MS&E 270: STRATEGY IN TECHNOLOGY-BASED COMPANIES

Chris Mocko, Lakshmi Mohan, Sohail Razzaq, and Jun Jiang

Initial Position

• R&D new product for Others & Singles• SOLD = High Earners, Pros, Buffs• SONO = Buffs, Singles, Others

Market Shares Based on Units Sold (Rd 0)

0.00% 10.00% 20.00% 30.00% 40.00% 50.00%

Buffs

Singles

Pros

HiEarners

Others

SOLD

SONO

Initial Strategy

Five Forces Analysis Low Price Commodity Market

Barriers to Entry

• Need for a new product (significant R&D investment)

• Consumer perception problem• Base unit cost problem

• Low brand awareness in target consumers

Rivals

• One dominant player and one moderate performer

Substitutes• Only one brand with base cost < $70

Buyers

• Primary consumer segment: Others

• Emphasis on economy• Fastest growing segment• Our firm’s market share < 2%, room for growth

Suppliers

• Not applicable

Mar

ket

Sh

ares

Bas

ed o

n U

nit

Sal

es O

ver

Tim

e

SO

LD

SO

NO

SO

NY

0%

10%

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30%

40%

50%

60%

0 1 2 3 4 5 6

0%

5%

10%

15%

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25%

30%

0 1 2 3 4 5 6

0%

2%

4%

6%

8%

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12%

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16%

0 1 2 3 4 5 6

Buffs

Singles

Pros

HiEarners

Others

Strategy Evolution - Sonite

1) Cheap Product for Singles & Others

3) Discontinue product to focus efforts on two products

2) Stop competing with giants—focus on Pros only

Evolution of StrategyMarket Shares Based on Unit Sales (All Products)

0%

10%

20%

30%

40%

50%

60%

0 1 2 3 4 5 6

PeriodBuffs Singles Pros HiEarners Others

Strategy Evolution - Vodite

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

4 5 6

Innovators

Adopters

Followers

Market Shares Based on Unit Sales Over Time

1) Focus on Followers—most aligned with product

2) R&D to improve product to go after largest segment, Adopters

Game TheoryStrategy Performance

Sonite:

• Protect our cash cow, protect our market share

• Regain market share and profit

• Our cash cow product generated enough revenue to fund the costly R&D for Vodite

• Our market share in Pros soared

Vodite:

• Gain first-mover advantage

• Come out with a product with one solid attribute

• Prepare for possible price war

•Focus on one product only

• Third wave

• Attracts both Innovators and Early Adopters

• Our low base cost gave us high profit margins

•Outspend other teams on advertising and sales force

Game Theory1

2

3

R&D Expenditures1. PSONY2. PVOOM3. Improving on all existing products

Strategy on the Edge• Edge of Chaos: Product is loosely aligned to all

segments to test the market.

• Adapt : Change the genetic make-up of the product one gene at a time to better cater to a segment.

• Low-cost R&D : Improve base cost and attractive characteristics.

• Edge of Time: Base R&D projects off one another to build on past strengths.

• Constant improvement: Move from one short term win to another.

Strategy on the EdgeName Autonom

yDesign

PVOOM 30 3

PVOM3 50 6

Name Power Base Cost

PSOLD 220

PSOL3 182

PSONY 97

PSNY2 75

PSOLD 75

PSOL2 90

5th to 6th turn:Revenue increase by 170%

5th to 6th turn:Contribution after marketing increased by 40%

5th to 6th turn:Contribution after marketing increase by 43%4th to 5th turn:Revenue increased by 38%

Strategy as Simple RulesEisenhardt/ Sull Our MarkStrat

TeamWorks best in rapidly changing environment

Rapidly changing consumer preferencesRapid changes in number of brands

Unpredictable competition

No historical knowledge of competitors

Performance goal is growth

Our goal was to grow our stock price via growing market share

The Six CommandmentsI. Thou shall not forsake thy homiesII. Thou shalt not covet price and product

attributes (consumer perceptions)III.Thou shalt have no other segment

before the fastest growingIV.Remember research and development,

to keep it holyV. Honour thy advertising and thy salesVI.Thou shall withdraw thy dogs

Recommendations1. Focus on growth in market share and

profitability will follow2. It’s better to have one or two star products

than to have a range of mediocre products3. Market share can be sticky after achieving a

threshold. 4. Don’t be afraid to withdraw low performing

brands5. Advertising and sales force spending is more

important than brand characteristics6. Use market studies as a guide, not a crystal

ball that predicts the future perfectly