chapter 2copyright © 2010 by nelson education ltd. start-up and the need for competitive advantage...

Chapter 2 Copyright © 2010 by Nelson Education Ltd.

Start-up and the Start-up and the Need for Need for Competitive Competitive Advantage Advantage

Start-up and the Start-up and the Need for Need for Competitive Competitive Advantage Advantage

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Ian Anderson, Algonquin CollegeIan Anderson, Algonquin College


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 AheadLooking AheadLooking AheadLooking Ahead


Looking AheadLooking AheadLooking AheadLooking 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 BusinessCreating a New BusinessCreating a New BusinessCreating 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 FactorsEvaluative Criteria – Market FactorsEvaluative Criteria – Market FactorsEvaluative Criteria – Market Factors

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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.

Exhibit 2-1a


Evaluative Criteria – Competitive AdvantageEvaluative Criteria – Competitive AdvantageEvaluative Criteria – Competitive AdvantageEvaluative Criteria – Competitive Advantage

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Exhibit 2-1b


Evaluative Criteria – EconomicsEvaluative Criteria – EconomicsEvaluative Criteria – EconomicsEvaluative Criteria – Economics

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Exhibit 2-1c


Types of Ideas that Types of Ideas that Develop into Start-upsDevelop into Start-upsTypes of Ideas that Types of Ideas that

Develop into Start-upsDevelop into Start-ups

Exhibit 2-2

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Types of Start-up IdeasTypes of Start-up IdeasTypes of Start-up IdeasTypes 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 IdeasSources of Start-up IdeasSources of Start-up IdeasSources of Start-up Ideas

Exhibit 2-3

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Competitive AdvantageCompetitive AdvantageCompetitive AdvantageCompetitive 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 EnvironmentAssessing The EnvironmentAssessing The EnvironmentAssessing 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 Five Forces ModelModel

Concept by Concept by Michael PorterMichael Porter

Five Forces Five Forces ModelModel

Concept by Concept by Michael PorterMichael Porter

Bargaining Powerof Buyers

Threat of SubstituteProducts or Services

Bargaining Powerof Suppliers

RivalryAmong ExistingProducts

Threat of NewCompetitors

Attractiveness andProfitability of aTarget Market

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Environmental and Organizational Environmental and Organizational Impact on Opportunity AssessmentImpact on Opportunity AssessmentEnvironmental and Organizational Environmental and Organizational Impact on Opportunity AssessmentImpact on Opportunity Assessment

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Part of Exhibit 2-4


Core Competencies andCore Competencies andAssessing the OrganizationAssessing the Organization

Core Competencies andCore Competencies andAssessing the OrganizationAssessing the Organization

• Core Competencies• Value-creating organizational capabilities that are unique

to a firm

• Resources versus Capabilities– ResourcesResources are basic inputs that a firm uses to conduct

business (capital, technology, equipment, employees, etc.)

• intangible and tangible resources

– CapabilitiesCapabilities are the integration of several resources which are deployed together to the firm’s advantage.

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Venture Feasibility Assessment ModelVenture Feasibility Assessment ModelVenture Feasibility Assessment ModelVenture 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


• Stage 3: Refine the Concept– Detailed business plan


• The Leap of Faith

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Competitive Advantage FactorsCompetitive Advantage FactorsCompetitive Advantage FactorsCompetitive Advantage Factors

Unique ServiceFeatures

Notable ProductAttributes

CustomerService

Accessibility

CompetitiveCompetitiveAdvantageAdvantage

Price/Value

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Strategic TermsStrategic TermsStrategic TermsStrategic 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 Strategies that Capture Opportunities Strategies that Capture Opportunities Strategies that Capture Opportunities

• Broad-Based Strategy Options–Seek an advantage in cost or marketing

• Cost-AdvantageCost-Advantage Strategy and OptionsRequires the firm to be the lowest-cost producer

» WestJet began as a low-fare, no-frills airline

• Marketing-AdvantageMarketing-Advantage StrategyEmphasizing the uniqueness of the firm’s product

or service» WestJet is moving to differentiate based on quality service

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•An established, value-creating industry position that is likely to endure over time

•Results include superior profitability, increased market share, and improved customer satisfaction

Sustaining Competitive AdvantageSustaining Competitive AdvantageSustaining Competitive AdvantageSustaining Competitive Advantage


Market Segmentation Market Segmentation and its Variablesand its Variables

Market Segmentation Market Segmentation and its Variablesand 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 MarketIngredients of a MarketIngredients of a MarketIngredients of a Market

Ingredient 1Customers:People or businesses

Ingredient 2Purchasing power: Money/credit

Ingredient 3Unsatisfied needs


Market Segmentation VariablesMarket Segmentation VariablesMarket Segmentation VariablesMarket 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 Types of Market Segmentation StrategiesStrategies

Types of Market Segmentation Types of Market Segmentation StrategiesStrategies

• 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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Marketing Mix 2Product: Felt-Tip Pen

Price: $1.00

Promotion: Professional Magazines

Distribution: Direct from Factory

Marketing Mix 3Product: Gold Fountain Pen

Price: $50.00

Promotion: Personal Selling

Distribution: Department Stores

Marketing Mix 1Product: Felt-Tip Pen

Price: $0.49

Promotion: Campus Newspapers

Distribution: Bookstores

Small Business(Community Writing Company)

MarketSegment A

Students

MarketSegment C

Executives

MarketSegment BProfessors

Multisegmentation Multisegmentation Market StrategyMarket Strategy

Multisegmentation Multisegmentation Market StrategyMarket Strategy

Exhibit 2-6


Marketing Mix 1

Product: Felt-Tip Pen

Price: $0.49

Promotion: Campus Newspapers

Distribution: Bookstores

Small Business(Community Writing Company)

Market

Segment A

Students

Market

Segment C

Executives

Market

Segment B

Professors

A Single-A Single-Segmentation Segmentation

Market StrategyMarket Strategy

A Single-A Single-Segmentation Segmentation

Market StrategyMarket Strategy


Implementation of Implementation of Niche Marketing StrategiesNiche Marketing Strategies

Implementation of Implementation of Niche Marketing StrategiesNiche 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 PotentialNiche Market PotentialNiche Market PotentialNiche 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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chapter 2copyright © 2010 by nelson education ltd. start-up and the need for competitive advantage...

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