strategic options
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Start-up and theNeed forCompetitive
Advantage
2
PowerPoint Presentation by
Ian Anderson, Algonquin College
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
After studying this chapter, you should be able to:
1. Give several reasons for starting a new business ratherthan buying an existing firm or acquiring a franchise.
2. Identify several factors that determine whether an ideafor a new venture is a good investment opportunity.
3. Distinguish between the different types and sources ofstart-up ideas.
4. Define competitive advantage and assess features of theenvironment and organization itself that supportcompetitive advantage.
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Looking Ahead
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Looking Ahead
5. Evaluate the feasibility of a business.
6. Identify and compare strategy options for building andsustaining competitive advantage.
7. Define market segmentation and its related strategies.
8. Explain the concept of niche marketing and itsimportance to small business
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Evaluative CriteriaMarket 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. 128129.
Exhibit 2-1a
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Evaluative Criteria Competitive Advantage
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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. 128129.
Exhibit 2-1b
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Evaluative CriteriaEconomics
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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. 128129.
Exhibit 2-1c
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Types of Ideas that
Develop into Start-ups
Exhibit 2-2
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Sources of Start-up Ideas
Exhibit 2-3
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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
Externalwhat business potentials exist
Internalwhat the firm is able to do
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Assessing The Environment
The Macroenvironment
A broad environment with its multiple factors
that affect most businesses in a society STEPSociocultural, Technological, Economic
Political/Legal
Industry EnvironmentThe combined forces that directly impact
a given firm and its competitors
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Five Forces
Model
Concept by
Michael Porter
Bargaining Powerof Buyers
Threat of Substitute
Products or Services
Bargaining Power
of Suppliers
Rivalry
Among ExistingProducts
Threat of New
Competitors
Attractiveness andProfitability of a
Target Market
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Environmental and Organizational
Impact on Opportunity Assessment
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Part of Exhibit 2-4
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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 firms advantage.
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Competitive Advantage Factors
Unique ServiceFeatures
Notable ProductAttributes
CustomerService
Accessibility
CompetitiveAdvantage
Price/Value
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Strategies that Capture Opportunities
Broad-Based Strategy OptionsSeek 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 StrategyEmphasizing the uniqueness of the firms product
or service WestJet is moving to differentiate based on quality service
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
An established, value-creating industry
position that is likely to endure over
time
Results include superior profitability,
increased market share, and improvedcustomer satisfaction
Sustaining Competitive Advantage
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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 unsatisfiedneeds
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Ingredients of a Market
Ingredient 1Customers:
People or
businesses
Ingredient 2Purchasing
power:
Money/credit
Ingredient 3Unsatisfiedneeds
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Market Segmentation Variables
Segmentation Variables
The parameters used to distinguish one form of market behaviour fromanother
Geographic Variables
Defining a market by its location, size, or extent
Benefit Variables
Specific characteristics that distinguish market segments according tothe benefit sought
Demographic Variables
Specific characteristics that describe customers and their purchasingpower
Psychographic Variables
Lifestyle trends such as fitness, diet, political and sexual orientation
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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)
Market
Segment A
Students
Market
Segment C
Executives
Market
Segment B
Professors
Multisegmentation
Market StrategyExhibit 2-6
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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-
SegmentationMarket Strategy
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
Implementation of
Niche Marketing Strategies Restricting focus to a single subset of customers
not adequately serviced by competitors.
Limiting the market to a single geographicalregion.
Emphasizing a single product or service.
Concentrating on superiority of product or service.
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Chapter 2 Copyright 2010 by Nelson Education Ltd.
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 segments differences from other
segments narrow.New firms sub segment the industry.
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