0:01
So, as we discuss how to grow through entry,
it's useful to think about different entry strategies firms might use.
It's also useful to think about entry strategies both before entry, pre-entry,
and after entry occurs, post-entry.
So before entry we could do things like try to deter rivals from entering into
the same segment, or we might think about ways to accommodate rivals so
that we're less in competition once entry occurs.
After we enter we might think about fight strategies, maybe price wars and
the like, or cooperation strategies, as we've talked about before.
And then, last but not least,
we might think about ways to restructure an industry.
0:46
Now, of course, there are many existing competitors you might observe in
your industry and they're gonna be important once to analyze.
But it's also important to analyze potential rivals who could also
enter into a market that you're looking to occupy.
So be aware of what we might call outside firms,
especially when they have economic motivations to move into your segment.
Think of the following.
Think of a firm with some relevant capabilities maybe in an industry
that's in decline, who can be motivated by leveraging economy as a scope,
trying to avoid disruption to then come into this new market segment.
Honda motor company is one of the best in the world at making small engines.
They've entered into a number of different segments that utilize small engines.
Just for perhaps as a hypothetical,
you're considering moving into the drone market here.
And when you think about potential rivals, maybe Honda is a potential entrant into
that market to leverage their small engine technology.
1:41
Another thing to consider is whether the value chain between you and
another firm overlaps.
Because what might happen here is that firm might try to leverage those
capabilities they have and economies of scale they might create by being in
multiple market segments that share a value chain.
Here, we might want to think about Walmart's move into grocery sales.
So if you are a grocery store business, it would probably have been useful of you to
recognize that many of the same logistical advantages that Walmart had
in their general business would also translate into groceries and
allow them to enter that market successfully.
2:17
Third thing we wanna think about is firms that are in the same vertical
industry chain here.
In other words,
firms who might vertically integrate into your market who are upstream from you.
A classic example of this was Sony's entry into the game player market.
Prior to their entry with the PlayStation,
they were actually a supplier to the industry.
They had worked very closely with Nintendo in developing the underlying chip
technology that formed the basis for Nintendo's machines.
And in fact, the were working with Nintendo on the next generation when they
kind of came to the realization that they could move into this market themselves and
have their own brand and product which became the Sony Playstation which
ultimately dominated the market for a couple of generations there.
So, you need to be aware of those, again, who might even be partners of yours, or
suppliers of yours, and their ability to enter into a market segment as well.
3:06
Another thing you can look for are the actual strategic trajectories of firms.
Things that they might be doing that signal their intent
of getting into your industry.
Obvious ones are take a minority ownership stake in an existing rival with you
in your industry.
Maybe they were a recent entrant into a related industry.
And then of course, entry into the same industry but in other geographic markets.
3:30
Stories, for example, in the US auto making industry are failing to see
the entry of Japanese manufacturers back in the 60s into the market,
not realizing that they would take their capabilities, and
transfer them into another market there.
So, you need to be aware, again, of the actions that are being taken,
that might be a harbinger for them to moving into a similar market.
3:52
So consider the following example.
Back in the 1980s, the UK, United Kingdom was considering building out its
satellite broadcasting business, satellite, excuse me, delivery business.
4:05
They had spectrum rights that the federal government then provided for
sale to the best bidder.
Which was won by a conglomerate or consortium called BSB.
BSB then processed to put in place what was necessary to create
satellite television of the UK market.
Thinking that they were a monopolist.
Thinking that they were the exclusive provider of satellite TV to the UK market.
Now, as a result of this, they tended to do things at a very high quality level but
a high cost level.
They built a wonderful new headquarters,
they invested in very advanced satellite technology and
they were moving forward to introducing satellite TV in the British market.
Well, lo and behold, at the same time, News Corp,
who had been transitioning from an older line business in newspapers and
television stations, started to invest heavily in satellite television
themselves, particularly in other European markets.
And they saw an opportunity.
They used the broadcast rights,
the satellite broadcast rights from little Luxembourg in Europe to
find a way to enter the UK market, because the satellite broadcast that would go
down to Luxembourg actually would cover a vast part of the UK market as well.
And they announced their intention of entering into, in essence,
the satellite broadcast market in the UK.
5:24
Now what made this story particularly interesting is that Sky TV,
knowing that they were going to be competing with BSB, took a much different
strategy in developing their capabilities, a much lower cost profile and
found that they actually ended up with a much lower cost position that BSB.
So much so that by the time Sky TV had entered the market, the writing was on
the wall that BSB would not be financially competitive in that marketplace.
Now what ultimately happened is that Sky TV bought BSB to form something
called B Sky B.
Over the years they've now transitioned back to just being called Sky TV.
So in essence Sky TV Came to dominate the market.
6:03
So what's interesting here is a number of things, first BSB's failure to see
a potential rival enter into the same market as them and Sky TV.
Failing to see the alternative paths available like using the Luxembourg
broadcast rights.
A second thing is that once these dynamics were put in place,
the game was already kinda set.
And the winner was pretty much predetermined by the time launch occurred.
Think of the following two by two here, the following pay off matrix.
Where we're considering whether to fight or to exit the industry.
You see some associated payoffs here.
None of this is exactly accurate but
these are kind of rough estimates here of what one might think.
What you can see is that if they both exit the market, it's highly unlikely, but
there would be some losses incurred because of the investments that they had
made to enter that market.
If one fought in essence, entered, and the other one exit, they could do quite well.
So BSB would quite well if Sky TV had exited the market.
And similarly, Sky would have done quite well if BSB exited the market.
But the interesting thing here is in the fight, fight column.
So, this is a game again where we have asymmetric payoffs.
Sky TV, because of their lower cost structure.
Could likely do well and thrive in a competitive environment.
BSB, on the other hand, because of their high cost structure,
was likely going to lose money competing there.
Now, one likely outcome of this game could have been that Sky could have waited for
BSB to basically go bankrupt and go out of business.
I think what probably happened is Sky looked at the payoffs associated with exit
with BSB and fight, and realized let's accelerate that process in case BSB takes
time getting there, and go ahead and cause a merger between the two entities there.
And though while it was a 50/50 merger, at least on paper, it was very clear that
Sky's leadership was taking over BSB, and taking over that marketplace.
7:54
So, if we think about dominated strategies here as we've talked about before,
there's a dominated strategy for Sky to fight.
No matter what the scenario they're going to do better by fighting.
BSB, once they know that Sky's gonna fight,
should have recognized that it was time to exit.
At that point it wasn't going to be lucrative for them to stay in the market.
And again, that was ultimately how this resolved itself.
8:18
So again, when we think about entry strategies, the first step in this,
is trying to determine who our potential entrants are.
When we think about what could have been done by BSB, they might have been able to
deter entry by, for example, buying up the rights at Luxembourg and
preventing that vehicle for entry for Sky TV.
Perhaps they could have accommodated entry by adopting a lower cost structure and
taking actions to maybe differentiate the marketplace, so
that they could still continue to thrive and survive in that marketplace there.
So again, identifying potential rivals is very important in
trying to understand various entry strategies.
Michael LenoxSenior Associate Dean and Chief Strategy Officer
Jared HarrisSamuel L. Slover Research Chair in Business Administration
