Transcript Start-up and the Need for Competitive

2
Start-up and the
Need for
Competitive
Advantage
PowerPoint Presentation by
Ian Anderson, Algonquin College
Chapter 2
Copyright © 2010 by Nelson Education Ltd.
Looking Ahead
After studying this chapter, you should be able to:
1.
Give several reasons for starting a new business rather
than buying an existing firm or acquiring a franchise.
2.
Identify several factors that determine whether an idea
for a new venture is a good investment opportunity.
3.
Distinguish between the different types and sources of
start-up ideas.
4.
Define competitive advantage and assess features of the
environment and organization itself that support
competitive advantage.
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Looking Ahead
5.
Evaluate the feasibility of a business.
6.
Identify and compare strategy options for building and
sustaining competitive advantage.
7.
Define market segmentation and its related strategies.
8.
Explain the concept of niche marketing and its
importance to small business
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Creating a New Business
• Entrepreneurs may start a new business
from scratch due to several reasons:
– A new product or service
– Favourable conditions such as location,
equipment, employees, suppliers or bankers
– To capitalize on competitors’ weaknesses
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Evaluative Criteria – Market Factors
Exhibit 2-1a
Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin,
2007), pp. 128–129.
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Evaluative Criteria – Competitive Advantage
Exhibit 2-1b
Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin,
2007), pp. 128–129.
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Evaluative Criteria – Economics
Exhibit 2-1c
Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin,
2007), pp. 128–129.
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Types of Ideas that
Develop into Start-ups
Exhibit 2-2
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Types of Start-up Ideas
• Type A
–Start-up ideas centered around providing customers with
an existing product not available in their market
• Type B
–Start-up ideas, involving new ideas, involving new
technology, centered around providing customers with a
new product
• Type C
–Start-up ideas centered around providing customers with
an improved product
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Sources of Start-up Ideas
Exhibit 2-3
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Competitive Advantage
• A firm offers a product or service that is perceived by
customers to be superior to those of competitors, thereby
promoting firm profitability
• To establish competitive advantage, a business owner
needs to understand the nature of the environment
– External – what business potentials exist
– Internal – what the firm is able to do
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Assessing The Environment
• The Macroenvironment
–A broad environment with its multiple factors
that affect most businesses in a society
• STEP – Sociocultural, Technological, Economic
Political/Legal
• Industry Environment
–The combined forces that directly impact
a given firm and its competitors
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Five Forces
Model
Concept by
Michael Porter
Threat of New
Competitors
Threat of Substitute
Products or Services
Rivalry
Among Existing
Products
Attractiveness and
Profitability of a
Target Market
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
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Environmental and Organizational
Impact on Opportunity Assessment
Part of Exhibit 2-4
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Core Competencies and
Assessing the Organization
• Core Competencies
• Value-creating organizational capabilities that are
unique to a firm
• Resources versus Capabilities
– Resources are basic inputs that a firm uses to conduct
business (capital, technology, equipment, employees,
etc.)
• intangible and tangible resources
– Capabilities are the integration of several resources
which are deployed together to the firm’s advantage.
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Venture Feasibility Assessment Model
• Stage 1: Back-of-the-Envelope concept
– Potential customers, technology available, match to entrepreneur,
financial feasibility
» Decision: go or no go
• Stage 2: Research and Verification
– Detailed analysis of customers, competition, HR required,
technical and financial feasibility
» Decision: go or no go
• Stage 3: Refine the Concept
– Detailed business plan
» Decision: go or no go
• The Leap of Faith
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Competitive Advantage Factors
Unique Service
Features
Price/Value
Competitive
Advantage
Notable Product
Attributes
Accessibility
Customer
Service
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Strategic Terms
• Strategy
– An action plan that guides resource investments
to capitalize on business opportunities
• Strategic Decision
–A decision regarding the direction a firm will
take in relation to its customers and competitors.
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Strategies that Capture Opportunities
• Broad-Based Strategy Options
–Seek an advantage in cost or marketing
• Cost-Advantage Strategy and Options
 Requires the firm to be the lowest-cost producer
» WestJet began as a low-fare, no-frills airline
• Marketing-Advantage Strategy
 Emphasizing the uniqueness of the firm’s product
or service
» WestJet is moving to differentiate based on quality service
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Sustaining Competitive Advantage
•An established, value-creating industry
position that is likely to endure over
time
•Results include superior profitability,
increased market share, and improved
customer satisfaction
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Market Segmentation
and its Variables
• Market Segmentation
– division of a market into several smaller groups
with similar needs or buying behaviour
• Market
– a group of customers or potential customers
who have purchasing power and unsatisfied
needs
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Ingredients of a Market
Ingredient 1
Customers:
People or
businesses
Ingredient 2
Purchasing
power:
Money/credit
Ingredient 3
Unsatisfied
needs
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Market Segmentation Variables
• Segmentation Variables
– The parameters used to distinguish one form of market behaviour from
another
• Geographic Variables
– Defining a market by its location, size, or extent
• Benefit Variables
– Specific characteristics that distinguish market segments according to
the benefit sought
• Demographic Variables
– Specific characteristics that describe customers and their purchasing
power
• Psychographic Variables
– Lifestyle trends such as fitness, diet, political and sexual orientation
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Types of Market Segmentation
Strategies
• Unsegmented Strategy (Mass Marketing)
–A strategy that defines the total market as the target
market
• Multisegmented Strategy
–A strategy that recognizes different preferences of
individual market segments and develops a unique
marketing mix for each
• Single-Segmentation Strategy
–A strategy that recognizes the existence of several distinct
segments but focuses on only the most profitable segment
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Small Business
(Community Writing Company)
Marketing Mix 2
Marketing Mix 1
Marketing Mix 3
Product:
Felt-Tip Pen
Product:
Felt-Tip Pen
Product:
Gold Fountain Pen
Price:
$1.00
Price:
$0.49
Price:
$50.00
Promotion: Professional Magazines
Promotion: Campus Newspapers
Promotion:
Personal Selling
Distribution: Direct from Factory
Distribution: Bookstores
Distribution: Department Stores
Market
Segment A
Students
Market
Segment B
Professors
Market
Segment C
Executives
Multisegmentation
Market Strategy
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Exhibit 2-6
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Small Business
(Community Writing Company)
Marketing Mix 1
A SingleSegmentation
Market Strategy
Product:
Price:
Promotion:
Distribution:
Felt-Tip Pen
$0.49
Campus Newspapers
Bookstores
Market
Segment A
Students
Market
Segment B
Professors
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Market
Segment C
Executives
Implementation of
Niche Marketing Strategies
• Restricting focus to a single subset of customers
not adequately serviced by competitors.
• Limiting the market to a single geographical
region.
• Emphasizing a single product or service.
• Concentrating on superiority of product or service.
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Niche Market Potential
• Niche markets can quickly erode if:
–The focus strategy is imitated.
• Price, Product, Design, Service, Packaging, etc.
–The target segment is structurally unattractive.
–The target segment’s differences from other
segments narrow.
–New firms sub segment the industry.
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