Institute of Management

Technology

Nagpur

PGDM (2013-15) Term IV

STRATEGY FORMULATION

Project Assignment Report

Submitted to Course Instructor

Dr. Vikramaditya Ekkirala

On August 28, 2014

By Team No. 6, Section D

Members

Shashank Gupta 2013266 Salil Sharma 2013254

S Nandakumar 2013249 Sahil Modh 2013252

Saksham Arora 2013253 Sargam Sharma 2013259

Saurabh Nandy 2013262 Sayan Mukherjee 2013263

Sheetal Shrivastava 2013267

Q. Advice a chain of movie theatres on a differentiation strategy to restore its flagging profitability.

A. In this competitive world if a firm provides something unique that is valuable to buyers beyond

simply offering a low price is termed as Differentiation, while the advantage of this differentiation

occurs when the firm is able to obtain a price premium in the market that exceeds the cost of providing

the differentiation. There can be two dimensions on which we can analyse the differentiation

opportunities.

Tangible Differentiation

Intangible Differentiation

Tangible Differentiation This type of differentiation is observed with the observable characteristics of a product or service that

are relevant to customer’s preferences and choice processes which includes (size, colour, weight,

design, material and technology). It also includes the performance of the product or service in terms

of reliability, consistency, taste, speed, durability and safety.

Intangible Differentiation Differentiation perceived by the customer is different from the tangible aspects of the offerings. There

are few products where customer choice is determined solely by observable product features or

objective performance criteria. There are social, emotional, psychological and aesthetic

considerations are present in choices over all products and services. Status, Individuality, exclusivity

and security are few powerful motivational factors are few motivational forces which are desired from

most consumer goods.

The movie theatre could use differentiation strategy in both tangible and intangible offerings. Tangible

differentiation is concerned with the observable characteristics of the service that these theatres

provide. Intangible differentiation arise because the value that customers perceive in a service does

not depend exclusively on the tangible aspects of the offering. What movie theatres need is Image

Differentiation because the quality and performance is difficult to ascertain prior purchase of the

movie tickets.

The service value chain for the movie theatres could be designed as follow

Differentiation could arise from either of the demand side (customers) or the supply side

(competition). Demand side analysis identifies customers’ demand for differentiation and their

willingness to pay for it. Creating differentiation advantage also depends on a firm’s ability to offer

differentiation. This could be analysed using the value chain from the above.

The innovations that the movie theatre could do to restore its flagging profitability are listed below:

Booking of tickets could be done using website or mobile app.

In the process of booking tickets,

customers could be able to select

the seats according to their

preferences.

Along with choosing the desired

seats, customers would also be

able to select the eateries they

want to have during the movie.

When the customer would reach

the theatre, he would be

provided with an access key card

for the tablet that would be

attached to their seats.

Purchased Supplies

Customer selects and pays for

movie of choice

Customer selects available seat

theatre

Customer purchases food at concession stands

Customer watches movie

Customer and market service

Product Development / R&D / Technology Support

Human Resources

General Administration

Value Chain Analysis of a Movie Theatre

The customers would be enrolled for a company offered cash card that could be used for

booking movie tickets, ordering food and drinks and also eligible for free car park (supposing

the theatre is inside a mall).

As the customer enters the theatre, he would be guided towards his/her seat by an

attendant.

The seat would be having a surround sound speaker that would give a more realistic

experience to a customer.

Once the customer is seated, he could use his card to unlock the tab attached that could be

used for various purposes like ordering food, movie start and end time and upcoming movie

trailers and schedule.

The food details like ingredients, nutritional content, and reviews of other customers would

also be available for the customers before they order. Time taken for food delivery would be

available for customers’ reference.

The movies screened in these theatres would exclude any intermission time as there is

provision for ordering food from the seat itself.

These tabs would also be

displaying advertisements from

mall shops/ local/ national

advertisers. This would help the

company generate additional

revenue from digital advertising.

Twenty minutes before the

movie starts would be dedicated

for adverts of movies,

companies, brands, products,

services, etc. First advert would

always be dedicated for a social

cause.

After the show has ended, the customer would receive an SMS that would thank the

customer and inform him/her about the balance of his/her cash card and the points that

would be available for redemption.

These measures would enable the theatre to charge a premium price for the tickets and thus

increase their profitability.

Q. Wal-Mart (like Carrefour, Ahold and Metro) competes in several countries of the world, yet most

shoppers choose between retailers within a radius of a few miles. For the purpose of analysing

profitability and competitive strategy, should Wal-Mart consider the discount retailing to be global,

national or local?

A. No industry could be defined in boundaries.

Yes, Walmart has to consider the caustic

competition they face from retailers which are

available in a radius of few miles within local

market. These discount retailers which are also

known as individual stores, available in short miles gives competition to Walmart and other big firms.

For the purpose of forecasting company profitability and making best of strategy like introducing new

format stores etc., the discount retailing industry should consider retailing at national level. The

competition at national level is somehow consistent- the entry-exit condition, competitors, supplier

power etc., do not differ nationally. Globally the discount retailing industry is shoddy because different

national markets are distinct from each other and low demand and supply side substitution among

each other.

Q. A number of industries have experienced rapidly increasing global concentration in recent years:

commercial aircraft (led by Boeing and Airbus), steel (led by Mittal steel), beer (led by SAB-Miller,

Anheuser-Busch-Inbev, and Heineken), commercial banking (led by Citigroup, HSBC, Bank of

America, Royal Bank of Scotland, and Banco Santander), defence equipment (led by Lockheed

Martin, Northrop Grumman and EADS) and delivery services (led by UPS, FedEx, and Deutsche

Post/DHL). For each industry, are economies of scale the major reason for increasing concentration?

If so, identify the sources of economies of scale. If not, how can increase in global concentration be

explained?

A. As we know the economies of scale is quite an important factor when it comes to the industries

that are capital, research and/or advertisement intensive or driven. Thus we can safely say that it

depends upon the type of industry one is dealing in, to determine whether Economies of Scale is a

reason for an organizations global concentration or not.

Of all the examples given in the question, commercial aircraft, steel, defence equipment are few of

those industries that are largely capital, research intensive or driven. Therefore it makes sense for

them to have economies of scale as and when it comes to their operations. Imagine a steel plant

established at a cost of Rs. 5000 Crore in India and not producing more than a limited amount of say

10000 tons or 100, 000 tons per annum. So when a mega project is undertaken by some player in the

steel industry they make it a point to improve their capacity and operational efficiency. The same

argument holds good for players in Aircraft and Defence Equipment sector as the concept based

research that they undertake costs them Billions of dollars to break even which they have to sell large

volumes.

The following can be the sources of economies of scale:

1. Large volume of production.

2. Improved Operational Efficiency.

3. Optimum Utilization of Resources.

4. Intelligent use of by products and waste materials.

5. Improved Efficiency of Assembly Line.

The other industries mentioned in the questions are not exactly capital, research or advertisement

intensive/driven. Namely the Commercial Banking or Beer industry is more about capitalizing upon a

nation’s growing Purchase Power Parity or disposable income, their growing power to invest and

interest to earn returns, their affluence, emergence of an economy and leveraging upon a brand’s

presence. We feel so as Commercial Banking is more about the skill and expertise in managing a

customer’s investments and account while in the Beer industry the production can be outsourced to

a local distillery. However, there is a rationale that the cost incurred by Commercial Banks in creating

the IT infrastructure to manage their business and operations better would lend them a reason to go

for economies of scale and create more customers. Beer industry at the same time would like to

manufacture more than one lot of beer bottles from one distillery however capital is not a factor as

most of the players outsource their production to local agencies and advertisement of alcoholic

beverages isn’t allowed in many nations around the world. So we can conclude that there is not a hard

and fast rule that economies of scale is the reason for an organizations global concentration, though

it can sure be said that for those particularly in the manufacturing industry after a point in time it

comes in as one important factor.

Q. From the evidence presented in the following table, what conclusions can you draw regarding the

factors that determine whether leaders or followers win out in the markets for new products?

A. The factors that determine whether leaders are followers win out in the markets for new products

are as follow

The extent to which innovation can be protected by property rights or lead time advantages:

If an innovation is appropriable through patent, there is advantage in being an early mover

.This is especially the case where patent protection is important, as in field like

pharmaceuticals.

The importance of complementary resources: The more important complementary resources

are in exploiting an innovation, the greater the cost and risk in pioneering, for e.g. failure of

General Motors with a fuel-cell car or battery driven car of Clive Sinclair. The problem for the

pioneer is that development cost are huge because of the need to orchestrate multiple

technology and establish self-sufficiency across a range of business functions. Followers are

also favoured by the fact that, as an industry develops, speciality firms emerge as suppliers of

complimentary resources.

The potential to set up a standard: The greater the importance of technical standards, the

greater the advantages of being an early mover in order to influence those standards and gain

the market momentum needed to

establish leadership. Once a standard has

been set, displacing it becomes

exceptionally difficult, for e.g. IBM had

little success with its OS/2 operating

system against the entrenched position

of Microsoft Windows.

Resource and capability that the firm has at its disposal: Different companies have different

strategic windows – periods in time when their resources and capabilities are aligned with the

opportunities available in the market. A small, technology based firm may have no choice but

to pioneer innovation: its opportunity is to grab first mover’s advantage and then develop the

necessary complementary resources before powerful rivals appear. For the large, established

firm with financial resources and strong production, marketing, and brands to protect, while

to exploit its complementary resources effectively typically requires a more developed

market.

Q. IKEA furnishings, Honda cars, Amazon, and Starbucks have achieved differentiation while

maintaining a broad market appeal. How do companies achieve differentiation of their products

without limiting their appeal to certain market segments? If GAP Inc. wishes to develop differentiation

advantage while still appealing to customers across a broad demographic and socio-economic range,

what advice would you offer it?

A. In the simplest of words, differentiation is all about the ways in which a firm offers uniqueness to

its customers. This uniqueness can be anything from quality (BMW), status (American Express),

consistency (McDonald’s) or innovation (Apple).

In an increasingly globalized market where companies try to pursue all available avenues of possible

investment through market segmentation wherein a firm competes in terms of customer groups,

localities and product types, differentiation is what acts as an USP to the firm and sets it apart.

Thus it becomes paramount for a company to decide the parameters on the basis on which it should

be judged upon within a particular segment. The best example would be of BMW, which has an appeal

in its entire market segment because of its uniqueness in providing top notch performance,

engineering and style.

Gap Inc. It operates six of the most recognized apparel brands in the

world: Gap, Banana Republic, Old Navy, Piperlime, Athleta and

Intermix.

Gap should focus on establishing differences in the price and

design of each of these brands. It has faced problems in the

past wherein the company’s stores try to steal business from

each other. “Something that costs $38 at Gap sells for $20 at Old Navy”

It should make an effort to better understand its customer bases for each company, and recognize the

strengths of its brand accordingly.

Other efforts should include increasing the appeal of Old Navy's offerings, more fashion offerings at

Gap stores by having a significant edge in branding and design through investments in top designer

acquisitions.

Importance should also be given revitalizing its image through branding and must involve an effort to

update store atmosphere. Store atmosphere, created by the layout and environment, is essential for

success in the retail business and help in firm differentiation.

Q. Consider the changes that have occurred in a comparatively new industry (e.g. wireless

communications, video game consoles, medical diagnostic imaging, PDAs, on-line auctions, bottled

water, courier delivery services). To what extent has the evolution of the industry followed the

pattern predicted by the industry life cycle model? At what stage of development is the industry

today? How is the industry likely to evolve in the future?

A. The industry life comprises of four phases: Introduction, Growth, Maturity, and Decline. The only

difference between Industry life cycle and Product life cycle is that the latter is of short duration while

the industry life cycle is for a longer duration. The Industry evolution is determined by two factors:

Demand Growth

Creation and diffusion of knowledge

Demand Growth The change in the industries growth rate over time is used to define the life cycle and the stages. In

the Introduction stage (the market penetration is low and the sales are low because the industries

product are little known and there are few customers). The Growth stage (has deep market

penetration as there is technical improvements and increased efficiency open up the mass market).

Maturity stage (the market is saturated and demand is wholly for replacement). Decline stage (there

are new industries that are technologically superior and produce superior products).

Creation and Diffusion of knowledge This driver is also used to drive the Industry life cycle, there is new knowledge in the form of product

innovation that is responsible for an industries birth and creation and knowledge diffusion exerts a

major influence on industry evolution. Introduction stage (In this phase there is no dominant

technology, and rival technologies compete for attention. The outcome of competition between rival

designs and technologies is usually converges by the industry around a dominant design. The

prominent design gets accepted by the industry as a whole). Growth stage (In this phase the industry

joins together around a leading design, and there is shift from radical to incremental product

innovation. The products have greater standardization which reduces risk to customers and

encourages firm to invest in production capacity. There is shift toward process innovation as firm seeks

to reduce cost and increase product reliability).

Industry Structure and Organizational Demographics As the phases in life cycle changes there is change in the number of firms in the industry. Introduction

Stage (The number of firms in an industry increases rapidly in the early stages, as the industry gains

legitimacy the rate of new firms founding increases. Maturity (The number of firms in this phase

begins to fall).

Nature and Intensity of Competition Introduction Stage (In this phase of life cycle there is competition between the companies for

technological leadership and competition focuses on technology and design, the return on capital is

low as there is heavy investments in innovation). Growth Stage (This phase is more conducive to

profitability as market demand outstrips industry capacity. Maturity Stage (Increased product

standardization and excess capacity stimulates price competition, the intensity of this competition

depends on the capacity/demand balance and the extent of international competition. Decline Stage

(This phase is associated with strong price competition often leading into destructive price wars and

dismal profit performance.

To answer this question, we have taken the

example of the courier delivery services.

The courier service industry is adapting to

the technology changes very rapidly.

Earlier the delivery of products within a

country used to take 1-2 days between

major cities and 3-4 days between any of

the cities. As technology has progressed

and new methods of delivery have been discovered, the delivery time has been reduced to 1-2 day for

delivery to any major city of the world and 3-4 days to any city of the world. With things changing at

such a rapid pace, there are some major changes that the courier delivery industry could see in near

future.

The nearest and the most obvious change that the companies are planning to adopt is the delivery of

products using drones. These drones could fly non-stop for 3 months and carry light weight products

to any of the remotest place on earth. This use of drones can also give birth to a new type of courier

delivery – Anything delivered, anywhere (Yahoo Finance, 2014).

The next thing that we could see in the courier delivery could be the estimation of the delivery timings.

Currently, deliveries are made in the time slot of 4 hours, say 10am to 2pm. This margin of four hours

could be brought down to 1 hour or even to 30 minutes. Better forecasting, notifying the customer

about the location, delays, etc., and name of the delivery person and his phone number could be

shared with the customer. Also, rearranging the missed delivery could be done using the company’s

website or mobile app. If a customer is out of town, the parcels could be dropped off at a drop box or

dropping facility from where the customers could collect when they return.

References Grant, R. (2014). Competitive Advantage in Mature Industries. In: - Contemporary Strategy Analysis.

7th ed. Delhi: Wiley. p328-344.

Grant, R. (2014). Cost Advantage. In: - Contemporary Strategy Analysis. 7th ed. Delhi: Wiley. p227-

244.

Grant, R. (2014). Differentiation Advantage. In: - Contemporary Strategy Analysis. 7th ed. Delhi: Wiley.

p245-266.

Grant, R. (2014). Industry Evolution and Strategic Change. In: - Contemporary Strategy Analysis. 7th

ed. Delhi: Wiley. p269-294.

Grant, R. (2014). Technology-based Industries and the Management of Innovation. In: - Contemporary

Strategy Analysis. 7th ed. Delhi: Wiley. p295-327.

Yahoo Finance. (2014). 7 hot start-up ideas that could make you a millionaire. Available:

https://uk.finance.yahoo.com/news/7-hot-start-ideas-could-060026454.html. Last accessed August

27, 2014.