This course utilizes an inquiry based approach to understanding sources of competitive advantages in companies and other organizations.
Module 4 Part 3
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Del curso dictado por University of New Mexico
Entrepreneurial Strategic Management
84 calificaciones
De la lección
Week 4
How can you predict which company will win in competition?
Conoce a los instructores
Doug E Thomas, Ph.D.Professor
International Management, Anderson School of Management
Okay, so we're looking at Porter's generic strategies or
Porter's business level strategies.
And we haven't talked about the bottom here of this model.
And what this bottom area focuses on is very targeted strategies.
Very focused strategies within market segments.
Let me try to explain that.
When we were talking about pizza companies.
And again I know that all of you may not be as familiar with all of these brands or
companies.
But the four that I chose were the national
major companies that have the biggest share of the market.
But they're not the only companies that exist.
There are lots of other national, regional, and
local pizza chains that succeed.
The same might be said for the hotel industry.
We haven't yet done an analysis of the hotel or
motel industry, but the same might be said.
There are some boutique local hotels that do very well.
There are some regional brands that have multiple locations.
That do very well in different, very targeted or
focused segments of the market.
Let's go back to pizza and try to explain the advantages.
That might come from pursuing a very focused strategy.
Either along the line of differentiation or uniqueness.
Or along the lines of cost leadership.
In the United States,
I'm going to give you a little more background to help understand.
In the United States, if you go to the websites of these companies.
Or if you go on YouTube and see videos of how the products, the pizzas are consumed.
I think you'll find that most of those four major companies.
Which there's a lot of competition between them.
They're constantly coming up against each other and
doing anything they can to try to get an advantage.
Because it's just each of the companies has its own strengths.
And it's very easy for one of them to gain a little bit of market share.
By introducing a coupon or a deal or
emphasizing a new pizza line, opening new locations, etc.
But across all four of those, there seems to be a general way
that people in the United States choose to consume pizza.
So I'll give you a second to think about that.
How is it that most people prefer in the United States to eat their pizza?
I think you'll find, because the industry is so competitive.
And even those companies that are differentiating need
to keep their cost down.
That most pizza companies focus on people eating pizza in their homes.
So almost all four of those companies
had the majority of their sales coming from from delivery of pizza to the home.
Or someone coming to pick up the pizza which we call carry out.
Most of those pizza companies do not focus on the sit down experience.
Of eating a pizza in a restaurant having service,
and having that experience of taking the time to enjoy the meal in a restaurant.
Now I'm not exactly sure why that is the case, that pizzas are consumed that way.
It just seems to be the most common way.
You get a pizza or some pizzas.
And you eat it at home with your family or at a party.
Perhaps it's because it's easily transported.
Perhaps it's because it's a large pie that's easily shared.
There's probably a lot of reasons.
But the major point I want to try to make right now,
is just that's the most common way that customers eat pizza.
But, if you're an entrepreneur, or someone who wants to achieve success.
You might say to yourself, well
it is the case that most people eat pizza in their home, but not everybody does.
In fact, of the four major chains.
I think you'll find that Pizza Hut is the major national company
which has the most sit-down locations.
In fact, in some places they have salad bars.
Where you can go and choose your own ingredients for your salad.
They have pizza buffets where they have multiple pizzas set out.
And you can eat all you want.
But they also have this delivery and carry out business.
If your an entrepreneur, you might examine that industry or sector.
And say are there some people that want to eat pizza in a sit down environment,
for example?
And the answer is of course yes.
There are some companies that choose focused strategies.
To exploit segments of the market that the major chains are ignoring.
Let me try to give you several examples.
In many markets in the world.
There are some local restaurants that provide very expensive pizza,
very high-end.
They might have a very expensive oven.
That is traditional to how pizza is originally consumed in Italy.
And they can charge a premium for that and they do it in a sit down environment.
They might have very, very exotic or unique ingredients.
Who are they seeking?
What type of customer?
Well, they're not seeking the average consumer who wants a pizza in their home.
They're seeking someone who appreciates and is willing to pay for
those unique ingredients.
You might think of the customer who prefers
to have a party experience, and a family environment, and bring the whole family.
In most places, in the United States, in most communities.
There are locations or
pizza restaurants that focus on that clientelle, or that segment of the market.
Again, they don't find what they need from,
from the major chain companies, the four major ones.
So these niche or
very focused competitors come in and find one segment of the market.
And really exploit the demand in a very differentiated way.
Let me give you two examples.
One will be of a focus differentiator which is down here in the bottom.
And one will be of the focused low cost leader.
These chains may not exist in your country.
And so, again, I invite you to go their websites to look at them.
But there are two companies that are competitors across the globe, actually.
For the party family environment for consuming pizza.
And those companies are Chuck E Cheese and Peter Piper.
If you go to their websites, you'll see that these companies have an array or
a variety of games that children will enjoy.
They have activities.
They may have some entertainment.
They have a large number of seats for people who are there.
They may provide birthday services in some cases.
Some may provide alcohol, others may not.
That approach to the market again is very focused.
They're not going after the average industry-wide demand for
pizza consumption.
They're going after a very particular segment and they're exploiting it.
So they're never going to have a huge share of the market,
they're always going to have a very narrow share.
But Porter's argument is even then they need to choose.
Or you need to choose as an entrepreneur one or the other of these strategies.
And I think you'll see if you look at the strategies of Peter Piper and
Chuck E' Cheese.
That Peter Piper is more of a low cost leader in the family
party pizza consumption segment of the pizza industry.
And Chuck E' Cheese attempts to be more unique or more differentiated.
How do I, or why do I say that?
Well, ChuckECheese, if you go to their website has very elaborate party services.
They provide cakes.
They have extra people there to help with the party.
They have entertainment.
They have these robotic singers and dancers.
They have characters.
Who come out and interact.
They have better games.
The ambience or decor of the restaurants are nicer and so
they charge a little more.
It's a more premium experience.
A more differentiated experience than Peter Piper.
And so, they're attracting a particular segment of the market.
That's demanding this sit down experience with family, with usually party.
Peter Piper is more of the lost cost leader.
The environment in the store is more like a warehouse.
It's very simple decor.
The games might not be the newest.
They might be less expensive to play though.
The pizza is not quite as differentiated.
And the overall experience is for that part of the clientele.
That doesn't really value or want to pay extra for all of those unique factors.
Such as nicer decor in the store.
And so that's just one way of trying to understand the pizza market.
What you should do is think about whatever product market that your
company is operating in.
And try to understand the wide variety strategies that companies can undertake.
And Porter's argument really is one that's saying that we can all get along,
we can all be friends.
There's space for all of us as competitors.
There's unique strategies and unique demand out there in the market.
That lots of different companies can seek to satisfy.
But its rare for a company to undertake all of these strategies or
multiple strategies at the same time
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