartz!and!tuning!fork!movements,!at!that!point!in!time!they!moved!to!reinvest!in!mechanical!watches.!As!Seiko!and!other!Japanese!firms!prospered,!the!Swiss!watch!industry!drastically!suffered.!By!1980,!SSIH,!the!largest!Swiss!watch!firm,!was!less!than!half!the!size!of!Seiko.!Eventually,!SSIH!and!Ausag,!the!two!largest!Swiss!firms,!went!bankrupt.�!!

Lessons!learnt:!!

♦ Disruption!is!about!technological!innovation.!!♦ Blue!ocean!is!mostly!about!business!model!innovation.!!

!Disruption!is!not!just!“innovation”!(incumbent!firms!are!innovative!as!well),!but!it!is!an!innovation!that!disrupt!mainstream!technologies!and!it!is!cheap!and!low!quality!at!the!beginning.!Disruptive!technologies!are!hard!to!intercept!as!they!appear!as!significantly!weaker!than!the!established!one!at!the!beginning.!!UNDERSTANDING)DISRUPTION)COMING)FROM)TECHNOLOGICAL)DISCONTINUITIES)!Sustaining)and)disruptive)technological)change))We!should!distinguish!innovation!from!disruptive)innovation:!in!the!traditional!innovation!process,!the!new!technology!adds!features!and!commands!a!premium!price!(v!grafico!quaderno).!!In!the!disruptive!process,!if!the!innovation!is!disruptive,!when!it!comes!out!in!the!market!it!doesn’t!point!to!the!premium!market,!but!it!goes!in!the!direction!of!cheap!and!low!performance!market,!reaching!the!mainstream!market!adding!something!new!in!the!future.!)!EX)!Producing!ironSbased!steel,!you!use!blast!furnaces,!burning!and!getting!at!the!top!of!the!pot!steel.!The!performance!is!measured!as!t/m3!with!a!certain!level!of!improvement!in!time.!


lOMoARcPSD|2751981

www.andreadd.it

The!main!point!for!improving!the!burning!process!was!putting!in!the!system!air!+!smokes!and!particles!of!fossil!fuel,!increasing!the!productivity!(t/m3).!All!the!engineers!were!working!in!this!direction.!In!the!middle!of!the!90s!a!new!technology!was!launched!(electric!mills):!it!uses!different!raw!materials,!putting!pieces!of!iron!in!an!electric!oven,!but!the!productivity!was!reduced!due!to!the!reduction!of!the!working!surface!in!the!oven.!Even!if!at!the!beginning!this!technology!presented!low!performances,!it!was!cheaper!and!it!presented!some!adding!features!like!using!only!materials!and!not!coke!and!fuel!(that!produce!polluted!gas)!being!environmental!friendly.!Then!it!easily!reached!the!productivity!of!the!mainstream!market,!so!it!is!considered!a!potentially!disruptive!technology.!(v!grafico!quaderno)!)CASE)HISTORY:)disk)drive)industry)!Disk!drive!was!a!main!component!in!the!computer!systems!and!the!first!market!was!based!on!the!idea!that!the!largest!the!capacity!the!better!the!performance.!Every!year!the!innovation!was!focused!on!enlarging!the!capacity!to!be!on!the!top!of!the!players.!When!new!technologies!come!out,!they!are!cheaper!and!less!performing!(10!MB!of!capacity,!against!100!MB!capacity!in!the!market)!but!they!enter!in!the!market!because!there!are!new!small!computers!that!fit!better!with!them.!They!are!smaller!so!they!are!the!best!solution!for!a!certain!type!of!computer:!the!alternative!feature,!the!size,!is!relevant!for!a!small!market!and!not!for!the!main!market.!!In!ten!years,!they!will!improve!their!capacity!reaching!the!best!performing!drive!disk,!so!the!bigger!market!will!be!attached!by!cheap!and!low!level!market.!!!The)threat)of)disruptive)technologies)!The!main!problem!of!technological!innovation!is!when!you!are!in!a!business!and!you!master!a!technology,!if!you!start!moving!your!path!in!order!to!increase!the!capacity!offered,!you!could!overSserve!the!market!(much!more!than!what!the!market!demands).!!

!Let’s!consider!3!main!elements!of!the!disruptive!innovation:!!

" Cheapness!


lOMoARcPSD|2751981

www.andreadd.it

" Low!level!of!the!mainstream!technology,!but!with!a!powerful!technology!for!the!future!" Good!in!some!other!features,!even!new!to!the!market!

With!these!3!elements!together,!disruptive!innovations!are!emerging!in!small!markets,!but!with!low!profits!at!the!beginning.!They!expand!the!new!set!of!customers!that!are!willing!to!pay!for!it!and!they!are!brought!to!the!market!through!startSups!or!small!companies.!!!

! The!disruption!theory!says!that!companies!should!spot!a!potential!disruptive!technology!as!soon!as!possible!to!reduce!the!risks,!in!order!to!be!able!to!react.!

Lessons!learnt:!strategic!warnings!Established!companies!believe!that!investing!aggressively!in!disruptive!technologies!is!not!a!rational!financial!decision:!!

1. Disruptive!products!are!often!simpler!and!cheaper,!they!generally!promise!lower!margins,!not!greater!profits!2. Disruptive!products!are!first!commercialized!in!emerging!and!insignificant!markets!3. Established!firms’!most!profitable!customers!generally!don’t!want!products!based!on!disruptive!technologies!4. The!startSups!or!newScomers!that!aggressively!promote!disruptive!products!do!not!appear!as!a!real!

challenge!to!their!market!position!!

BIG)BANG)DISRUPTIONS)(vedi!immagini!slides)!!The!basic!idea!behind!this!article!is!that!nowadays!the!disruptions!are!even!more!strong!than!in!the!past.!The!Big!Bang!disruption!is!a!disruption!that!destroys!the!existing!market,!it!disappears.!!!!Examples:!!

• Watches:!today!we!don’t!need!it!anymore!because!we!have!an!alternative!(smartphones),!in!fact!their!industry!is!suffering!a!lot,!because!another!industry!is!offering!the!same!service!without!gaining!from!it.!

• TomTom:!it!was!a!very!strong!brand!for!portable!navigator,!but!today!we!can!use!the!smartphone.!• Digital!cameras:!we!can!take!pictures!also!with!the!smartphone.!• Gaming!consoles:!portable!PlayStation!disappeared!due!to!the!smartphones.!

!Creating!value!disrupting!established!industries!!Whatsapp)It!is!a!new!messaging!service!on!the!phone!based!on!internet.!The!displayed!market!is!the!traditional!messaging!market,!very!reach,!that!almost!completely!disappeared.!«WhatsApp!has!succeeded!to!destroy!the!market!of!SMS!in!only!four!years:!an!operation!that!would!require!in!other!times!between!20!and!30!years»,!it!claimed!one!of!the!world's!leading!operators!of!venture!capital,!at!the!recent!acquisition!of!WhatsApp!by!Facebook!for!$!19!billion.!Nineteen!billion!for!a!startSup!founded!in!2009,!which!succeeded!in!4!years!S!investing!few!money!($!60!million),!and!with!very!few!people!(55!in!all),!but!giving!up!almost!entirely!(given!its!business!model)!to!revenues!S!to!overcome!the!threshold!of!450!million!users!and!50!billion!of!messages!processed!per!day:!the!highest!rate!of!growth!in!the!history!of!the!world!economy.!!A!part!from!the!entity!of!the!amount!paid,!it!is!the!speed!rate!at!which!WhatsApp!and!other!startS!ups!are!disrupting!a!market!as!rich!as!that!of!SMS,!with!heavy!damage!to!the!telecom!operators!who!controlled!it,!that!deserves!a!reflection.!It!is!a!market!of!relatively!recent!birth,!developed!(until!the!advent!of!smartphones)!with!the!spread!of!phones,!and!also!because!their!customers!are!mainly!large!enterprises.�An!equally!worthy!reflection!is!addressed!to!the!fact!that!new!entrants!S!WhatsApp!and!other!startSups!S!steal!to!the!incumbent!firms!increasing!market!shares,!but!not!take!over!them!(if!not!in!small!part)!in!revenues!and!profits,!because!they!offer!alternative!services!(almost)!free.!!!What!were!the!main!features!of!the!phenomenon!WhatsApp?!

1. the!possibility!born!with!smartphones!of!a!mobile!access!to!the!Internet!and!therefore!an!alternative!media!for!the!messages;!

2. the!possibility!of!passing!through!the!Internet!to!circumvent!the!policy!of!price!discrimination,!on!the!basis!of!uses,!applied!by!telecom!operators:!such!as!the!inclusion!of!photos!in!the!messages!themselves;!

3. the!growing!availability!of!broadband,!for!its!impacts!on!the!quality!of!services!moved!through!the!Internet;!


lOMoARcPSD|2751981

www.andreadd.it

4. the!availability!of!an!infrastructure!even!more!consistent!of!cloud!computing;!

5. very!low!cost!for!the!creation!and!dissemination!of!an!app.!

!The!growth!of!WhatsApp!through!the!disruption!of!an!industry!segment!as!rich!as!that!of!SMS!is!a!case!of!bigS!bang!disruption.!In!fact,!it!is!a:!

− Technology!based!− Cheaper!than!SMS!!− It!needs!an!internet!connection!to!be!used,!

also!for!the!other!users!!But!is!it!the!growth!of!WhatsApp!sustainable?!!!Airbnb!Brian!Chesky,!Airbnb’s!coSfounder!and!chief!executive,!showed!off!a!redesigned!mobile!app!and!networking!site!for!hosts!S!for!Apple’s!iPhone!and!Google’s!Android!S!to!make!it!easier!for!them!to!rent!out!their!spare!rooms!and!get!support!from!other!users!of!the!service.!The!company,!a!“sharing!economy”!pioneer,!which!launched!in!2008!and!now!operates!in!34,000!cities,!is!also!overhauling!its!reviews!systems!to!provide!more!detailed!ratings,!such!as!cleanliness,!accuracy,!availability!and!a!host’s!“commitment”.!“We!are!confident!that!in!the!future!the!majority!of!guests!staying!with!you!will!be!booking!their!trips!on!a!phone”.!The!rich!price!tag!reflects!Airbnb's!potential!to!disrupt!the!hotel!industry.!In!six!years,!the!company!has!become!a!required!destination!for!millions!of!tourists!looking!for!cheap!rooms,!while!giving!homeowners!a!new!source!of!income.!The!company!could!be!worth!more!than!Wyndham+Worldwide,!which!manages!7,500!hotels!under!the!Wyndham,!Ramada!and!other!brands,!and!is!valued!at!$9.3!billion.!Hyatt+Hotels!has!a!market!value!of!$8.4!billion.!In!2015,!Airbnb!Inc.!is!raising!money!from!investors!in!a!financing!round!that!would!value!the!roomSsharing!service!at!$20!billion!or!more.!!Airbnb!hasn’t!eliminated!the!existing!hotel!market,!but!pushed!a!lot!of!efforts!in!changing!it.!The!main!idea!is!the!matching!platform!between!the!seller!and!the!buyer!taking!part!of!the!transaction,!which!allows!Airbnb!to!collect!data!about!users.!The!company!from!2008!reached!34,000!cities!and!it!is!the!largest!hospitality!offering!in!the!world.!What!is!the!difference!between!Airbnb!and!Booking.com?!Both!are!booking!services,!but!while!in!booking!who!has!the!asset!is!the!winner,!in!Airbnb!the!relationship!between!who!has!the!asset!and!the!buyer!is!different,!because!it!is!cheaper!for!the!customer!and!the!seller!gains!more!and!in!the!end!Airbnb!gains!money!from!the!transaction!of!assets!that!it!doesn’t!own.!For!the!set!of!the!price,!Airbnb!doesn’t!consider!the!depreciation!of!the!asset!(it!doesn’t!own!it)!and!there!are!no!employed!people!so!very!low!fixed!costs:!it!sells!houses!for!free!and!with!a!cheap!price,!getting!extra!money!for!all!the!actors.!While!with!booking!the!seller!takes!into!account!all!these!elements.!!Netflix)

!It!is!a!broadcasting!company,!making!people!see!whatever!they!want!at!any!time!and!it!is!based!on!technologies.!Traditional!broadcasting!companies!don’t!care!a!lot!of!customers,!but!mostly!of!the!number!of!viewers.!Netflix!created!its!own!set!of!contents!and!a!platform!to!profile!every!single!user:!internet!and!peer!to!peer!system.!It!is!supposed!to!be!a!disruptive!innovation,!because!it!is!cheap!(premium!content!without!having!to!pay!a!cable!TV),!based!on!different!technologies!and!comes!out!from!offering!different!features!not!offered!by!the!mainstream!broadcasting!services.!It!has!spread!so!quickly!than!the!traditional!broadcasting!companies:!


lOMoARcPSD|2751981

www.andreadd.it

All!these!three!cases!are!characterized!by:!− Cheap!!− New!technology!− Additional!features!!− No!additional!assets!!!!(or!they!are!already!there!or!they!come!for!free!

Questions:!1. Is!it!«really»!a!phenomenon!qualitatively!different!to!the!entry!of!new!business!models!in!the!last!30S40!

years,!up!to!assume!it!is!a!new!paradigm?!2. Is!it!likely!to!continue,!and!if!so!amplifying!or!losing!gradually?!3. Is!it!so!spread!even!in!cases!where!there!is!no!the!«big!bang»?!!!

The!speed!and!the!dramatic!impact!of!Big!Bang!Disruption!are!the!result!of!disruptive!technologies!that!continue!to!enter!the!market!better!and!cheaper!than!their!predecessors.!In!this!brave!new!world,!new!products!and!services!start!out!life!competing!simultaneously!on!price,!performance,!and!customization.!The!disruptors!have!already!redefined!the!rules!of!engagement!in!highly!competitive,!technology!intensive!industries,!including!consumer!electronics,!computing,!and!communications.!But!as!the!computing!revolution!continues!to!insinuate!itself!into!every!corner!of!our!lives,!Big!Bang!Disruptors!are!starting!to!appear!in!every!industry.!For!each!of!the!items!listed!above!the!source!of!disruption!is!the!same!S!the!programmable!smart!phone,!a!hybrid!computing!and!communications!device!with!an!endless!number!of!small!software!apps.!Apps!can!be!small!because!most!of!their!data!processing!takes!place!elsewhere,!in!what!is!known!as!cloud!computing.!This!combination!of!hardware,!software,!and!distributed!computing!have!quickly!replaced!a!wide!range!of!devices,!products,!and!services;!some!very!old!and!others!relatively!recent!innovations!themselves.!!It!is!not!«a!phenomenon»,!but!the!result!of!some!MEGATRENDS:!•!Growth!of!the!«sharing!economy»!model!•!Growth!of!the!«product!servitization»!model!(use!vs.!ownership)!•!The!momentum!growth!of!the!«entrepreneurial»!dynamic!!•!The!reduction!of!creation!cost!•!The!reduction!of!marketing!cost!•!The!reduction!of!experimentation!cost!!

!


lOMoARcPSD|2751981

www.andreadd.it

!UBER)!What!are!its!characteristics?!

• 2009S>2010!in!San!Francisco!!• Its!value:!almost!40!billion!• It!offers!a!taxi!service!in!the!taxi!industry!

!♦ Cheaper!taxi!service:!!♦ Service!based!on!technology!with!additional!features:!the!new!technology!provides!a!different!service!and!

all!the!additional!features!are:!!− an!app!service!that!is!a!matching!platform!− an!app!designed!for!different!segments!− an!app!that!provides!the!payment!process!− an!app!that!creates!a!global!service!

• Mainstream!service:!there!is!a!matter!about!!− quality!!− safety!

Uber!screens!the!licenses!of!potential!drivers,!but!its!requirements!are!not!always!in!line!with!the!ones!of!the!countries!regulations.!!

• No!assets:!the!driver!owns!the!asset!and!Uber!doesn’t!hire!people,!but!offers!only!a!matching!platform.!From!a!profit!point!of!view:!

− Licenses:!traditional!taxi!drivers!have!to!buy!a!license,!that!every!year!is!depreciated.!Uber’s!drivers!don’t!need!licenses,!they!only!pay!for!their!car,!so!this!means!offering!a!cheaper!service!making!a!bigger!profit.!!

!Uber!is!a!good!candidate!to!be!a!big!bang!disruption.!!!

! Stakeholders!push!on!laws!because!of!many!events.!Uber!is!using!its!quality!and!safety!features!to!enforce!its!respect!of!laws,!but!in!some!countries!safety!problems!raised.!The!point!is!in!customer!choices:!paying!more!with!more!quality!and!safety!or!the!contrary?!Meanwhile,!Taxi!drivers!use!the!weaknesses!of!the!mainstream!to!stop!the!entrance!of!the!disruptor.!!

! The!technology!used!by!Uber!has!been!copied!by!existing!competitors.!!! If!drivers!become!employees,!they!would!be!an!asset!of!the!company!and!the!profit!would!reduce!a!lot.!!

!CONCLUSION:!!Stakeholders!push!on!laws,!competitors!copy!it!and!drivers!push!to!become!assets:!Uber!won’t!be!no!cheaper,!so!it!needs!to!create!agreements!with!companies!sharing!services!together,!for!example!with!traditional!taxi!services.!The!Uber’s!potential!has!not!been!exploited!in!the!right!way!if!competitors!can!answer!its!biggest!questions!eliminating!its!disruptive!characteristics.!In!order!to!be!a!real!disruptive!strategy,!all!the!characteristics!must!be!SUSTAINABLE.!!!

22/12/15!Summary))Behind!a!disruption!there!is!always!a!technology!that!improves!over!the!time!and!can!help!disruptions!to!reach!the!level!of!the!mainstream!market!quickly.!!Normal!disruption:!

S Cheap!(cheaper!than!mainstream!market)!S Weak!in!mainstream!features!!S Add!“new”!features!(other!things!than!the!mainstream!features)!

Big!ben!disruption:!!S Cheap!(cheaper!than!mainstream!market)!S Weak!in!mainstream!features!!S Add!“new”!features!(other!things!than!the!mainstream!features)!


lOMoARcPSD|2751981

www.andreadd.it

S Has!no!assets!(like!Uber!and!Airbnb!that!don’t!own!the!assets,!but!they!mostly!use!IT!or!communication!platforms!to!match!the!owners!of!the!assets!and!the!demand!for!the!assets)!

!Disruption!is!really!different!from!other!innovations,!because!it!is!brought!to!the!market!by!one!or!a!limited!number!of!companies!and!what!it!happens!is!that!the!existing!companies!are!displayed!by!the!new!come.!Normal!disruption!is!about!displacement!while!Big!bang!disruption!is!more!about!disrupting!the!industry!(the!industry!will!no!exist!any!more).!!!SUBSTITUTES:!When!you!are!searching!for!alternatives,!you!can!find!disruptions.!When!you!do!the!external!analysis!and!you!are!trying!to!spot!the!substitutes!(substitutes+analysis),!disruptions!are!not!seen!as!a!real!issue!because!of!their!characteristics!(the!same!in!the!Macy’s!case):!they!are!cheap!at!the!beginning,!but!they!probably!add!some!features!in!the!feature,!so!you!should!fear!them.!!

! What!kind!of!information!should!we!collect!in!the!external!analysis!to!avoid!being!displaced!by!a!disruption?!The!main!point!is!that!disruption!happens,!but!if!we!are!an!existing!company!what!can!we!do!to!prevent!a!disruption?!

!IT)IS)POSSIBLE)TO)MENAGE)DISRUPTIONS?)!Ingredients!for!success:!

1. Spot)the)disruptive)technology:!the!aim!is!to!understand!if!there!are!some!alternative!technologies,!to!the!one!used!in!the!mainstream!market,!that!can!be!disruptive.!Their!characteristics!should!be:!

o Cheaper!!o Able!to!add!new!features!o An!emergent!technology:!if!the!technology!is!already!mature,!the!performance!level!has!already!

been!reached.!During!its!development!it!should!be!able!to!reach!the!market!mainstream.!!

Even!if!mainstream!producers!mainly!push!on!key!performances,!it!might!be!better!to!focus!the!attention!on!other!aspects!like!cheap!and!features.!The!main!points!to!spot!the!disruptive!technology,!going!behind!the!substitutes!analysis,!are:!!

" Build)networking)and)scouting)capabilities:!for!example,!if!you!are!a!manger!in!a!R&D!department!of!the!blast!furnaces,!you!know!that!there!are:!

− Metallurgy!scientists!− Suppliers/plants!with!engineers!!− Coke!and!fossil!fuel!for!the!production!process!!

!Your!main!goal!is!to!make!production!efficient,!improving!t/m3,!so!you!will!never!spot!the!disruptive!technology,!like!electric!mills.!The!point!suggested!is!to!add!an!additional,!new!and!larger!network!to!the!existing!one,!to!create!another!culture!(than!the!t/m3)!shared!with!the!R&D!consultants!(like!engineers),!to!spot!potential!features.!!

♦ Most!of!the!companies!that!create!this!network,!looking!outside!their!normal!network,!are!called!ANTENNAS!and!they!are!like!Universities,!Research!centres,!Patent!offices!and!other!industries.!(Patent!offices!are!used!especially!in!Cosmetics!and!Food!Industries,!because!they!are!chemical!based).!!

♦ Most!of!large!companies!are!working!on!venture)capital!(VC:!money!invested!in!startSup!and!small!companies!with!new!brilliant!ideas).!For!example,!Intel.!Normally,!money!invested!are!used!for:!

− 70%!ecosystem!technologies!used!in!the!mainstream!business!− 20%!gapSfilling!technologies,!that!can!be!complementary!technologies!and!services!not!

really!used!in!the!mainstream!− 10%!technologies!quite!far!from!the!mainstream!business!(other!technologies!spotted!in!

other!industries!that!can!be!interesting!to!be!studied!and!maybe!used!in!the!future).!The!advantages!of!investing!in!startSups:!if!the!technology!spotted!is!successful,!I!can!prevent!the!competition,!because!I!have!the!right!to!buy!it!before!everyone!else,!so!without!money!invested!I!could!not!do!this.!


lOMoARcPSD|2751981

www.andreadd.it

!It!is!necessary!to!create!an!organizational+structure!able!to!foster!(favorire)!new!ideas.!!

!Examples!slides:!!!

!" Develop!an!appropriate)culture!in!your!organization:!if!the!only!goal!is!to!improve!productivity,!

companies!use!only!a!small!part!of!the!whole!network!created,!because!the!main!tools!used!are!the!already!existing!ones.!Companies!need!to!create/develop!other!performances!(NEW)IDEAS),!that!don’t!go!in!the!same!direction!of!productivity!and!bring!to!the!company!new!objectives.!!!This!means!creating!an!organisational!context!in!which!individual!employees!are!encouraged!to!think!and!speak!outSofStheSbox,!acting!on!the!human!side!of!the!organisation.!The!context!should!stimulate!these!types!of!behaviour!in!individuals:!

− Initiative!− RiskStaking!− Entrepreneurship!!− Brokering!− Multitasking!!

A!firm!should!encourage!these!behaviours!through!acting!on!two!levers:!

# Social!support,!which!is!concerned!with!providing!people!with!the!security!and!latitude!they!need!to!perform!

# Performance!management,!which!is!concerned!with!stimulating!people!to!deliver!highSquality!results!and!making!them!accountable!for!their!actions!

EX))Google’s)“20%)time”:!almost!every!employee!has!about!20%!of!spare!time!for!running!projects!on!his!own,!so!they!can!dismiss!their!work!and!work!on!something!different!not!related!to!the!main!business.!It!is!not!free!time,!because!at!the!end!of!the!year!they!are!all!checked!and!they!can!be!failures,!but!employees!have!to!prove!that!they!are!working!on!something!different.!Everyone!compete!in!the!challenge!of!putting!new!ideas!on!the!


lOMoARcPSD|2751981

www.andreadd.it

table,!especially!in!the!R&D!department,!being!evaluated!on!the!ability!of!being!focused!both!on!the!mainstream!business!(that!requires!more!attention)!and!on!new!ideas,!gaining!a!reward!or!a!punishment.!!(Creating!an!organization!where!the!same!people!focus!on!both!objectives)!

NB)!Efforts:!S 70/80%:!increase!productivity!(t/m3)!

and!one!of:!S almost!30%:!networking!and!scouting!capabilities!S 20/30%:!develop!an!appropriate!culture!in!the!organization!!

!2. Develop)your)market)insight)and)conduct)direct)research:)once!we!defined!a!list!of!technologies,!we!should!

understand!the!market!potential.!Disruptive!technologies!should!have!at!least!one!market!since!the!beginning,!to!get!money!from!customers!to!be!invested!to!obtain!new!technologies,!to!grow!and!become!a!potential!disruptive!technology!in!the!market.!There!should!be!people!willing!to!pay!for!this!new!technology,!that!should!not!stay!in!lab,!but!it!needs!to!be!marketed!and!even!if!the!market!is!small!it!doesn’t!matter.!)EX)!Electric!mills!were!cheaper,!but!with!an!enough!performance!to!reach!new!customers!and!create!a!new!market.!If!there!is!no!market!for!the!new!technology,!it!can’t!reach!the!mainstream!performance,!so!the!only!chance!to!survive!is!to!fin!funds!to!sell!the!products!to!the!mainstream!companies.!!!The!key!aim!of!market!insight!research!is!to!discover!a!fact!about!that!market!that!has!not!previously!been!made!use!of,!but!when!leveraged!will!generate!increased!profits.!Alternatively,!market!insight!can!be!defined!as!the!attempt+to+discover+a+penetrating+truth+about+consumers,!their!aspirations!and!motivations!which!can!in!turn!be!used!to!generate!growth.!Develop!the!«customer)insight»!means!to!identify!the!latent!needs!of!the!customers!and!discover!new!unexplored!market!segments.!Adopting!the!customer!perspective!is!a!guiding!principle!for!the!entire!business!model!design!process.!Successful!innovation!requires!a!deep!understanding!of!customers,!including!their!environment,!their!daily!routine,!their!concerns!and!their!aspirations.!!The!analysis!is!similar!(vedi!schema!quaderno)!

!Examples!slides:!Toyota!Prius!and!P&G!!

3. Adapt)your)business)model)to)the)disruptive)technology:)once!identified!a!market!insight,!the!problem!is!how!best!to!serve!that!market.!Technology!is!seen!as!a!mean!to!do!this,!therefore!companies!are!flexible!about!the!technology!to!use,!but!they!also!usually!explore!different!alternatives,!combining!internal!development!with!technology!acquisition!from!outside.)The!possible!actions!to!adapt!the!business!models!are:!

# Adding!value/escaping!competition:!react!to!the!emerging!of!the!disruptive!technology!by!moving!upward,!escaping!from!the!competition!to!find!a!safer/better!place!where!to!compete.!!+)!Advantages:!I!have!to!leverage!on!the!core+competences!requesting!a!premium+price!(the!main!point!is!to!create!a!differentiation!advantage,!because!price!is!anymore!an!issue!because!I!am!cheap).!S)!Disadvantages:!if!I!move!from!the!bottom!market!competition!to!the!top!market!(premium+quality),!I!will!have!lower!volumes!than!before,!because!I!focus!on!a!luxury!niche.!I!will!also!have!to!increase!the!size+of+investments.!!

# Copying!the!key!additional!features!of!the!technology:!The!company!copy!the!additional!features!brought!to!the!market!by!the!disruptor,!fighting!with!the!disrupting!technologies!on!the!same!features!in!the!same!arena,!like!in!the!Uber!case!where!the!global!network!and!the!possibility!to!pay!through!the!app!are!the!additional!features.!!+)!Advantages:!I!am!better!than!the!disruptor!in!the!mainstream+performance!and!I!can!create!a!differentiation!against!it.!I!remain!in!the!mainstream.!S)!Disadvantages:!I!have!to!increase!investments!and!time!dedicated!to!the!differentiation,!but!the!main!problem!is!about!cost+advantage,!difficult!to!reach!with!differentiation!(the!technology!is!costlier!than!the!one!of!the!disruptor.,!which!is!cheap).!


lOMoARcPSD|2751981

www.andreadd.it

!# Exiting!from!the!industry:!if!there!is!already!an!existing!portfolio!of!products!and!you!understand!

that!one!of!them!is!not!productive!in!a!specific!industry,!you!decide!do!exit!from!it!(Harvest!or!Exit)!creating!a!process!for!exiting,!using!the!money!somewhere!else!from!preventing!the!competition!with!the!disruptive!technology.!This!action!is!usually!adopted!when!the!disruption!is!the!worst!situation!possible.!In!this!way!I!reduce!the!profit,!but!I!can!control!the!exiting!process!as!I!want.!!+)!Advantages:!I!am!safe!because!I!can!control+the+exist,!controlling!the!investments!and!sell!the!available!assets,!converting!people!to!other!businesses!or!reducing!the!workforce.!!!S)!Disadvantages:!I!have!a!potential!effect+on+the+portfolio,!because!I!close!one!of!the!business!areas!and!on!brand.!!

# Becoming!disruptor:!if!you!are!able!to!spot!the!disruptive!technology!early,!the!best!is!for!you,!because!you!can!buy!the!technology!at!a!lower!price.!!!

Different!companies!react!in!different!ways,!so!it!is!difficult!to!define!which!is!the!best!option.!!All!these!actions!take!time!to!be!adopted,!so!the!early!I!spot!the!disruption!and!I!understand!that!it!has!a!potential!market,!the!more!time!I!have!to!adapt!my!business!model.!It!is!not!only!a!matter!of!time,!but!also!of!inertia.!!

!ORGANIZATIONAL!INERTIA!THEORY!

!If!a!company!adopts!a!disruptive!technology,!it!is!moving!in!a!different!direction!to!improve!the!mainstream!service/business!and!every!time!a!change!is!proposed!it!has!to!face!some!reactions!from!the!organization!(companies!have!a!lot!of!problems!in!controlling!it).!Different!companies!react!in!different!ways,!so!it!is!difficult!to!define!which!is!the!best!option.!The!adoption!of!the!disruptive!technology!brings!the!risk!of!failure!related!to!organizational+inertia.!Companies!have!to!make!it!winning,!fighting!against!its!inertia.!In!case!of!success!the!main!solution!is:!!

♦ Ambidextrous!organizations:!they!are!costly,!but!it!is!the!only!way!to!run!in!practice!the!disruptive!technology!avoiding!the!problem!of!inertia.!They!are!always!adopted!by!big!companies!(5000/6000!employees).!They!have!two!ingredients:!

o Structural)separation:!organizations!are!able!to!manage!at!the!same!time!two!different!technologies!on!the!same!market.!The!best!way!to!manage!it!is!to!use!structural+ambidexterity,!creating!two!companies!within!your!company,!starting!growing!the!emerging!business!in!the!way!you!grow!the!existing!business.!The!emerging!business!becomes!the!mainstream!and!the!existing!business!only!the!small!one.!It!consists!in:!

− Exploitation!of!current!technologies!and!businesses!− Exploration!of!new,!disruptive!technological!trajectories!and!businesses!!

each!one!having!its!own!processes,!structures!and!cultures!o Tight)integration)between)the)exploitation)and)exploration)units)at)the)senior)executive)level:!it!is!

more!on!the!paper!than!in!practice.!Senior!executives!have!the!key!role!of!ensuring!integration!in!structurally!ambidextrous!organisations!and!this!can!be!achieved!through:!•!Articulating!a!clear,!emotionally!engaging!and!consistent!vision!•!Building!a!senior!team!with!diverse!and!heterogeneous!competencies!•!Introducing!specific!processes!and!integration!mechanisms!!

4. Investing)into)disruptive)technologies:)Good!managers!are!driven!to!keep!their!organizations!growing.,!but!unfortunately,!companies!that!become!large!and!successful!find!that!maintaining!growth!becomes!progressively!more!difficult.!Disruptive!technologies!are!initially!sold!in!small,!emerging!markets!and!this!is!why!it!is!difficult!to!justify!investments!in!their!development.!Companies’!freedom!of!action!is!limited!to!satisfying!the!needs!of!those!entities!outside!the!firm!(customers)!that!give!it!the!resources!it!needs!to!survive.!It!is!customers,!rather!than!the!managers,!who!really!determine!


lOMoARcPSD|2751981

www.andreadd.it

what!a!firm!will!do,!so!good!resource!allocation!processes!are!designed!to!weed!out!innovation!proposals!that!customers!don’t!want.!Resource!allocation!depends!not!only!on!executives’!decisions,!but!also!on!nonS!executive!participants,!whose!career!trajectories!can!soar!when!they!sponsor!highly!profitable!innovation!programs.!!One!approach!is!to!embed!the!project!into!an!organization!that!is!small!enough!to!be!motivated!by!the!opportunity!offered!by!a!disruptive!technology!in!its!early!years.!This!can!be!done!by:!•!Spinning!out!an!independent!organization!!•!Acquiring!an!appropriately!small!company!

!!


lOMoARcPSD|2751981

www.andreadd.it

COMMUNICATION))Consumers)meet)communication)through)advertising,)but)also)price.)The)communication)need)is)the)interactions.)Communication)is)fundamental)because)it’s)one)of)the)tool)to)differentiate)the)value)proposition)of)a)company.))

1. Communication)and)its)phases)2. Communication)process)3. Communication)mix))

NEW)FORMS)OF)COMMUNICATION:)4. The)“New”)media)mix)5. Trade)communication)

)! Advertising)is)the)major)form)of)mass)communication)(from)2011)to)2015)the)advertising)investment)

decreased)(stable)decrease))in)the)Italian)market)for)Nielsen,)because)consumers)are)more)sceptical)about)advertising,)crisis)and)also)the)different)means)of)advertising:)television)audience)decrease)dramatically)and)TV)was)the)main)mean)of)advertising).))

! To)reach)a)large)number)of)people)companies)need)large)investments)in)the)mass)media)market.)The)shift)in)the)usage)of)media)has)changed)the)way)advertising)can)influence)the)purchasing.)

Experience)is)different)and)people)has)less)attention)on)one)mean)of)communication,)so)companies)need)to)use)multichannel)advertising,)especially)based)on)interactions,)like)display)advertising,)TV.))Communication*and*its*phases*(Della*Bella)*)Communication)in)marketing)is)formed)by)the)signals)or)messages)emitted)by)the)company)and)targeting)multiple)different)publics,)which)are)clients,)distributors,)shareholders,)suppliers,)authorities,)employees,)stakeholders))

! Communication)is)the)brand)voice:)the)intermediary)between)the)brand)identity)and)the)brand)image)

o Communication)has)the)role)to)inform,)persuade)and)remind)the)market)and)its)consumers)(directly)or)indirectly))the)value)proposition)of)a)company,)and)with)feedbacks)from)the)receiver)the)communication)can)realign)bran)image,)to)create)one)single)perceivable)brand)voice)

)

))There)are)different)forms)of)communication)according)to)different)targets)and)objectives:)

! Institutional)(corporate))communication)


lOMoARcPSD|2751981

www.andreadd.it

o It)builds)and)manages)company)image)towards)public,)market,)stakeholders,)policy)makers,)suppliers,)governmental)agencies)

! Commercial)communication)o it)is)oriented)to)markets)in)order)to)sell)

! Internal)communication)o it)is)internallyVoriented.)directed)to)employees,)labour)unions…)

)AIDA)Model:)the)goal)of)communication)towards)clients)

! Attention:)a)product)can’t)be)sold)if)the)market)is)not)aware)of)its)existence,)the)first)step)is)to)attract)the)attention)of)potential)customers)

! Interest:)attention)is)not)sufficient,)companies)need)to)spark)customers’)interest)in)the)product)by)demonstrating)its)features,)uses)and)benefits)(people)know)that)we)exist,)and)now)they)link)my)brand)with)that)category)of)product))

! Desire:)companies)need)to)further)stimulate)customers’)desire)by)convincing)them)with)products’)superiority)and)ability)to)satisfy)specific)needs,)they)communicate)a)sense)of)lack)to)be)felt)by)something)

! Action:)after)convincing)the)potential)customers)to)buy)the)product,)promotion)then)needs)to)push)them)toward)actual)purchase,)to)convert)users)into)buyers)

)" Communication)activities)may)also)depend)on)nature)of)the)product)(industrial)versus)consumer)

goods))and)product)lifecycle)" Companies)have)also)to)decide)what)kind)of)strategy)they)want)to)deploy)(push,)pull,)or)a)

combination)of)the)two)))

We)can)talk)about)Integrated)communication,)composed)of:)o Product/service)communication)(marketing)mix))

# Product,)service,)brand,)price,)distribution,)front)line)o Planned)communication)(communication)mix))

# Advertisements,)sales)promotion,)direct)marketing,)public)relationship,)sponsorships)and)events)

o Indirect)communication)# Word)of)Mouth)

" They)provide)unitarian)messages)and)image)to)target)specific)market)segments)

)


lOMoARcPSD|2751981

www.andreadd.it

Communication*process*)Communication)process)is)composed)of)7)phases:)

1) Defining)the)target)o The)target)influences)what/how/where/when)to)communicate)

2) Defining)the)objectives)of)the)communication)plan)o Potential)objectives)could)be)sales,)equity,)influence)on)purchase)process…)o To)set)the)objective)it)is)used)the)learnVfeelVdo)model)

)

))

3) Developing)the)message)to)convey)o Definition)of)the)basic)promise)and)the)content)(what)to)communicate))o Definition)the)logic)(how)to)express)the)content))o Definition)the)format)(confirm)the)content)at)a)symbolic)level))o Definition)the)source)(who)sends)the)message))

4) Selecting)the)channels)o You)can)use)store,)phone,)web,)mobile,)catalogue,)press)o In)advertising)the)well)known)indicator)for)planning)is)GRP)(Gross)Rating)Point),)which)is)the)

reach)per)frequency)o In)digital)marketing)it)is)possible)to)measure)analytically,)every)action)and)reaction,)which)

depend)on)the)objectives)and)the)media)selected)(number)of)users,)bounce)rate,)open)rate,)click)rate,)unsubscribe)rate))

5) Defining)the)communication)budget)o The)budget)is)influenced)by)different)factors:)product)lifecycle)stage,)desired)market)share,)

general)market)dimension,)competition,)product)sustainability,)investment)in)advertising)6) Defining)the)communication)mix)

o There)are)different)communication)levers:)advertising,)sales)promotion,)public)relations,)direct)marketing,)personal)selling)

7) Performance)assessment)o KPIs)are)defined)on)the)basis)of)the)initial)objectives:)sales,)image,)awareness…)o You)can)have)different)performance)assessment:)

# ExVante:)qualitative)research)methodologies)(used)to)choose)the)best)solution)for)target)among)different)alternatives)and)to)assess)the)potential)impact)of)the)communication)strategy)before)being)shown)off))

# ExVpost:)qualitative)and)quantitative)research)methodologies)(used)to)detect)potential)qualitative)problem)regarding)the)product,)to)measure)the)initiative’s)key)performance)indicators)and)to)track)the)initiative’s)impact)

)**


lOMoARcPSD|2751981

www.andreadd.it

Communication*mix*)There)are)different)communication)levers:)

! Classical)advertising)(spot,)press,)billboards,)internet))which)has)to)present)the)commercial)offering)! Sales)promotion)(contests,)special)offers,)free)samples,)coupons,)showVoffs))which)has)to)incentive)

the)customers)and)the)intermediaries)! Sponsorships)and)PR)(press)releases,)exhibitions,)conferences,)seminars,)congresses,)public)

relations))which)are)inexpensive)press)insertions)! Direct)marketing)(telemarketing,)call)center,)internet))which)has)to)communicate)directly)the)value)

proposition)! Personal)selling)(sales)force))which)has)the)role)of)doing)visits)

)The)communication)mix)is)influenced)by)different)factors:)

! Type)of)customer)! Product)lifecycle)! Customer)awareness)and)ability)to)perceive)! Market)positioning)! Competitors)" )In)B2B)markets)advertising)weight)less)than)in)B2C)markets,)because)in)B2B)a)more)direct)and)

tailored)relationship)with)the)customer)is)required)(in)B2C)high)level)of)sales)promotion)and)adv))))

))Advertising)is)paid,)nonVpersonal)communication)transmitted)through)media)such)as)television,)radio,)magazines,)newspapers,)outdoor)billboards,)direct)mail,)internet,)mobile)devices,)and)it)is)the)most)commonly)applied)marketing)communication)programs)

! Through)mass)media)(television,)radio,)outdoor)billboard),)advertising)could)reach)an)extremely)large)but)not)specifically)targeted)audience)group,)while)with)internet)and)powerful)database)companies)are)allowed)to)make)specifically)targeted)communication)through)direct)mail,)internet)and)mobile)communication)

! Advertising)through)mass)media)could)be)rather)expensive)on)its)own,)and)considering)the)huge)number)of)viewers,)it)still)provides)a)quite)low)CPM)(cost)per)1,000)impressions))

! Internet)advertising)provides)a)much)more)economic)and)more)targeted)alternative)


lOMoARcPSD|2751981

www.andreadd.it

! Institutional)advertising)promotes)a)firm’s)image,)ideas)and)culture)with)the)goal)of)creating)or)maintaining)an)overall)corporate)image,)and)it)could)also)promote)socially)approved)behaviour)and)thus)create)positive)view)of)the)organization)

! Product)advertising)promotes)the)image,)features,)uses,)benefits)and)attributes)of)products))! There)are)different)aims)of)advertising:)

o Creating)awareness)of)a)particular)product)o Spreading)information)on)a)particular)product)or)brand)o Building)or)developing)a)particular)image)of)the)company)o Stimulating)curiosity,)generating)request)for)information)and)contacts)

! There)are)7)steps)in)advertising)process:)o Strategic)elaboration)o Creative)development)(message)is)defined)in)all)detail))o Production)of)the)content)(physical)production)of)the)messages))o Media)planning)(individual)headlines)and)advertising)spaces)are)defined))o Purchase)of)advertising)spaces)(media)planning)execution)according)to)financial)constraints))o Implementation)o Performance)measurement)

)Personal)selling)is)paid)personal)communication)that)attempts)to)inform)customers)about)products)and)persuade)them)to)purchase)those)products)

! Some)types)of)personal)selling)(especially)in)B2B)market))are)complex)and)involve)long)term)relations)

! It)could)be)the)most)precise)and)effective)form)of)communication,)and)it)has)potentially)extremely)high)cost)per)contact)

! Salespersons)has)to)possess)not)only)selling)skills,)but)also)they)are)required)to)be)familiar)with)the)technical)details)

! There)is)an)immediate)and)active)interaction)between)two)or)more)people)(formal)or)friendly)relationship),)and)observing)each)other)a)person)can)obtain)immediately)feedback)

! It)is)carried)out)using)sales)agents))Sales)promotion)involves)activities)that)create)incentives)for)customers)to)purchase)a)product,)it)often)accounts)for)a)large)portion)of)a)company’s)promotional)budget)(up)to)70)%),)and)it)could)be)a)standValone)activity)or)it)could)support)advertisement,)sponsorship,)PR)initiatives)

! With)the)objective)to)give)a)boost)to)sales,)the)duration)should)be)short)and)it)means)incentives)(for)employees)and)trade),)payment)benefits)and)postVsales)assistance)

! There)are)potentially)limitless)varieties)of)sales)promotion)methods)in)B2C)market:)o Coupons:)it)is)an)effective)way)to)increase)sales)volume,)attracting)repeat)purchase)or)

inducing)first)trials)o Samples:)it)stimulates)first)trials,)especially)in)the)early)stage)of)product)lifecycle)o Loyalty)programs:)they)reward)loyal)customers)for)repeat)purchases)o Premium:)it)is)a)bonus)offered)for)free)or)at)a)minimum)cost)with)the)product)o Contest)and)sweepstakes:)customers)are)qualified)to)try)their)luck)at)sweepstakes)with)a)

purchase,)and)besides)attracting)purchase,)it)could)also)be)an)opportunity)to)collect)customer)information)

! There)are)different)methods)for)sales)promotion)methods)in)B2B)market:)o Quantity)discount)o Free)merchandise)o Training)assistance)o Cooperative)advertising)o Selling)incentives)

)


lOMoARcPSD|2751981

www.andreadd.it

Direct)marketing)uses)interactive)instruments)to)reach)a)qualified)target)and)to)obtain)an)immediate)and)measurable)reaction)through)a)direct)response,)target)that)becomes)active)and)it)reacts)to)enable)a)twoVway)communication))Public)relations)are)the)set)of)activities)that)aim)at)creating)and)maintaining)efficient)and)clear)relations)with)the)company’s)different)public)of)reference,)in)order)to)enter)in)its)own)marketing)environment)and)present)a)precise)image)of)itself)to)the)general)public)

! The)goal)of)PR)is)to)track)public)attitudes,)identify)issues)that)may)elicit)public)concern,)and)develop)programs)to)create)and)maintain)positive)relationships)between)a)firm)and)its)stakeholders)

! PR)could)improve)general)awareness)of)a)company)and)create)specific)image)which)gives)the)company)a)competitive)advantage)

! There)are)different)PR)methods:)o News)releases:)a)written)communication)which)draws)attention)of)a)company’s)

stakeholders)to)the)company’s)event)o Press)conference:)a)meeting)with)news)media)to)announce)or)to)respond)to)major)events)o Featured)articles/white)paper:)elaborated)communications)about)company’s)products)or)

initiatives)and)their)potential)impacts,)directed)at)specific)stakeholders)o Event)sponsorship:)sponsoring)events)such)as)charity,)exhibition,)sports)from)local)to)global)o Product)placement:)placing)a)product)in)the)hand)of)movie)or)television)characters,)

especially)in)the)highly)identifiable)brands)! There)are)also)negative)public)relations,)and)to)avoid)them)it)is)vital)to)avoid)negative)incidents)and)

events)that)could)cause)problems)with)quality)control,)safety)programs,)strict)ethical)and)legal)compliance,)employee)integrity)

o However,)the)potential)for)negative)incidents)and)publicity)is)always)present,)and)a)company)should)follow)specific)policies)and)procedures)to)respond)to)negative)events,)should)confront)the)negative)events)instead)of)covering)it)up,)should)mitigate)them)in)order)to)regain)customers’)trust)

! There)are)differences)between)internal)and)external)PR:)o Internal)PR:)employees,)management)group)o External)PR:)existing)and)potential)customers,)press)and)media,)economic)and)political)

environment,)various)entities)and)associations,)commercial)intermediaries,)interest)groups))Sponsorships)(especially)for)events,)sport)teams…))have)the)goal)to)improve)the)absolute)image)of)the)company,)associating)it)to)positive)value,)in)fact)the)supported)event)must)be)remarkable)from)the)point)of)view)of)the)company)and)should)be)somehow)linked)with)the)company)activities)or)values))New*media*mix*)Year)over)year)there)has)been)a)media)mix)evolution:)

! Before:)interruption)media)o Owned)media:)the)company)creates)and)uses)its)own)media)to)advertise)(catalogues,)

websites,)social)media)fan)pages))o Paid)media:)the)company)pays)a)third)party)to)get)some)space)(magazine)and)newspaper)

ads,)billboards,)web)banners,)product)placement))o +)Display)advertising)

! Now:)interaction)media)o Owned)media)and)paid)media)o Earned)media:)consumers)create)or)share)content)related)with)the)company)(sharing)and)

forwarding)commercials)to)friends,)rating,)reviews,)comments,)communities))o Sold)media:)the)company)sells)space)or)invites)third)party)to)share)content)on)its)own)media)

(eVcommerce)retailers)sells)space)on)its)own)site))


lOMoARcPSD|2751981

www.andreadd.it

o Hijacked)media:)the)company)campaign)is)taken)hostage)by)those)who)oppose)it)(consumers)opposing)to)a)company)creating)social)media/mailing)list)campaign,)consumers)creating)negative)versions)of)ads))

o +)Native)advertising,)content,)interaction)and)coVcreation)! Some)tools)of)online)communication:)

o Search)engine:)being)found)on)search)engines)(Google))is)fundamental)to)be)reached)by)your)customers)

o Google)AdWords:)advertising)on)Google)means)defining)a)target)(geographical,)behavioural),)a)category)in)which)being)inserted,)a)set)of)keywords,)the)budget)and)the)reach,)and)then)monitor)the)results)(number)of)impressions,)CTR,)CPM))

o Website)and)Google)Analytics:)a)company)can)measure)the)audience)on)its)website)and)perform)a)series)of)analysis)(number)of)hits,)of)unique)visitors,)of)session,)bounce)rate,)time)spent)on)site,)conversion)rates,)number)of)pages)seen,)sources)of)traffic))

o Social)media)Fan)pages)and)campaigns:)corporate)pages)on)main)social)media)to)create)and)engage)communities)

o Mailing)campaigns:)company)create)large)databases)of)users,)clients,)leads)and)send)them)periodical)newsletter,)monitoring)audience,)bounce)rate,)open)rate,)click)rate)

o Affiliate/Seeding)campaigns:)company)that)wants)to)add/sell)content)to)its)own)marketplace)can)create)affiliation)programs)on)both)directions,)to)increase)the)offer)or)to)seed)with)content)other)platforms)and)receive)traffic)

o Real)rime)bidding)platforms:)RTB)allows)display)inventory)to)be)purchased)by)the)individual)impression)through)a)bidding)system)that)unfolds)in)the)milliseconds)before)a)webpage)is)loaded)by)a)consumer)

o Newsgroup:)virtual)walls)on)specific)themes)o Online)communities)(chats)and)forum):)communities)of)people)sharing)same)interests,)they)

lost)part)of)their)relevance)after)the)explosion)of)social)media)o Mailing)lists:)they)permit)to)reach)interested)users)who)can)participate)actively)o Newsletters:)they)are)similar)to)mailing)lists)but)only)the)company)sends)periodical)updates)

and)messages)to)registered)users)o Different)types)of)Display)advertising:)

# Banner,)which)can)be)static)(brand)awareness),)animated)(with)dynamic)content))and)interactive)(call)to)action))

# Strip)and)masthead)(with)different)height)of)pixel))below)upper)navigation)bar)# Overlay)(floating)ad),)which)is)a)15VsecondVlong)animation)appearing)over)the)page,)

with)high)attention)and)high)CTR)# Skin,)that)uses)the)space)above)and)beside)the)content)of)webpages,)with)high)

impact)and)CTR)# PopMup,)with)variable)size)window)that)appears)while)the)user)performs)specific)

actions)(entering)a)site,)opening)a)new)page),)it)is)considered)intrusive)(very)effective)in)getting)attention))

# Interstitial,)which)is)a)dynamic)page)with)music)and)animation,)opening)while)navigating)through)pages)of)a)website,)it)is)considered)intrusive)

# Microsite,)which)is)a)mini)website)developed)on)specific)occasion)by)a)company,)i.e.)for)launching)new)product)or)product)line)

)Trade*communication*)Communication)may)be)conducted)using)different)strategies:)

! Pull)strategy:)the)producer)concentrates)its)communication)and)promotion)efforts)on)the)final)customer)so)that)these)turn)to)the)distributor)

! Push)strategy:)the)producer)focuses)communication)on)the)distributor)who,)in)turn,)focuses)on)the)final)customer)(it)is)necessary)an)effective)collaboration)with)distributors))

)


lOMoARcPSD|2751981

www.andreadd.it

)" in)some)cases,)companies)adopt)a)mixed)strategy,)in)which)producer)carries)out)its)own)

communication)both)towards)trade)and)the)final)customer))


lOMoARcPSD|2751981

www.andreadd.it

12/1/2016&Until&now&we&have&studied:&

6 Core&concepts&• Strategy&advanced&• Marketing&advanced&

Now&we&focus&on&Business&plan.&&

BUSINESS'PLAN''Objectives:&

! Know&the&tools&for&writing&a&business&plan:&define&the&structure,&Lean&Launchpad&(it&is&a&way&to&deal&with&BP&for&start6ups),&metrics&(used&to&measure&the&progresses).&All&these&tools&summarise&what&we&have&studied&until&now.&&

! Check&coherence&between&the&results&obtained&by&the&tools&used&and&the&initial&idea.&The&success&of&the&idea&depends&strictly&on&the&coherence,&which&is&a&relative&matter&and&not&absolute,&because&for&example&there&are&a&lot&of&coherent&possibilities&around&a&single&idea.&&

At&the&end,&the&choice&of&the&business&plan&is&a&managerial&matter,&so&people&have&to&choose&it&because&the&tools&used&don’t&provide&a&solution.&&&INTRODUCTION'&WHAT:&the&business&plan&is&a&written&document&that&describes&in&detail&how&a&new&business&is&going&to&achieve&its&goals.&It&will&lay&out&a&written&plan&from&a&marketing,&financial&and&operational&viewpoint.&&&It’s&a&kind&of&summary&related&to&a&specific&business.&It&is&developed&starting&from&an&idea&in&order&to&make&it&real&and&successful,&through&the&plan&developed.&&It&is&not&a&financial&document,&but&it&is&divided&in&many&chapters&that&deal&with&many&different&aspects&of&the&company&and&the&financial&data&is&only&one&chapter.&&&WHEN:&&

• Business&plan&is&used&not&just&to&plan&new&activities,&but&also&to&control&the&ongoing&business.&&• It&is&not&done&once&for&all,&but&must&be&kept&updated,&to&verify&how&things&have&gone,&and&how&far&from&

forecast.&&• It&is&a&difficult&exercise,&because&it&is&both&a&program&of&future&activities,&and&a&forecast&of&the&future&itself,&

about&variables&that&no&one&can&control&(the&market,&the&customer’&preferences,&future&technology&developments,&etc.)&

&It&is&a&tool&used&whenever&companies&have&something&new&to&deal&with,&like:&

&&HOW:&&

! Established'companies:&there&are&more&established&tools&to&guide&the&activities&of&a&company,&and&the&business&plan&it&this&type&of&tools.&These&are&surely&the&best&in&very&stable&environments,&with&consolidated&business,&and&stable&conditions,&with&known&clients,&products,&and&processes.&These&companies&have&also&information&about&their&past&experience.&

! StartBup:&it&is&usually&a&limited&company&(srl)&and&it&is&considered&as!a!temporary!organization!in!search!of!a!viable,!stable!and!profitable!business!model.&It&doesn’t&have&a&clear&idea&of&what&are&the&products,&the&clients,&and&the&processes&for&the&future,&everything&is&unknown,&but&in&general&it&is&related&to&new&technologies.&What&makes&the&difference&between&a&small&company&and&a&start&up&is&the&fact&that&in&the&start6up&the&business&model&is&not&defined&in&advance,&while&small&companies&have&already&defined&it.&&A&startup&is&also&considered&as&a&phase&in&the&construction&of&a&company,&where&the&company&is&testing&the&market&to&understand&if&it&can&be&profitable.&The&main&goal&is&to&enter&in&an&industry&and&disrupt&it,&like&Uber.&New&tools&have&been&developed&and&Steven&Blank&and&Eric&Ries&have&conceived&a&method,&known&as&Lean!Startup&or&Lean!LaunchPad,&that&has&the&mission&to&guide&the&decisions,&the&approach,&and&the&activities&of&a&startup&during&this&first&phase.&


lOMoARcPSD|2751981

www.andreadd.it

t&is&questionable,&whether&even&established&companies&for&new&projects&in&unstable&markets&could&gain&an&advantage&in&adopting&LLP&methodology.&

&The&main&tools&used&to&plan&the&activities&can&be&summarized&as:&&&WHO:&everyone&who&is&responsible&of&an&organization&should&create&a&business&plan.&The&business&plan&is&a&tool&to&understand&the&present,&make&hypothesis&about&the&future,&plan&the&activities,&coordinate&people,&and&control&costs&and&cash&flows.&It&is&a&document&that&must&be&presented&to&someone&else,&and&thus&should&be&easily&communicable&&The&targets&are:&

− Decision&makers&&− Investors:&they&want&to&understand&the&business&and&the&idea&of&the&company.&− Shareholders&− Yourself&

&WHY:'&

! Planning:&− Evaluate&an&investment&opportunity&&− Evaluate&feasibility&/&profitability&− Find&resources&and&funds&− Assess&Risks&and&Opportunities&− Control&

! Communication:&− Internal:&team,&boss&&− External:&shareholders,&stakeholders,&investors,&etc.&(presentation&of&the&company)&

&12&STEPS&&

1. Define&your&business&activity&2. Define&the&current&status&of&the&business&3. Define&the&external&market,&your&competition,&and&your&marketing&positioning&4. Define&your&objectives&for&the&period&of&the&plan&5. Develop&a&strategy&for&achieving&the&objectives&6. Identify&the&risks&and&opportunities&7. Develop&a&strategy&for&limiting&risks&and&exploiting&opportunities&8. Refine&the&strategies&into&working&plans&9. Project&costs&and&revenues&and&develop&a&financial&plan&10. Document&it&concisely&11. Get&it&approved&&12. Use&it&

&♦ PRESENTATION'(points'1,'2):'how&to&present&the&main&activities&of&the&business?&What&are&the&elements&

seen&by&venture&capital&investors?&'− The&product/service&(what&the&company&is&doing)&adding&the&customers’&advantage,&in&term&of&point&

of&difference&and&unique&elements&− The&market/industry&− The&people&involved/team&(founders,&employees,&etc)&

&The&most&important&is&team,&then&market&and&then&the&product.&Firstly,&they&look&if&they&like&the&team&or&not&(persons&and&their&skills,&because&it’s&difficult&to&change&them),&then&the&market&(opportunities,&trends)&


lOMoARcPSD|2751981

www.andreadd.it

because&the&product/service&can&dramatically&change&(pivot:&companies&that&enter&in&the&market&and&then&dramatically&change&their&value&proposition,&like&Groupon&and&Twitter).&

&♦ DESCRIPTION'OF'THE'MARKET'(point'3):''

− to&understand&better&what&are&the&main&forces&and&strategies&that&you&can&adopt&(size,&competition)&− to&demonstrate&that&the&market&is&interesting&(competition&and&market&positioning)&

&Three&main&things&we&do&with&BP:&

1. Presentation&of&the&business&and&analysis&of&the&internal&context&(strengths,&weaknesses,&resources,&competences,&etc)&and&external&environment&(competitors,&market,&etc).&

2. Set&of&a&strategy&(objectives)&and&definition&of&the&activities&necessary&to&achieve&it&(working&plan)&3. Execution&4. Control&what&the&company&is&doing,&checking&the&coherence&with&goals&and&the&respect&of&guidelines&

&TIPS&1.&&Tell&a&story!&2.&&Be&concise&(no&more&than&20640&pages)&3.&&Document&and&support&with&references&your&affirmation:&if&you&say&that&you&want&to&reach&a&certain&number&you&should&justify&it&(how&and&why)&in&a&reasonable&way&4.&&People&(team)&is&as&important&as&numbers!&5.&&Use&a&nice&and&ordered&layout&(nr.&of&pages,&formatting,&etc.):&people&need&to&read&something&that&is&readable&and&appealing&6.&&Use&a&solid&structure,&e.g.:&premises,&body,&conclusion&7.&&...add&your&own!&&&TYPES'AND'SOURCES'OF'DATA:&(related&to&the&1&step:&analysis)&When&you&add&data,&be&sure&to&indicate&what&is&the&source&of&information.&Basically,&you&have&three&types&of&data:&

1. Historical'data:&it&refers&to&something&that&the&company&has&already&achieved&so&it&is&easy&to&analyse&this&data&and&find&similar&results&for&the&next&years.&In&some&cases&(startups),&we&don’t&have&historical&data&so&we&need&to&add&information.&

2. Market'data:&we&have&to&cite&the&source.&For&example,&CR&(conversion&rate)&is&the&%&of&visitors&that&becomes&customers.&Starting&from&1%&that&is&a&market&data,&then&after&some&time&startups&can&add&their&own&values&obtaining&a&stronger&projection.&

3. Assumptions:&if&a&company&can’t&get&info&also&from&market,&it&can&make&assumptions&motivating&them.&(EX:&our&CR&is&5%&because…).&If&you&are&not&sure,&use&journalistic&ways&of&saying,&like:&“Commentators&say&that,&...”&;&“Industry&sources&indicates&...”,&etc.&

We&have&always&to&document&data!!&&BP'SECTIONS'

&These&main&sections&are&one&of&the&possible&versions.&We&start&from&a&presentation,&the&analysis&and&translate&the&info&in&an&executable&plan&and&at&the&end&we&have&the&execution&of&the&plan.&&

• Executive&Summary:&Synopsis&of&the&whole&plan,&containing&the&main&elements&of&all&the&sections.&It’s&the&first&page&of&the&BP,&but&the&last&section&realised.&

• Products&&&Services:&presentation&of&main&features&and&characteristics&(reason&why&the&company&is&in&the&market)&

• Strategic&Plan:&design&of&the&competitive&environment&and&strategy;&set&strategic&objectives&&• Marketing&Plan:&translate&Strategic&Objectives&into&Marketing&Objectives&and&Plan&&• Operating&Plan:&translate&strategic&objectives&into&a&series&of&actions&


lOMoARcPSD|2751981

www.andreadd.it

• Financial&Plan:&measure&sales,&costs,&cash&flow&related&with&the&activities&performed&• Risk&Analysis:&assess&the&risk&of&the&venture&

&All'the'sections'are'connected'All&the&sections&are&linked&together&and&the&choices&done&in&one&have&consequences&in&the&others:&every&section&has&an&impact&on&other&sections.&(A&choice&in&strategy&impact&production,&organization,&etc.)&We&can&imagine&that&every&section&has&premises&and&consequences.&&&E.g.:&if&you&establish&that&your&strategy&to&enter&a&new&market&is&to&offer&a&niche&product,&this&choice&impacts&production,&positioning,&communication,&distribution,&pricing,&etc.&&ASCOLTA&1.20&su&QUINCY&(vedi&quad&schemi)&&Corporate'objectives'and'local'goals''In&the&strategy&section,&the&corporate&objectives&are&introduced&and&explained.&They&form&the&red&line&keeping&together&the&whole&plan.&On&the&other&hand,&every&section&has&a&local&objective,&coherent&with&the&global&ones,&but&answering&to&specific&questions&or&choices,&regarding,&for&examples&decisions&about&manufacturing,&organization,&communication,&funding,&etc.&&&The'process'is'not'linear:'iteration'Business&Planning&is&not&a&linear&but&an&iterative&process:&every&section&can&impact&not&only&following&ones&but&also&previous&ones.&E.g.:&drawing&the&financial&plan,&you&can&discover&that&the&plan&as&conceived&is&not&sustainable;&this&can&depend&on&the&product&itself,&or&on&strategic&plan,&marketing,&plan,&manufacturing&and&operational&plan,&etc.&

&We&start&with&the&opportunity&to&invest&in&a&business,&then&we&define&the&strategy&(find&the&competitive&advantage&to&position&the&company&in&a&more&favourable&position&than&competitors)&and&marketing:&&6&&strategic&marketing&is&about&the&analysis&of&the&demand&(purchasing&decisions,&leveraging&on&the&offers&gap)&and&customers&to&define&the&segments&(a&segment&is&a&correlated&group&of&customers&or&potential&customers,&that&the&company&can&reach&with&the&same&value&proposition&and&channel&of&communication)&and&then&targeting&(selecting&the&most&profitable&segments&for&the&value&proposition&chosen)&(Quincy&found:&young,&university&students&and&professionals.&It&selected&only&one&of&them).&ASCOLTA&1.30&&Finished&the&strategic&part&of&the&business&plan,&then&we&have&to&transfer&the&positioning&in&a&tangible&offer,&starting&the&operational&part&of&the&BP.&6&&operating&marketing:&ASCOLTA&1.40&we&define&channels,&promotions,&communication&plan,&people&involved.&

Marketing&is&the&connection&between&the&strategic&and&operational&part.&&At&the&end&there&are&operations&(all&the&activities),&financials&(financial&documents)&and&risks.&It&is&possible&that&after&all&these&steps&we&can&find&that&the&initial&opportunity&is&not&sustainable,&like&in&the&Quincy&case.&&A'comprehensive'vision'Creating&a&business&plan&is&a&complex&activity,&as&its&objective&to&offer&a&comprehensive&vision&of&an&entire&business,&project,&or&even&an&entire&company.&The&business&planner&has&to&collect&and&organize&information&from&many&departments,&and&understand&peculiarities&and&problems&at&different&levels&of&a&business:&from&strategy&to&operation,&from&marketing&to&organization,&from&financial&projections&to&risk&analysis.&Business&planner&should&be&also&able&to&write&down&a&story,&organizing&information,&and&engaging&the&audience.&&&


lOMoARcPSD|2751981

www.andreadd.it

A'wide'set'of'managerial'tools'Every&section,&every&area&has&its&own&characteristics&and&the&business&planner&should&be&aware&of&the&existence&and&be&able&to&use&main&managerial&tools&in&the&different&sections.&Tools&are&basically&frameworks&to&organize&data&and&information&and&make&comparison.&&Cover'Before&analysing&the&sections,&consider&to&add&some&basic&information&on&the&cover,&to&add&reference&and&to&keep&track&of&your&copies.&Here&below&an&example.&'EXECUTIVE'SUMMARY''The&Executive&Summary&is&a&synopsis&of&the&whole&business&plan,&like&a&plan&in&miniature,&not&an&introduction:&it&contains&fundamental&information&discussed&deeper&in&each&section.&It’s&a&way&to&give&in&few&pages&(263&maximum)&an&overview&of&the&venture&and&interested&readers&will&go&deeper&reading&following&sections.&&The&main&topics&are:&

" Company&introduction&" Business&data&" Market&opportunity&" Expected&results&" Resources,&competences&" Main&activities&" Economics&" Objective&of&the&business&plan&" Goals&(vision,&value&proposition)&" Premises&

&! Most&of&the&info&are&about&the&business'model,&which&describes&the&rationale&of&how&an&organization&

creates,&delivers&and&captures&value,&rather&then&focusing&on&technology&and&innovation.&! The&three&main&elements&used&to&describe&the&business&are:&PRODUCT,&MARKET&and&TEAM.&

&PRODUCTS/SERVICES'In&this&section,&the&reader&is&introduced&to&the&products&and/or&services&offered&by&the&company.&&The&description&is&composed&of:&

− Physical&or&technical&features&(tangible&aspects)&− Value&for&the&client&(value&proposition)&− Potential&usage&&− Product'positioning'map:&we&define&a&chart&with&

two&selected&variables&for&each&axis&to&position&the&product&against&the&others.&&

− Product'lifecycle'stage&'

&&'


lOMoARcPSD|2751981

www.andreadd.it

STRATEGIC'PLAN'The&strategic&plan&is&the&core&of&the&whole&business&plan.&It&is&the&starting&point&to&assess&the&competitive&environment&and&to&weight&opportunities&and&risk.&Through&this&analysis,&a&company&define&the&value'proposition&and&the&unique'positioning,&with&the&objective&to&set&a&competitive&advantage.&In&order&to&reach&this&competitive&advantage,&a&strategy&is&defined,&or&the&unique&interconnection&of&choices&and&activities&(what&to&do&and&what&not&to&do&and&their&related&resources)&that&make&a&company&different&from&the&other.&The&strategy&has&a&direct&consequence&on&the&activities&and&organization,&and&thus&on&the&operating&plan,&and&on&the&financial&plan.&The&strategy&is&not&defined&once&for&all.&It&is&common&that&something&in&the&operating&or&financial&plans&is&considered&as&not&feasible,&and&thus&there&is&the&need&to&refine&and&update&the&strategy,&then&operations,&etc.&The&strategic&plan&is&divided&into&3&main&sections&

1. Values,'Vision,'Mission,'Objectives'2. Strategic'Analysis'(Internal'vs'External):&it&describes&

the&environment&and&the&characteristics&of&the&company&that&can&influence&the&establishment&of&a&long&lasting&competitive&advantages&

3. Strategy:'strategy&is&the&creation&of&a&unique&and&valuable&position,&involving&a&different&set&of&activities.''

Examples&of&strategy&are:&&− Business&development&and&internationalization&− IT&development&− Brands&scouting&and&recruiting&− Fund&raising&− HR&management&− Management&and&organization&&

EX)&&QUINCY:&all&the&processes&are&internal&(they&design,&produce,&inventory,&marketing,&sales&and&after&sales&services)&and&they&have&one&brand&and&create/design&their&own&collection&from&sketch.&&Disadv:&they&need&a&big&initial&investment&and&a&lot&of&money&to&run&the&business.&They&have&to&manage&a&complex&system&with&different&sections.&Adv:&they&have&a&very&high&gross&margin,&EBITDA&&&WARDROBA:&creates&a&connection&between&demand&and&offer,&using&a&platform.&They&don’t&manufacture&anything,&but&only&select&brands&from&market.&Adv:&they&don’t&need&any&capital,&because&they&don’t&own&objects,&so&they&have&lower&risk&Disadv:&lower&profitability&'V&quaderno&schema&esempio&&&MARKETING'PLAN'

1. The&first&step&is&the&analysis'of'the'demand&(TAM:&total&addressable&market)&identifying&the&potential,&available&and&target&market.&&

2. Segmentation&of&the&market:&starting&from&a&wide&group&of&customers&we&use&the&purchasing&behaviour&to&segment&them,&in&order&to&find&similar&channels&and&communication&tools&to&reach&them.&&

3. Target'selection:'we&select&the&target&between&the&list&of&all&the&segments,&using&different&criteria.&4. Positioning&for&each&target&(unique&positioning)&5. Communication'channel'selection&in&term&of&profitability&and&ability&to&make&customers&stable&clients&(turn&

rate).&&&&&


lOMoARcPSD|2751981

www.andreadd.it

Once&defined&Positioning&and&Targets,&the&marketing&plan&has&the&role&to&enact&this&program&and&to&define&the&tangible&elements&(products,&price,&channels,&points&of&sale,&people,&communication,&and&all&the&other&aspects&related&with&the&go&to&market&and&the&relationship&with&clients,&partners,&and&competitors.&&4P&+&communication:&

6 Product&6 Price&6 Promotion&6 Channels/points&of&sale&&

EX)&For&QUINCY&we&can&segment&on&geographical&base,&while&for&WARDROBE&that&is&an&online&business&we&cannot&use&geographical&segmentation,&because&probably&Americans&and&Russians&can&have&the&same&purchasing&behaviour,&influenced&by&same&factors.&&QUINCY:&3&segments&considered&at&the&beginning&(targets)&

6 young&women&professionals&at&university:&a&university&student&can&need&only&1&suit&for&special&days&(similar&need,&all&young).&6>&they&spend&too&few,&so&the&target&is&not&adequate&because&not&profitable.&

6 women&professionals&after&few&years&of&their&career:&they&have&small&money&but&they&need&suits&every&day.&It’s&their&first&experience&in&buying&a&suits,&no&benchmarking.&They&buy&more&suits&but&with&low&quality.&

6 women&in&career:&they&need&important&suits&to&represent&their&career&and&they&have&more&money.&&&They&invest&a&lot&in&creating&the&collection&(strategic&decision)&rather&than&for&the&website.&&&WARDROBA:''

6 fashion&addicted&6 cheap&suits&6 strange&taste&

&They&propose&the&website,&designing&it&internally&(strategic&decision)&creating&a&software&solution.&&They&both&decided&to&resegment&the&market&on&the&basis&of&real&clients&and&their&behaviours&(mapping&behaviour&of&clients),&for&example&using&the&size&of&orders.&&&

! Targets&must&fit&the&best&the&value&proposition&and&be&profitable.&&QUINCY'communication&channels:'

6 Website:&in&digital&marketing&CPC&(cost&per&click)&is&one&dollar=one&client&6 Trunk&shows:&investment&close&to&zero&6 Price&campaign:&investment&close&to&zero&&

&Once&defined&the&main&communication&channel,&starting&from&the&budget&we&have&to&decide&how&to&distribute&it&between&the&different&channels&in&order&to&reach&different&audiences.&Then&we&have&to&do&conversion&to&understand&in&fact&how&many&people&reached&effectively&purchase&(CR&conversion&rate,&in&the&website&case&CR=1%).&It&is&profitable?&If&depends&on&price:&if&I&invest&100€&to&reach&only&one&client&who&spend&an&average&ticket&of&200€&is&ok,&but&if&the&average&ticket&is&60€&it&is&not&profitable.&The&only&way&to&make&this&profitable&is&to&make&the&client&doing&repetitive&purchases,&4&purchases&of&60€&=&240€.&&&EX)&In&a&market&where&there&are&few&companies&controlling&the&market&of&a&certain&product.&What&is&the&best&way&to&increase&sales?&(marketing&point&of&view)&6&FIAT&6&Peugeot&6&WV&6&Ford&&To&increase&sales,&we&can&increase&price&or&volumes.&Moreover,&we&can&increase&the&loyalty&of&existing&customers&or&steal&customers&to&other&companies&to&acquire&new&clients.&6>Up6selling:&selling&a&premium&product&to&an&existing&customer&


lOMoARcPSD|2751981

www.andreadd.it

6>Cross6selling:&selling&a&different&thing&to&existing&customers&Typically,&we&reduce&price&to&increase&volumes&but&not&always&the&profit&increases.&In&fact,&the&reduction&of&price&has&lead&many&markets&to&reduce&its&profitability&maintain&the&same&numbers&of&customers&paying&less.&The&best&way&is&to&offer&additional&values.&&

! Retaining&existing&clients&is&more&important&then&acquiring&new&ones.&&OPERATING'PLAN'The&operating&plan&is&the&translation&of&the&strategic&plan&into&a&plan&of&the&activities&(set&of&activities)&necessary&to&reach&the&strategic&objectives&set&earlier.&Our&operating&plan&has&to&consider&the&various&elements&of&the&organization,&dividing&the&activities&into&macro&elements,&like&the&Porter’s'Value'Chain:&primary&and&supporting&activities.&

6 Primary'activities:&they&crate&value&for&the&final&client,&starting&from&raw&materials,&their&transformation&until&the&final&product.&(manufacturing,&marketing,&sales,&logistics,&after&sales)&

6 Supporting'activities:&they&enable&the&realisation&of&the&primary&activities&to&create&the&final&product&(HR,&IT,&administration)&

6 &It&organizes'people,&resources&and&all&the&relative'activities.&&STEPS:&

1. Find&activities&(on&the&basis&of&the&strategic&decision)&2. Find&resources&(financial,&technical,&human)&3. Organize&activities:&starting&from&primary&then&moving&to&the&supporting&ones&

&EX)&QUINCY'

1. Activities&and&#&FTE:'− DESIGNING&THE&COLLECTION:&find&human,&resources,&ideas'− FTE&(FullTimeEquivalent):&number&(2&FTE),&skills'

2. SOURCES&and&RAW&MATERIALS:&agreement&and&contracts&with&&'3. Coordination&and&responsibilities&(CMO&for&marketing,&CTO&for&IT)'

&! MBO:&management&by&objectives&

&FINANCIAL'PLAN'This&is&the&quantitative&section&of&the&business&plan.&It’s&the&section&in&which&figures&are&put&on&paper&and&you&can&discover&whether&the&strategy&is&executable,&and&if&the&activities&are&correctly&organized.&The&fundamental&goals&of&the&financial&statement&sections&are:&

• forecast'sales'and'control'costs:'to&define&if&the&business&is&profitable&• forecast'cash'flows:'to&manage&the&cash&generated&or&burnt&during&the&activities.&This&is&fundamental&to&

assess&the&financial&needs&and&to&control&that&the&business&has&cash&to&operate&throughout&the&activities&• valuate'the'return'of'the'investment:&to&assess&whether&the&investments&make&sense&or&not.&This&section&is&

fundamental&for&a&potential&investor&and&for&the&chief&of&the&venture.&&Here&you&can&discover&that&the&plans&defined&earlier&are&not&sustainable&from&an&economic&or&financial&point&of&view.&You&could&also&discover&that&the&return&of&the&investment&is&not&enough&to&justify&the&effort.&&It&is&composed&of&

! 3&financial&statements:&6 Profit&and&loss&(economic&perspective):&it&assesses&whether&a&business&is&profitable&or&not&6 Balance&sheet&(asset&perspective):&what&are&the&assets,&liabilities&and&equity&6 Cash&flow&statement&(financial&perspective):&is&the&company&financially&sustainable?&&! 3&time&periods:&&6 Historical:&what’s&done&in&the&past;&previous&years&performances&6 Current:&what&is&the&current&state&of&the&business&(now&and&next&few&months)&&6 Forecast&the&future:&what&we&expect&from&the&future&


lOMoARcPSD|2751981

www.andreadd.it

The&typical&time&horizon&depends&on&the&type&of&business,&but&it&is&more&or&less&3/5'years,&less&for&startups.&

&&(Main&problem&for&startups&is&cash&flows&that&are&usually&negative&while&profitability&can&be&positive).&&

! Income'statement:'''

EBITDA&6>&used&to&compare&performances&of&companies&within&industries,&because&this&value&is&based&only&on&the&performance&of&the&company&and&not&on&external&factors&like&taxes&and&investments.&For&startups&we&stop&here,&because&EBITDA&is&enough&to&measure&its&performance.&&

! Balance'sheet:&less&important&in&startups,&because&they&usually&have&less&assets&than&companies.&It&is&especially&important&to&assess&what&are&the&assets&owned&by&the&company&and&to&whom&the&company&owes&money.&Through&a&series&of&indexes,&you&can&answer&many&other&questions,&including&the&risk,&the&type&of&capital&structure,&the&exploitation&of&the&assets,&etc.&

&! Cash'flow'statement:&used&to&map&the&cash&flow&of&the&company,&

month&by&month,&especially&in&startups.&Checking&the&cumulated&cash&flow,&we&look&at&the&peak&that&represents&the&need&of&money&necessary&to&run&the&business/operate.&&

&RISK'ANALYSIS'Methodologies:&

• Financial'Ratios:&(Liquidity,&Debt&Burden,&etc.):&health&financial,&economic,&assets&• BreakBeven'analysis:&its&purpose&is&to&understand&how&(number&of&units)&and&when&you&start&making&profit,&

modifying&parameters&and&conditions&to&see&what&happens.&&• WhatBif'analysis'• WorstBcase'analysis'• NPV'• Distribution'of'observations&(mean,&standard&

deviation,&skewness)&&

''''''

'


lOMoARcPSD|2751981

www.andreadd.it

STARTUPS''

New&ventures&have&completely&changed&the&scenarios&and&mostly&of&them&rely&on&ICT.&In&the&middle&of&80s&the&scenario&was&completely&different,&for&example&there&were&a&lot&of&asset&intensive&companies.&Today&companies&rely&on&completely&new&processes&and&plan&activities&for&the&future&in&a&different&way,&using&different&tools&from&BP.&&There&are&two&methodologies:&

6 BP&6 Lean&LaunchPad&(when&everything&is&uncertain)&&

DEF)&STARTUP:&a!temporary!organization!in!search!of!a!viable,!stable!and!profitable!business!model.&&&It&doesn’t&have&a&clear&idea&of&what&are&the&products,&the&clients&and&the&processes&for&the&future,&everything&is&unknown,&but&in&general&it&is&related&to&new&technologies&and&business&models&used&to&make&stable&and&definitive&the&starting&idea,&finding&also&a&valuable&value&proposition&to&grow&in&the&future.&&StartBups:'

6 The&Business&Model&is&uncertain&6 Customers&are&uncertain&6 Engines&of&growth:&if&a&start6up&wants&to&dominate&in&a&market&it&has&to&grow&quickly&(fast&and&stable&growth&

in&a&structural&way)&&We&refer&to&startups&but&also&to&new'ventures'in'existing'companies&(keeping&together&traditional&businesses&and&disrupting&innovations,&managing&them&in&a&different&way,&taking&the&best&from&both).&&Size'of'the'startup'environment'in'Italy'We&use&a&proxy:&506billion6dollar&investments&in&new&ventures&(high&probability&of&profitable&business)&(USA&is&the&leader)&&

# Median'VC'investment'by'round'class:''SEED:&Startup&means&a&high&initial&investment,&on&the&basis&of&an&idea&of&product/project.&The&capital&necessary&and&available&for&VC&is&higher&in&USA&and&lower&in&other&countries&(from&50&000&to&500&dollar).&&FIRST&ROUND:&162&million&&SECOND&ROUND:&startups&start&making&money.&&

&# Median'VC'investment'by'product'phase:'low&investments&in&startups,&while&increasing&investments&from&

product&development&to&revenue&generation&until&profitable.'&It&is&important&to&have&an&exit:&it&means&exiting&from&an&investment&making&a&difference&from&the&purchasing&price&and&the&selling&price,&creating&capital&gain.&The&potential&exit&strategies:'

6 IPO:&initial&public&offering&(listed&in&a&stock&market).&Backed&IPO&when&a&starup&becomes&public&6 Trade'sale''6 Buy'out&(private&equity&found&buy&shares&and&becomes&the&owner&of&the&company)&

&Fund&Raising:&The&type&of&investors&changes&during&the&stages:&business&angels,&DC&(companies)&invest&a&lot&and&then&IPO,&trade&sales&and&so&on.&&

! Investments&in&startups&compared&to&GDP&of&different&countries.&In&Italy&is&low.&&'''''


lOMoARcPSD|2751981

www.andreadd.it

Types'of'investors:'This&proportion&shows&that&business&angels,&family&and&incubators,&that&support&startups&only&in&a&limited&way,&are&year&over&year&a&more&important&parte&of&investors&in&startups,&while&institutional&investors,&that&know&the&product/service&and&have&a&lot&of&resources,&continuously&decrease.&&&&Simplified&limited&company&(srl&semplificata)&have&increased,&because&there&are&a&lot&of&startups&but&with&low&resources,&so&the&italian&market&is&growing&but&it&is&

still&weak.&&ENGINES'OF'GROWTH'If&the&startup&is&a&temporary&organization&that&has&to&grow&to&dominate&a&market&or&sector,&there&is&the&need&to&scientifically&study&ways&not&just&to&compete&in&a&market,&but&to&conquer&in&relatively&short&period,&a&dominant&position&in&an&existing&market,&or&disrupt&the&traditional&business&models&present&in&a&market.&A&startup&should&operate&in&a&radical&different&way&than&incumbents&and&has&to&generate&a&growing&attention&and&attraction&for&clients.&The&engines&of&growth&are&mechanisms&that&make&a&startup&to&grow&faster&than&normal&companies&grow.&They&exploit&the&potential&of&network&effect&of&some&products,&word&of&mouth,&reward&systems,&social&media,&etc.&&GROWTH'HACKING:&the&new&marketing!manager&becomes&a&grow&hacker,&with&skills&at&the&intersection&of&different&disciplines.&Startups&form&teams&of&grow&hackers.&

&It’s&a&matter&of&being&an&engineer,&a&statistician,&and&a&mathematician&with:&&• &Creativity:&able&to&do&a&creative&and&engaging&marketing&activity&• &IT&competences:&able&to&understand&and&create&mechanisms&of&digital&platforms&(software&and&automation)&• &Analytical&capabilities:&able&to&manage&the&process&of&customers’&acquisitions,&measuring&data&and&performances&in&order&to&improve&the&performance&of&metrics&(like&conversion&rates)&&

Sources&of&growth:&− Product&innovations&− Unique&acquisition&channels&− Analytics&− Customer&understanding&− Premium&business&models&− Virality&− Untapped&acquisition&channels&− Unique&HW&and&SW&design&− Memorable&experiences&− Word&of&mouth&(no&paid&advertising)&&

EXAMPLES'! YELP:&they&changed&the&business&plan&for&example&changing&the&metrics&of&the&analysis&! Github:&&! Upworthy:&&! Hubspot:&inbound&marketing&! Linkedin:&they&found&a&need&and&a&specific&market,&using&a&free&new&model&


lOMoARcPSD|2751981

www.andreadd.it

The&main&engines&of&growth&(they&differ&depending&on&the&specific&objectives):&• STICKY'ENGINE'OF'GROWTH:&&

It&is&used&if&you&are&focused&on&retaining&customers&for&the&long&term.&In&this&way&you&can&lock&customers&in&your&“garden”,&pushing&them&in&the&domain&of&repeat&use.&EX)&iCloud&or&Dropbox&services:&once&people&start&using&them,&switching&to&another&platform&has&high&switching&costs&EX)&Printer&and&cartridges:&the&lock6in&method&&EX)&Mobile&phones:&there&are&many&offers&that&lock6in&customers&with&specific&contracts&&EX)&Espresso&and&capsules&

• VIRAL'ENGINE'OF'GROWTH:&It&is&used&if&you&are&focused&on&acquiring&new&clients.&The&product&must&be&perfect&and&exciting&and&you&have&to&verify&that&each&client&brings&more&than&1&friend&to&the&platform,&making&him&an&advertiser&in&the&domain&of&word&of&mouth.&EX)&Dropbox&is&a&file&sharing&system&in&which&you&can&store&and&share&your&files.&Sharing&files&means&creating&automatically&new&clients.&&EX)&Github:&repository&in&which&if&you&want&to&advertise&your&own&computer&and&share&with&other&your&programs&you&are&creating&new&clients&

• PAID'ENGINE'OF'GROWTH:&&It&is&used&in&order&to&offer&something&for&free&to&reach&a&large&number&of&customers,&thanks&to&the&competitive&advantage&(lowest&cost).&The&free&version&appeals&a&great&number&of&customers,&but&if&you&want&and&advantage&usage&you&have&to&pay&for&premium&versions.&EX)&Spotify&EX)&Linkedin&&&

Others&engines&of&growth:&# Word'of'mouth:&based&on&the&enthusiasm&of&people’s&stories&&# A&Side&Effect&of&Using&the&Product&# Reward&# Paid&Advertising&(if&you&keep&the&cost&of&ad&below&marginal&revenue)&&# Repeat&Use&(stickiness)&&

LESSONS&LEARNT:&&

• The&new&approaches&of&marketing&embraces&different&skills&and&competences,&combining&storytelling,'use'of'analytics,'engineering,'and'exploitation'of'networks'effect'

• Startups&create&growth'hacking'teams&with&the&goal&to&identify&the&sources&of&growth'• Since&the&beginning,&a&startup&should&ask&itself&what&are&the&potential'sources'of'growth'• Engines&of&growth&can&be&classified&in&a&few&categories'• Startups&should&select&the&mix'of'engines'of'growth&that&match&their&characteristics:&some&can&rely&on&word&

of&mouth,&some&other&on&the&usage&of&the&product,&etc.'• The&trial'and'error'approach&and&use&of&analytics&enable&the&founders&to&understand&what&are&the&working&

engines&of&growth'• Customer'journey&and&A/B'tests&at&early&stage&reduce&the&risk&to&apply&wrong&methodology&and&invest&too&

much&too&early''''''''''''&


lOMoARcPSD|2751981

www.andreadd.it

LEAN'STARTUP'METHOD'AND'METRICS'&The&BP&is&not&always&the&best&method&for&new&ventures&or&startups,&even&if&it&is&a&powerful&tool,&especially&when&things&are&easy&to&be&forecasted&(when&the&pattern&is&similar&in&the&future).&When&we&consider&new&ventures&(with&the&aim&of&a&start6up),&everything&is&uncertain&and&need&to&be&discovered,&so&it’s&difficult&to&forecast.&&We&introduce&a&new&method:&LLP'method,&Lean!Launchpad!Method&or&Lean!StartAup!method,&used&to&find&a&structural&way&to&develop&a&plan&and&manage&the&activities&of&a&start6up.&The&main&difference&is&the&approach.&&MOTOROLA'IRIDIUM:&satellite'mobile'system'&Incredible&initial&investment,&66&satellites&in&orbit,&7&years&of&development.&When&Motorola&launched&the&Satellite&Mobile&System&there&was&a&stable&environment&and&a&stable&customer&base&(big&managers,&adventurers,&travellers&all&interested&in&having&a&mobile&phone&reachable&everywhere).&In&the&middle&of&90s&the&product&was&launched,&but&its&costs&were&too&high&respect&to&the&normal&mobile&phone,&in&fact&they&went&bankruptcy.&

&&WEBVAN:&home'to'home'retail'grocery'business'It&consists&in'grocery&food&delivered&at&home.&They&created&a&website,&investing&a&lot&in&the&launch&of&the&product&on&the&market,&expecting&to&reach&a&high&audience&in&a&“prepared”&market.&Their&forecast&was&wrong,&because&their&business&model&of&food&delivery&on&a&mass&scale&was&new,&never&tested&before.&They&failed&because&they&started&as&a&consolidated&company,&creating&a&BP&too&much&concrete&and&based&on&wrong&hypothesis&(not&tested).&In&fact,&only&many&years&later&companies&started&to&be&profitable.&&

&&ERRORS:&•&&Untested&and&unverified&hypotheses&(no&trials&no&errors)&•&&Wrong&target&audience,&segmentation,&and&pricing:&they&believed&they&knew&what&customers&want&&•&&Complex&infrastructure&model&(the&more&the&project&is&complex&the&higher&the&probability&to&fail)&•&&Too&much&money,&expanded&too&fast&•&&Wrong&management&crisis&(it’s&a&Marketing&problem!)&&•&&Execution&of&a&plan&(they&executed&what&they&had&in&mind&without&thinking&first)&


lOMoARcPSD|2751981

www.andreadd.it

•&&Focus&on&launch&date&•&&Go6to6market&timing&•&&Evolution&of&the&competition&&Start6ups&and&also&New&Ventures&within&big&companies&use&LLP&method&to&test&their&ideas&(it&is&something&that&already&exists&or&it&something&completely&new?),&before&realizing&them&and&launching&the&project&on&the&market.&&

! Start6up:&a!startup!is!not!a!smaller!version!of!a!large!company,!but!is!a!temporary!organization!in!search!of!a!scalable,!repeatable,!profitable!business!model.!(Steven&Blank)!

! Business&model:&a!business!model!describes!the!rationale!of!how!an!organization!creates,!delivers,!and!captures!value.&(Steven&Blank)&

&From'statBups'to'a'scalable'business'&&&&&&&'''''STARTUP'LIFE'CYCLE'&'FUNDING''

SEARCH:&the&startup&needs&a&small&amount&of&money&in&order&to&assess&the&success&of&the&idea/project,&in&fact&the&CF&is&negative.&&BUILD:&it&starts&defining&the&organization,&the&operations&and&searches&for&customers.&GROW:&once&the&startup&is&sure&that&the&model/idea/project&works,&it&needs&a&large&investment&to&start&growing&(CF>0).&'&In&different&phases&you&have&different&financial&needs&and&counterparts&in&the&search&of&funding:&

1& Concept&&&Product&introduction:&" Business&Angels:&individuals&(professionals,&entrepreneurs,&managers)&that&have&a&lot&of&money&and&

invest&them&in&startups/projects&they&believe&in&(they&choose&the&project&they&like)&" Venture&Capitalists&" Family&and&friends&(Family,&Fools&and&Friends:&FFF)&" Pre6seed/seed&BA&

2& Growth:&once&you&have&a&small&prototype,&something&tested,&you&need&a&lot&of&money&to&create&a&version&more&stable&and&precise&in&order&to&reach&more&people&and&increase&CF&

" Round&A&" Round&B&" VC&

3& Maturity:&the&start6up&becomes&a&company,&with&a&clear&Business&Model,&structure&and&product&and&stable&profits.&

&&


lOMoARcPSD|2751981

www.andreadd.it

STEVE'BLANK:&he&created&4&phase.&Phase&1&and&2&are&phases&in&the&search&for&the&model,&while&phases&3,&4&are&the&phases&in&the&execution&of&the&model.&Each&phase&has&a&different&goal.&&&

Firstly,&we&look&to&empathy,&then&stickiness&return&(we&have&to&maintain&clients,&because&the&cost&to&reach&them&is&very&high).&&&Traction='stable,'constant'growth'&&&&&&&&&&&&&&&'

''3rd'industrial'revolution:'we&start&considering&products&and&channels&(the&two&axis):&they&are&both&physical&and&virtual&(virtual&products&like&music,&computer&programs&and&virtual&channels&like&internet).&Firstly,&we&have&physical&products&sold&with&physical&channels,&then&physical&products&sold&with&virtual&channels&(Amazon).&Moreover,&virtual&products&sold&through&physical&channels&and&today&we&sell&also&virtual&products&with&virtual&channels.&&At&the&beginning&some&of&these&Business&Models&seemed&new&and&untested,&but&nowadays&they&are&fundamental&and&the&key&aspect&of&a&company’s&strategy.&&&LEAN'STARTUP'METHOD'&Series&of&tools&to&create&a&plan&for&a&temporary&organization.&

&Customer'Development'Model''

1& Startups&search&for&a&business&model&that&works&2& If&customers’&feedbacks&reveal&that&the&business&

hypotheses&are&wrong:&pivot&to&new&hypotheses&3& Once&a&model&is&proven&start&executing&4& Build&a&formal&organization&5& The&process&is&iterative&

&&&

&


lOMoARcPSD|2751981

www.andreadd.it

SEARCH:&you&are&totally&uncertain&whether&your&business&model&and&product&work&or&not.&Engineers’&emphasis&is&usually&concentrated&in&products,&but&in&this&case&they&have&to&focus&on&the&model&in&order&to&create&a&solid&and&stable&customer&base.&There&are&different&objectives&and&tools:&&

− Customer'discovery:'understanding'customer'problems'and'needs'1. State&Your&Hypothesis&(business&model&canvas):&they&have&to&translate&ideas&into&a&business&

model&2. Test&the&Problem:&Minimum'viable'product:&first!prototype!of!the!product!that!proves!that!the!

need!exists.!&3. Test&the&Solution:&High'fidelity'minimum'viable'product:'startups&do&some'tests&and&initiatives&

to&verify&whether&the&solution&offered&is&valid&or&not.&If&the&test&proves&that&the&solution&doesn’t&work,&you&don’t&have&to&pass&to&the&next&phase,&but&you&have&to&pivot.&&

4. Pivot&or&Proceed:&pivot&means&modifying&some&aspects&or&parameters&or&minor&features,&in&order&to&make&the&solution&working&(able&to&solve&the&problem/desire/need&of&someone,&filling&the&gap&in&the&offering).&Once&the&business&model&is&validated,&you&can&start&to&execute.&

&EX)&Pivoting&like&passing&from&a&product&to&another,&from&a&list&of&features&to&only&one&feature,&changing&customers’&targets.&Groupon,&Twitter,&Flickr&are&all&examples&of&pivot,&they&realised&that&there&was&something&more&profitable.&EX)&Entertaining&dog,&first&you&have&to&test&if&the&desire&exists.&You&create&a&website&and&you&measure&the&number&of&clicks&(CTR&=&click&through&rate&=&10%),&benchmarking&the&result&with&the&results&of&the&market.&&&

− Customer'validation:'developing'a'sales'model'that'can'be'replicated'''1.&&Get&ready&to&sell&2.&&Sell&to&earlyvangelists&(people&that&could&be&very&open&to&a&product&that&could&not&be&perfect)&3.&&Develop&positioning&4.&&Pivot&or&proceed&'

'EXECUTION:'in&this&case&the&tools&of&BP&are&very&powerful&to&create&an&industrial&product,&reach&a&wide&audience&and&build&a&company.&&

− Customer'creation:'creating'and'driving'endBusers'demand'&Startups&refine&enough&the&product&to&build&demand&and&to&sell&it.&They&scale&up&the&business&pushing&on&marketing&&&sales.&'

− Company'building:'transitioning'organization'to'execution''Transition&from&startup&mode&&Customer&development&team&&Function&departments&

&! Business&modelling&(Canvas)&! Value&proposition&Canvas:&you&can&offer&something&that&adds&value&to&customers,&in&term&of&GAIN&CREATORS&

and&PAIN&RELIEVERS.&! Agile&Development&&&Customer&development&(Execution)&

&


lOMoARcPSD|2751981

www.andreadd.it

Famous'Pivots''Changing&major&parts&of&the&business&model&after&researches&and&tests&on&the&market&

# From&Odeo&(Podcast&subscription)&to&Twitter&(Micro6blogging&status),&when&iTunes&attacked&the&podcast&niche&

# From&The&Point&(Social&media&to&group&people&and&solve&problems)&to&Groupon&(Group&of&buyers&at&a&discount&price&of&local&products&or&services),&after&many&iterations&to&find&the&right&model&

# From&Game&Neverending&(Online&role6playing&game)&to&Flickr&(Photo6sharing&social&media&acquired&by&Yahoo!&in&2005,&when&they&discovered&that&photos&were&the&most&popular&content&

# From&Burbn&(Check6in&app&with&gaming&elements&and&photos)&to&Instagram&(Photo6sharing&social&network),&when&they&decided&to&remove&the&high&complexity&and&the&high&number&of&functions&

# From&Tote&(Social&network&to&browse&preferred&retailers&and&being&alerted&when&preferred&items&are&available)&to&Pinterest&(Photo6collections&of&liked&photos&organized&into&boards)&

# Avon:&form&books&sales&to&beauty&products,&starting&from&free&samples&of&perfume&to&clients&they&decided&to&leverage&on&female&clients&who&enjoyed&those&samples&

&A&NEW&WAY&TO&SEE&OLD&THINGS?&Is&it&always&the&right&methodology?&It&has&been&criticised.&&&WHAT’S&WRONG?&&•&&Lean&Start6up&is&not&science&•&&MVP&doesn’t&beat&competitors&•&&Business&planning&and&traditional&accounting&aren’t&always&wrong&&•&&Too&many&tests&delay&TTM&•&&One6fit6all&model:&&•&&It’s&only&for&web&2.0&start6ups&•&&It’s&not&scientific&management&•&&It’s&nothing&more&than&common&sense&•&&It&just&stole&scientific&management&approach&•&...&&TYPICAL&STARTUPS’&PROBLEMS&At&Seed&Stage:&•&&Building&a&talented&and&motivated&team&•&&Getting&initial&validation&and&traction&&•&&Executing&fast&&At&Growth&Stage&•&&Hiring&and&retain&talents&•&&Bringing&on&a&good&management&team&•&&Putting&a&stable&and&efficient&process&in&place&&

METRICS'6 Used&to&map&the&business&performances&6 We&can&observe&the&main&changes&6 We&can&map&customers’&journeys&(funnel)&6 Heatmaps&6 Recordings&6 Framework&

&! Retention&is&the&most&important&metric&

&&We&have&to&link&our&performances&to&measures.&When&we&have&to&decide&if&changing&or&not&the&business&model&we&have&to&consider&some&data,&especially&metrics.&Metrics&are&indicators&of&some&performances&of&the&business.&They&depend&on&the&type,&the&age&of&the&business&and&other&variables.&&&


lOMoARcPSD|2751981

www.andreadd.it

EX)&What&kind&of&metrics&would&you&use&to&asses&an&eCommerce?&&6 Number&of&customers/&growth&rate&(more&dynamic):&ability&to&attract&customers&6 Customer&Lifetime&Value&(CLV):&you&consider&the&value&for&the&consumer&during&all&his/her&life.&It&tells&how&

much&you&can&get&from&existing&customers&6 Initial&investment&and&TTM/&Funds&6>&not&related&&6 Cost&of&customer&acquisition&(CAC):&it&can&be&benchmarked.&Ability&to&attract&customers&in&a&cheap&way.&6 Churn&rate&(people&that&abandon&the&service)/Retention&rate:&&6 Bounce&rate&(second&level&metrics,&because&it&is&related&to&the&performance&of&the&website)/CPC&cost&per&

click&/CTR&cost&through&rate/CR&conversion&rate&&When&CAC>&CLV&the&business&is&losing&money.&&&The&best&way&is&to&have&two&dashboards:&Once&used&internally,&to&understand&the&performances&you&are&most&interested&in&Once&used&externally,&for&external&people&who&are&interested&in&metrics&that&measure&the&profitability&of&the&company&(especially&investors)&&For&a&startup&in&the&search&mode:&

♦ MONTHLY'CASH'BURN'RATE:&amount&of&cash&spent&every&month&&♦ CASH'RUNAWAY&(like&Quincy):&how&many&months&you&don0t&have&enough&money&for&your&business&

&Virality:&&1.&&Product&inherent&(Github,&Dropbox)&&2.&&Product&artificial&(reward&system)&&3.&&Word&of&Mouth&4.&&Paid&(?)&&1.&&Invitation&Rate&=&Invited&people&/&Inviters&2.&&Acceptance&Rate&=&Invited&Sign&up&/&Total&Invited&3.&&Viral'Coefficient'='Invitation'Rate'*'Acceptance'Rate&Focus&more&on&retention&than&on&virality&at&the&beginning:&&

6 Retention&=&activities&in&the&first&30&days&6 Viral&cycle&time&is&very&important&

&Categories'of'the'dashboard:'1.&&Financials&2.&&Users&3.&&Acquisition&&&Marketing&4.&&Sales&5.&&Market&&FINANCIALS''

Monthly'Revenue'Growth&

'Revenue'Run'Rate' Margins' Cash'Burn'Rate' Runway'

•&&Most&used&by&founders&than&by&VC&•&&Size&matters&(100%&of&1&is&2...)&•&&40%&can&be&considered&good&'

•&&Your&last&month&revenues&multiplied&by&12&•&&In&early&stages,&VC&evaluate&18624&months&'

•&&Gross&Margin&•&&EBIT&•&&Depend&on&industry&and&competition:&check&competition!&•&&E.g.:&cloud&storage&(90%),&sw&companies&(70%),&hw&companies&40%)&

•&&Monthly&negative&cash&flow&•&&Cumulative&Cash&Burn&Rate&give&you&the&Financial&Need&'

•&&How&long&your&cash&will&last&•&&Your&Cash&divided&by&Monthly&Burn&Rate&'

'''


lOMoARcPSD|2751981

www.andreadd.it

USER''

Daily'(monthly)'Active'User'

KBValue' Proportion'of'Mobile'Traffic'

Churn'Rate'' Cohort'Analysis'

•&&The&most&widely&used&metric&'

•&&Your&user&base&at&To&+&users&invited&by&user&base&at&To&within&T1&•&&Measure&of&Virality&•&&Borrowed&from&epidemiology&•&&E.g.:&1.2&is&strong;&1.4&is&very&strong&(usually&doesn’t&last&long)&'

•&&Number&of&visits&from&mobile&divided&by&Total&visits&•&&Very&important&(people&spend&a&lot&of&time,&and&money,&on&mobile)&&

•&&The&proportion&of&users&leaving&the&platform&•&&For&a&social&media:&80%&too&high,&40%&good,&20%&phenomenal&'

•&&How&many&users&who&joined&in&a&time&frame&are&engaged&in&subsequent&weeks&•&&Measure&engagement&'

&USER'ACQUISITION'AND'MARKETING'&

Customer'Acquisition'Cost'(CAC)' PayBback'period' Net'promoter'Score'•&&Money&spent&in&promotion&divided&by&the&number&of&acquired&customers&•&&In&e6commerce&$&30660&is&great&•&&Successful&online&businesses&rarely&go&above&$&120'

•&&In&e6commerce&number&of&orders&(or&time)&to&cover&cost&of&acquisition&

•&&In&freemium&or&adv6driven&model&366&months&are&good;&more&than&18&months&too&much&

•&&Ask&a&sample&of&clients&if&they&would&suggest&the&product&(scale&1610)&•&&Score:&162&are&detractors&•&&Score&9610&are&promoters&•&&The&difference&of&the&proportion&is&the&Net&Promoter&Score&

&SALES'&

Magic'Number' Average'Size'&'order'Velocity' Customer'Long'Term'Value'

•&&Return&on&Investment&in&Marketing&and&Sales&•&&Divide&net&growth&of&revenue&in&2&subsequent&quarter&multiplied&by&4&by&marketing&expenses&in&first&quarter&•&&Ex:&Q1&=&200K;&Q2=400;&exp1=300K&!&Magic&Nr&=&2.66&•&&If&Magic&Nr&>&1&you&are&scaling&your&marketing&&

•&&Average&price&and&time&to&repeat&the&purchase&

•&&They&influence&margins&and&growth&

•&&The&discounted&vale&of&revenue&streams&generated&by&an&acquired&customer&

&MARKET''1.''Total'Addressable'Market'TAM'•&&The&size&of&the&market&addressable&2.''Average'Wallet'Size'•&&The&amount&of&money&spent&by&a&single&client&in&a&given&period&for&a&category&of&services&&&&&&&


lOMoARcPSD|2751981

www.andreadd.it

What’s&the&most&important&metric?&&&Depend&on&your&business&1.&&Transactional:&cart&conversion,&cart&size,&abandonment;&transactional&funnel&2.&&Collaborative:&engagement&funnel&3.&&Saas:&conversion&rate,&churn&rate,&cost&of&acquisition&and&retention,&lifetime&value&&4.&&Media:&clicks&on&banner,&pay6per6click&ad,&page,&visists,&CTR&5.&&Game&(and&free&apps):&ARPU&(average&revenue&per&user&per&month&/lifetime)&&Which&stage&you&are?&1.&&Problem&Validation:&“Am&I&solving&a&real&problem?&People&care&about&it?”&&2.&&MVP:&amplification,&Net&promoter&score&3.&&Channel&development:&conversion,&funnel&4.&&Oingoing&feature&development:&test&new&features&5.&&Business&model&validation:&money&&

FUNDING'ROUNDS'FOR'STARTUPS''

HOW?&WHERE?&WHEN?&WHO&ARE&THE&COUNTERPARTS?&&

! HOW'MUCH'MONEY'DO'I'REALLY'NEED'FOR'A'STARTBUP?''You&have&to&determine&the&“right”&size&of&the&investment,&where&right&means&that&you&have&enough&money&to&sustain&the&activities&before&financial&break6even,&but&not&too&much&too&early.&The&most&widely&used&indexes&to&calculate&financial&needs&are&Cash&Burn&Rate&and&Runaway.&&

1. Firstly,&you&have&to&assess&revenues,&then&expenses&in&term&of:&investments&and&operating&costs;&then&you&can&build&the&income&statement.&

o Revenues&o Expenses:&

• Investments&&• Operating&costs&

2. You&should&map&month&by&month&the&cash&flows,&because&there&can&be&some&delays&or&anticipations,&that&change&completely&the&situation.&&

3. You&should&look&at&the&peak&of&the&cumulative'cash'burn'rate:&$ Cash'Burn'Rate&is&the&average&monthly&cash&flows&(if&negative):&it&indicates&what&is&your&monthly&

financial&need.&To&calculate&the&Cash&Burn&Rate,&you&have&to&determine&the&monthly&cash&flow&statement.&

$ Runaway&is&the&correspondent&number&of&months&covered&by&your&existing&funds&with&the&current&cash&burn&rate.&It&is&calculated&dividing&the&funds&by&the&Cash&Burn&Rate.&

'HOW'TO'DEFINE'THE'FINANCIAL'NEED'OF'A'COMPANY?''MAPPING'REVENUES,'OPERATING'COSTS'AND'INVESTMENTS''DITRIBUTE'THEM'IN'TIME'DEFINE'CASH'FLOWS'PEAK'OF'CASH'BURN'RATE''EX)&What&is&the&financial&need&of&Quincy?&&

6 Runaway&of&7&weeks&6 Their&capital&raised&is&950k&$&&6 They&have&already&done&2&collections&and&they&want&to&do&another&collection,&maintaining&the&same&costs&6 Their&P&L&statement&of&October:&their&EBITDA&is&650k&$,&that&is&similar&to&their&operating&cash&flow.&&

&o CASH:&100K&$:&We&can&assume&that,&with&some&approximations&and&assumptions,&their&cash&in&banks&is&equal&

to&100k$.&&o 2&collections:&850k&$&(425k&$&for&each&collection)&

So&they&should&ask&for&325k&$&


lOMoARcPSD|2751981

www.andreadd.it

&! WHEN'COLLECTING'FUNDS?&&

In&general,&the&later&the&better,&when&the&value&of&your&company&has&grown&and&the&risk&is&lower.&&The&type&and&size&of&funds&and&the&sources&changes&along&the&startup&lifecycle&and&investors&always&try&to&delay&their&entrance.&At&each&stage&the&goal&of&fund&raising&(and&the&startup&itself)&is&different&and&the&size&and&the&types&of&investors&are&different.&&At&an&early&stage&the&need&of&money&is&small,&while&in&the&later&stage&the&investment&needed&is&higher.&The&main&difference&is&that&companies&need&high&investments&since&the&beginning.&&

&&

♦ Pre6seed&phase:&CONCEPT&AND&PRODUCT&Funding:&from&savings,&FF,&crowdfunding,&grants&&Size:&€&10K&–&€&100K&Business&Plan,&Prototype&No&revenues&(or&very&small)&Teams&formed&by&founders&who&develop&the&product&Financial&objective:&Cash&Burn&Rate&(as&low&as&possible)&Corporate&objective:&conceive&and&develop&the&product;&test&and&understand&the&market&&

♦ Seed&phase:&INTRODUCTION&&Funding:&from&savings,&FF,&crowdfunding,&Business&Angels&(BA:&top&managers,&entrepreneurs.&They&evaluate&the&team,&product&and&market&and&they&work&in&groups&in&order&to&balance&the&risks)&&Size:&€&500K&–&€&1&Mio&Prototype,&product&(almost&ready&to&be&launched&on&the&market)&Very&small&revenues&Teams&formed&by&founders&who&develop&the&product&Financial&objective:&Cash&Burn&Rate&(as&low&as&possible)&Corporate&objective:&develop&the&product&and&match&the&market&

&♦ Round&A&(startup):&GROWTH,&early&stage&&

Funding:&Business&Angels,&Venture&Capitalist&Funds&(VC:&they&don0t&bring&only&money&but&also&skills)&&Size:&€&165&Mio&First&revenues,&toward&breakeven&Teams&formed&by&founders&and&first&contributors&Financial&objective:&Prove&the&revenue&model&works&Corporate&objective:&find&the&product6market&fit,&search&of&customers,&business&model&test&

&# BA,&VC&and&PE:&They&take&the&risk,&entering&in&different&stages&with&different&investment&and&management&

capacities.&They&buy&part&of&the&ownership&(putting&money&in&the&equity&side)&of&the&company&at&its&early&stage&and&sell&it&after&it&has&grown&its&value.&VC&invest&in&the&start6ups/early&stage,&with&high&risk&and&high&returns,&while&PE&invest&in&the&later&phases/company&with&low&risk&and&low&returns.&&

♦ Round&B:&MATURITY&PHASE&


lOMoARcPSD|2751981

www.andreadd.it

Funding:&Operating&Profit&and/or&Venture&Capital&Funds,&Private&Equity&Funds&(PE:&institutional&investors.&They&gain&money&from&investing&in&different&companies)&Size:&€&5620&Mio&Operating&Profit&(positive&CFs)&Boards&with&founders,&VC,&other&experienced&C6Levels&Teams&formed&by&engineers&and&business&developers.&Until&maturity,&funders&should&have&the&majority&of&the&ownership,&otherwise&the&company&is&blocked.&Objective:&Break6even,&operating&profit,&scale6up&

&♦ Later&stages:&EXPANSION&&

Funding:&Private&Equity,&Stock&Exchange&Size:&€&10650&Mio&Stabilization&of&cash&flows&Boards&with&founders,&VC,&other&experienced&C6Levels&&Structured&team&Corporate&organization&Founders&can&have&a&minority&stake&Objective:&Cash&Flows,&stabilization,&exit&(for&early&stage&investors,&ventures&and&founders)&

&# At&the&end,&if&you&are&one&of&the&owners&of&the&company,&you&can&make&money&in&different&ways:&selling&the&

ownership&of&the&company,&only&if&you&have&the&capital!gain&(selling&the&company&at&a&higher&price&with&respect&to&the&money&paid&for&the&acquisition.&The&difference&is&the&capital&gain)&or&through&dividends.&&EXIT:&

o Trade&sale:&you&sell&the&company&to&a&similar&in&term&of&size&company&o Buyout&o IPO:&process&of&going&public&

&! WHO'ARE'THE'INVESTORS?''

The&source&of&funding&can&have&a&different&impact&on&your&financial&structure,&composition&of&the&ownership,&level&of&risk,&etc.&Financial&resources&are&in&the&right&part&of&the&balance&sheet&and&are&part&of&2&main&families:&•&Equity&•&Debt&Debt&can&be&financial&(loans,&short&term&debts)&or&commercial&(accounts&payable).&Ultimately,&a&company&can&fund&itself&via:&•&&Commercial&debt&•&&Financial&debt&•&&Operating&activities&&•&&Grants&•&&Equity&'

! WHAT’S'THE'VALUE'OF'MY'COMPANY?&&Once&defined&the&financial&need,&and&matched&the&need&with&the&stage&in&the&startup&lifecycle,&founders&must&find&the&right&counterpart.&If&you&finance&the&company&with&your&savings,&operating&activities,&debt,&grants,&you&don’t&have&to&share&the&ownership&of&the&company&with&anyone&else:&founders&remain&the&only&owners&of&the&whole&company.&Instead,&if&you&have&to&open&your&equity&to&external&investors,&you&have&to&define&what&is&the&share&of&ownership&given&away&for&the&money&(or&services&collected).&

6 How&does&this&process&happen?&How&to&make&this&price?&How&to&assess&the&value?&Is&it&the&same&with&FF,&Business&Angels,&and&Venture&Capitalists?&&

Consider&that&this&is&a&deal:&you&have&to&start&from&a&value,&but&at&the&end&the&final&price&is&the&result&of&many&other&factors,&including&the&bargaining&power&(and&interest)&of&the&parties.&Main&actors&that&can&be&involved&into&first&stages&of&investment&(FF,&BA,&VC)&have&different&objectives,&cultures,&politics.&&&When&startups&have&to&value&the&company?&1.&&Fund&raising:&evaluate&the&share&of&ownership&to&sell&during&a&round&2.&&Work&for&Equity&and&other&3rd&parties&participations:&in&order&to&match&the&value&of&labour&and&the&value&of&ownership&


lOMoARcPSD|2751981

www.andreadd.it

3.&&Exit:&evaluation&of&the&price&to&sell&parts&of&the&company&&

! WHAT’S'THE'ROLE'OF'INCUBATORS'AND'ACCELERATORS?''

! HOW'TO'PRESENT'A'BUSINESS'TO'POTENTIAL'INVESTORS?&&The&Elevator&Pitch&is&brief&presentation&to&introduce&your&business&idea,&your&product,&your&service,&to&summarize&who&you&are,&what&you&do&and&why&an&investor&should&invest&in&your&venture.&Its&name&reflects&the&fact&that&you&can&deliver&its&content&in&the&time&span&of&an&elevator&ride.&&•&&Elevator&Pitch&is&a&short&graphic&and&catchy&presentation&of&the&business;&it&is&more&emotional&than&rational,&and&its&goal&is&to&attract&interest.&•&&Business&Plan&is&an&analytical&document,&with&analysis,&plans,&premises,&and&consequences,&and&all&the&details.&&The&main&goal&of&an&elevator&pitch&is&to&persuade&an&investor&to&put&some&money&in&the&venture&and&become&owner&of&a&part&of&the&company.&You&have&to&show&her&/&him&that&your&business&is&profitable,&you&have&the&skills&to&manage&a&company,&you&know&the&market,&you&will&have&positive&cash&flow&after&a&while,&you&can&control&your&costs,&your&business&is&scalable,&you&can&create&and&sustain&competitive&advantages,&the&market&is&growing,&you&have&a&long6term&strategy,&etc.&Your&Deck&gives&the&potential&investors&the&first&impression&of&you&and&your&company.&

1. Introduce&yourself&2. Introduce&the&problem,&client’s&pain,&need/opportunity&3. Your&solution,&your&product&4. Your&team&5. What’s&done&so&far?&6. Market&&&competitors&7. Users/sales/cost&forecast&8. Cash&burn&rate/Runaway/Use&of&proceeds&9. Valuation&and&exit&10. Call&to&action&

&EVERYONE'HAS'A'PLAN'UNTIL'THEY'GET'PUNCHED'IN'THE'FACE''Mike'Tyson'&&&


lOMoARcPSD|2751981

www.andreadd.it

andreadd.it - appunti, esercizi e temi d'esame · introduction)) 06/10/2015’...

Documents