small business strategies: imitation with a twist chapter 7 © 2014 by mcgraw-hill education. this...

Small Business Strategies:

Imitation with a Twist

Chapter 7

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Learning Objectives

LO1 Describe the decisions needed to establish a foundation for strategic planning.

LO2 Identify the forms of imitative and innovative businesses.

LO3 Articulate the benefits that win over customers.LO4 Assess how have industry changes affect strategy.LO5 Explain the major strategies of business—

differentiation, cost, and focus.LO6 Determine how to sustain competitive advantage

through attracting customers and discouraging competition.

7-2


Strategy in the Small Business

Strategy the ideas and

actions that explain how a firm will make its profit

7-3


Strategy in the Small Business

Good strategy leads to greater chances for survival and higher profits for small businesses

What makes a strategy good is its fit to the particulars of your business and the resources you can bring to it

7-4


The Small Business Strategy Process

7-5

Figure 7.1


Goals: The First Step ofStrategic Planning

There are five initial key decisions:1. As owner, what do you expect out of the

business?2. What is your product or service idea (and its

industry)?3. For your product or service, how innovative

or imitative will you be?

7-6


Goals: The First Step ofStrategic Planning

4. Who do you plan to sell to—everyone or targeted markets?

5. Where do you plan to sell—locally, regionally, nationally, globally?

7-7


Owner Rewards

Magic number The post-tax income the entrepreneur personally

seeks from the business.

7-8


Industry

Industry The general name for the line of product or

service being sold, or the firms in that line of business

Key is selecting an industry that offers good potential for making a profit

Also needs to offer attractive opportunities to work with a minimum of risk and competition

7-9


Attractiveness of Selected Industries and Lines of Business

7-10

Figure 7.2


Imitation and Innovation

Imitative strategy An overall strategic

approach in which the entrepreneur does more or less what others are already doing.

Innovative strategy An overall strategic

approach in which a firm seeks to do something that is very different from what others in the industry are doing.

7-11



Degree of similarity The extent to which

a product or service is like another.

Parallel competition An imitative

business that competes locally with others in the same industry.

7-12



Incremental innovation An overall strategic

approach in which a firm patterns itself on other firms, with the exception of one or two key areas.

7-13



Pure innovation The process of creating new products or services,

which results in a previously unseen product or service.

Also called blue ocean strategy

7-14


Markets

Market business term for the population of customers

for your product or serviceScope

geographic range covered by the market Local to Global

7-15


Markets

Scale size of the market

Mass market large portions of the population

Niche market narrowly defined segment of the population that

is likely to share interests or concerns

7-16


Scope: Local to Global

Scope is important for two reasons:Knowing your market scope helps deciding

where to focus sales and advertising effortsKnowing your target market gives you a way to

know which competitors to worry about most, namely those within your market scope

7-17


Customers and Benefits

Corporate customers

Loyal customers

Local customers

Passionate customers

7-18


Value and Cost Benefits

Benefits characteristics of a product or service that the

target customer would consider worthwhile value benefit, cost benefit

The best way to identify desirable benefits is through potential customers

7-19


Value and Cost Benefits

Perceptual map A graphic display which positions products,

services, brands, or companies according to their scores of important strategic dimensions.

7-20


Industry Dynamics and Analysis

Competitor all the firms also selling that product or service.

Industry dynamics Changes in competitors, sales and profits in an

industry over time.

7-21



Introduction stage The life cycle stage in which the product or

service is being invented and initially developed.Growth stage

An industry life cycle stage in which customer purchases increase at a dramatic rate.

7-22



Boom A type of life cycle growth stage marked by a very

rapid increase in sales in a relatively short time.Shake-out

A type of life cycle stage following a boom in which there is a rapid decrease in the number of firms in an industry.

7-23



Maturity stage The third life cycle stage, marked by a

stabilization of demand, with firms in the industry moving to stabilize or improve profits through cost strategies.

Decline stage A life cycle stage in which sales and profits of the

firm begin a falling trend.

7-24



Retrenchment An organizational

life cycle stage in which established firms must find new approaches to improve the business and its chances for survival.

7-25


The Industry Life Cycle

7-26

Figure 7.3


Tool: Industry Analysis

Industry analysis (IA) A research process that provides the

entrepreneur with key information about the industry, such as its current situation and trends.

7-27


Tool: Industry Analysis

Gross profit Funds left over after deducting the cost of goods

sold.Net profit

The amount of money left after operating expenses are deducted from the business.

Profit before taxes The amount of profit earned by a business before

calculating the amount of income tax owed.7-28


Strategy Selection

Generic strategies Three widely applicable classic strategies for

businesses of all types—differentiation, cost, and focus.

Differentiation strategy A type of generic strategy aimed at clarifying how

one product is unlike another in a mass market.

7-29


Strategy Selection

Cost strategy A generic strategy aimed at mass markets in

which a firm offers a combination of cost benefits that appeals to the customer.

Focus strategy A generic strategy that targets a portion of the

market, called a segment or niche .

7-30


Strategy Selection

Supra-strategies classic benefit combinations which are designed

to work where there are many small businesses in an industry, along with a few larger firms

7-31


Supra-Strategies

Craftsmanship Customization Supersupport

Elite Single-mindedness

Formula facilities

Bare bones Cutting out the intermediary Decentralization

7-32


Typical Strategies for Small Business Start-Ups

7-33

Table 7.2


Strategy Selection

Entry wedge An opportunity that makes it possible for a new

business to gain a foothold in a market. Supply shortages, Unutilized resources, Customer

contracting, Second sourcing, Market relinquishment, Favored purchasing, Government rules

7-34


Post Start-Up Tactics

Competitive advantage The particular way a firm implements customer

benefits that keeps the firm ahead of other firms in the industry.

7-35


Post Start-Up Tactics

Strategic actions Competitive responses requiring a major

commitment of resources.Tactical actions

Competitive responses with low resource requirements.

7-36


Porter’s Five-Forces Model of Industry Competition

7-37

Figure 7.4

small business strategies: imitation with a twist chapter 7 © 2014 by mcgraw-hill education. this...

Documents

authorized instructor

proprietary material

mcgrawhill education

small business good

small business strategies

strategy good

small businesses

step of strategic planning