Ch9.

Case 8 Cooperative strategy: eBays strategy in China

Business model for a tech start up
a) Value creation
b) Value capture good revenue generation mechanism
c) Team: technology, managment, leadership

What challenges have been faced by eBay since its entry into China market? Why?
d) Mismatch of the internal adjustment and external forces (competition)
e) Business model in US market did not match
i.
Dont understand the Chinese market
f) China had a preference for domestic brands
g) Poor customer service where there are not hotline
h) Management issue: centralised decision making
i) Lacking of secured payment system escrow account
j) Lack the feature too haggle of prices
k) Taobao has free services
l) Lack of connections (Guanxi)
m) Trust is not as established

Is eBays decision of Joint Venture with TOM Online a correct one? Should eBay acquire
TOM Online instead? Why or why not?
n) JV
i.
Cost less
ii.
Retains the ownership incentive, political networks of its shareholders
o) Acquisition
i.
High uncertainty in China* When acquisition uncertainty is high then typically will
choose alliances
ii.
Lowers competitive risk
iii.
Integration difficulty
p) Minority stake
i.
High need for localisation
ii.
High dependence on local partner

Ch8. Case 7 International expansion: Haier

SUCCESS FACTORS OF HAIER
1. Product development
a) Tech licensing to produce high quality
b) Minor feature innovation modification
c) Hiring locals that understood
local/market needs
d) Modular manufacturing capabilities
e) Flat structure that
2. Production
a) 18 design centres that facilitate rapid
product development
b) JIT reduces major logistics costs
c) Haier logistics dedicated to the group
providing scale and volume that
lowers costs
d) Emphasised on total quality
management
3. Marketing
a) Won accreditations, blind testing for
quality
b) Single brand strategy
c) Building brand equity by competing
with big players
d) Disassociating with low quality Made

in China image by producing in US

even though cost of labour is much
higher, smashing defects
4. Distribution channel (Institutional Void)
a) Dedicated logistics company (Haier
Logistics) which can streamline the
delivery costs by delivering multiple
products
b) Knowledge of infrastructure and
distribution network
c) Established logistic network and
regulation against FDI
d) Independent logistics sales unit
5. After sales service (Institutional Void)
a) One of the first Chinese companies to
even provide after sales service and
even set up a service centre
b) 5500 independent services outlets
c) National wide hotline
d) Provision of courtesy unit if damaged
e) Services that exceeded regulatory and
customer expectations

f)
g) WHY DID HAIER CHOOSE TO ENTER INTO DEVELOPED MARKET FIRST? WHAT
ARE THE BENEFITS/RISKS OF THIS MOVE?
a) Entry mode was through greenfield ventures
i.

Costly

ii.

Allows for maximum control

iii.

Purpose to establish presence in developed markets to build an

international brand name

b) Purpose is to establish a brand reputation.

a. Being well known in developed economies can enhance market
penetration ability into emerging markets, theses associates them with
good quality
b. Gain market intelligence and product info to be used in other markets
c. Learning about their competitors who are entering the China market
d. To build up their capacity and capabilities for international expansion by
meeting the tougher customer and retailers requirements of the
developed markets.This help to raise the benchmark for Haiers product
quality
c) Risk of losing money as it enters developed market where the risk of failing
is higher due to high barriers to entry such as the presence of big
established rivals such as GE and Whirlpool; higher standards and
regulations to conform to; higher costs of labour
iv.

Greater consequence of failure as there will be loss of the $40million

industrial park and factories

v.

Lose out on economies of scale and is unable to keep its costs down and
result in thinned profits.

vi.

Crowding out by established competitors who can easily

vii.

Risk of failure due to the low quality associated with Chinese products

viii.

Higher bargaining power of developed retailers than that of developing

retailers

ix.

Opportunity costs in entering developing market

h) Was this international expansion strategy of haier a good one? Why or why
not?
i) It was very risky as Haier lacked the resources, technology, customer base and
international integration experience to compete with the large established competitors
in the developed market
j) Transnational
i.
Global integration
1. Y: Facilitated the entry into easier markets with the capacity, capabilities and
brand equity of recognised in developed countries
2. N:
ii.
Local responsiveness
1. Y: Carved out a niche market that was profitable for the Group
2. Y: Created a manufacturing capability that is flexible for customisation with
high speed for responsiveness
3. N:
k) After they had upgraded their capabilities through the above three stages, especially by integrating global
resources from their overseas subsidiaries, design centres and R&D centres, Haier built up their overall
network world-wide. They could now compete with the world giants in every corner in the world through
an innovative and speedy response to market opportunities to obtain its own niche market resulting in
establishing Haier as an international brand.
l) Looking at their value chain and see how they can achieve global efficiency/integration
m)
Haiers success showed a general growth pattern for organisations
Institutional voids make it harder to build a business but having built it, they are a barrier to
entry others
International strategies are never set in stone, they could change over time based on needs

n) Ch7. Case 6 Acquisition: Walt Disney AND Pixar

o) Disney Vertical integration of
p) Pixar Vertical integration of
Pixars production
Disneys marketing
Synergies
Financially
Financially beneficial to Culture clash
expensive
shareholder
Better films
Monetisation of
Fit of Steve Jobs
Disneys expertise in
character
Tap onto proprietary
marketing
and
has
the
rights
Talent-exodus into
talent of Pixar
best
established
Quality of
Pixar
Production rights
distribution channel
movies would
Culture clash
Lower cost for

Brand
association
with
hurt Pixars

Unhappy
developing the CG
Disney
reputation
department
employees

Additional
revenue

Employees
of
Characters of Pixar
streams
Pixar
may
be
Access to Steve Jobs
unhappy
as
Disneys creative team of
and tie-up with Apple
their ESOs
storytellers
Restrict access to Pixar
would be

Access
to
capital
Fast-forward entry into
converted to
CG
Disneys
1. For animated films, box offices revenues only accounts for 25% of total, majority of it
comes from the downstream of merchandising. Thus from Disneys point of view
2. As a board member of Disney, do you think you should acquire Pixar? Should Disney
continue to renegotiate a contract with Pixar? Why or why not?
a) Acquisition
b) Equity based alliances renegotiating a contract
c) Build own capabilities
i.
Takes a long time to develop
ii.
Pixar may not license the technology out
iii.
Disney dont have the innovation culture to complement the technology that Pixar
has to offer, thus Disney would not be able to build up their capabilities to match
Pixar
d) Find other studios
e) Poach Pixar talents
i.
Difficult to poach due to their loyalty to Pixar
ii.
The talent is only productive due to their team dynamics in Pixar which is difficult
to transfer over to Disney
3. As a shareholder of Pixar, what do you think of the merger? Should Pixar find another
distributor for their movies and establish a relationship with them? Why or why not?
a) Acquisition
b) Find another distributor
i.
Disney vs Dreamworks
ii.
Disney would be able to exploit Pixar better than Dreamworks would and pay a
higher premium and maximise the value of Pixar
iii.
Both will be better off with each other
c) Become own distributor through Apple (forward integration)
i.
Would take a long time to develop a distribution channel of merchandising, theme
parks, franchising
d) Renegotiate the contract
i.
Change in power dynamics: Pixar is gaining more power and Pixar would want to
greater control over the deal, as opposed to previously when Disney had the
greater power for over the terms of the contract
ii.
Conflict of interest: Terms include distribution of profits, release date, rights to
produce sequels, coverage, character
1. Disney has a dual role: With Pixar they are a distributor, but Disney itself is
also a producer. There is uncertainty from Disneys point of view of the quality
of Pixars production
2. Rights to produce sequels: Disney would want to produce sequels to exploit
merchandising opportunities for a movie and eliminate customer acquisition
costs. But Pixar would not want to produce sequels as sequels tend to be lower
in quality due to higher expectations set by the previous movies.
3. Rights to character: Disney would want a character that they can make into
a toy to exploit the character for merchandising
4. Uncertainty: Of the quality of the Pixar products, of the opportunities of

coverage channels in the future

e) Integration: What to do with this new acquisition?
i.
Need to keep the culture of Pixar
1. Merge with existing business
a) Disney to learn from Pixar
b) Disney has learnt the knowledge from Pixar as it has produced a
successful
2. Separation
a) Very expensive to collaborate when they have a standalone unit
3. Better off test: of all the possible vertical combinations (whether implemented
through contracts or the hierarchy) the best combination is that in which the 2
partners in the value chain maximise their joint revenue
4. Ownership test: vertical integration through internalising transactions inside
the firm hierarchy is only appropriate when alternative contractual forms of
arranging those transactions or coordinating decisions along the value chain
are difficult, if not impossible to write
a) Disney and Pixar
5. What to do after the acquisition?
f)

q) Ch6. Case 5 Corporate level strategy: Louis Vuitton Moet

1. LVMH
a) Image of luxury, quality, craftmanship, exclusivity, price
r) Italy
v) France
ab) Switzerland
s) Leather goods
w) Wine
ac) Jewellery,
t) Customers are
x) Weather, land
watches
knowledgeable
y) Perfume, fashion
ad) Long history of
pushing the
z) Long history
precision
suppliers to
aa)
ae)
improve their
quality
u) Supporting industry
with suppliers and
craftsman
2. Luxury Industry
a) Performance drivers
b) Brand/reputation/marketing
c) High and consistent quality
d) R&D: Creativity/Innovation Human resources
e) Distribution Exclusivity
f) Capital Size
g) Vertical integration Forward/Backwards to ensure the quality of raw materials and to
ensure the
3. What are the sources of synergy that can be identified across the portfolio of brands and
business that LVMH has built? Is the expansion pattern justifiable?
af) Resources
ah)
ag) Tangible
ai) Country-specific market
a) Distribution channels
knowledge
b) R&D facilities
aj) Product & design quality
c) PPE/Technology
ak) M&A
d) Financial capital
al)
e) Patents & copyright

a)
b)
c)
d)
e)
f)
g)

a)

am)Intangible
HR resources Designers
Corporate management expertise
Strategic partnerships
Visionary leadership
Brand equity/Reputation
Innovation & Creativity
Capabilities

an) Ability to envision the future of

luxury
ao) Power & influence

Business division
a. Leather & fashion; Wines & spirits; Jewellery & watches;
b) Operational Relatedness (sharing primary & support activities) Specialised within BUs:
physical
a. Brand equity;
b. Talent management expertise across unit of how not to kill creativity
c. Distribution facilities
d. Customer knowledge
c) Corporate Relatedness (Transferring of core competencies) Generalised can be shared
across: BUs knowledge transfer
a. R&D;
b. Talent management within BUs
c. R&D fragrances division
d. Manufacturing logistics
i. This is within each product business unit
e. Innovation & creativity
i. Expertise in creative retail marketing
f. HRM

i. Strinkng a balance between creative autonomy and the bottom line

ap)
4. What alternative courses of strategy would you recommend to LVMH as it pursues the
ambitious plan of doubling its sales and profits in five years?
a) Business division
i.
Leather & fashion High synergy
ii.
Wines & spirits High synergy
iii.
Jewellery & watches High synergy
iv.
Fragrances and cosmetics High synergy
v.
Selective retailing
1. Competitive intelligence
vi.
Auction housing
b) Recommended Strategy
i.
Geographical expansion into China (First tier, Second tier)
ii.
Product development
1. Acquisition of strong performing jewellery & watches powerhouse to improve
that business unit that is not performing well because it is their brand and
reputation to produce the highest quality product
2. Acquiring more talents is not a corporate level strategy business
iii.
Sell off the auction house which is not making money
iv.
Collaboration within each brands to
5. Need to check whether synergies have been realised or not with each BU
6. Corporate level strategy has 3 dimensions
a) Market, product, integration
7.

aq) Ch5. Case 4 Competitive dynamics: Matching Dell

ar) Question 1: How and why did the personal computer industry come to have
such low average profitability?
as)
at) The personal computer (PC) was an innovation that revolutionize how people work,
spiking a huge global demand where every household was a customer. The innovations
of e-mail and the Internet also further stimulated the global demand. This made the PC
industry seem very attractive, luring new entrants into the PC manufacturing market.
au)
av) To efficiently manufacture PC, the manufacturer would only be required to set up a basic
assembly line that cost roughly a million dollars. Furthermore, there were Asian contract
manufacturers readily available. The attractive PC industry coupled with low barrier to
entry of low capital requirement and accessible contract manufacturers, led to
continuous entries of new PC manufacturers, resulting in a very saturated market.
aw)
ax) PCs in the market lack product differentiation as a large majority of the market players
were Wintel and a minority player, Apple. Wintel PCs all conformed to the IBM
standard which uses the same Intel microprocessor and Windows operating system.
Both the microprocessor and operating system were critical components of the PC.
ay)
az) Since Wintel PCs were essentially the same, with no key proprietary differences, PC
manufacturers could only engage low cost leadership as its business level strategies.
However industry suppliers held high bargaining power. Microprocessors were supplied
by a few large companies but was largely monopolised by Intel and Intel sells its
microprocessors to all manufacturers at the same price. Microsoft was the only supplier
of the Windows operating system which manufacturers pay a fee to install into their PC.
Manufacturers had no competitive advantage in its supply costs.
ba)
bb) To gain a competitive advantage, manufacturers need to achieve optimal logistics and
operations management.
bc)
bd) From the supplies end, manufacturers face the high risk of stock obsolescence as
microprocessors tend to have short product lives as Intel continuously innovates to
push out new microprocessors. This translates into high depreciation and write-downs of
its stock of PCs installed with old microprocessors.
be)
bf) On the distribution side, customers include retailers, distributors, resellers and the
direct consumer. Most PC manufacturers largely distribute its products indirectly to
consumers and indirect channels held high bargaining power as manufacturers would
provide inventory buy-backs and price protection. The high rate of stock obsolescence
and falling PC prices led to frequent and high costs of reimbursement to indirect
channels, resulting in thinner profit margins. Furthermore, manufacturers who tried to
expand its direct sales to lower cost of selling faced high channel resistance and
eventually the threat of backward integration from some of its resellers.
bg)
bh) Despite the increasing global demand for PCs and the relatively high prices initially, PC
industry came to have such low average profitability as prices for PC plunged due to the
following reasons: The oversupply due to continuous entry of new manufacturers as
barrier to entry was low; the eruption of price war as there was a need to pursue low
cost leadership due to the lack of product differentiation; the lack of competitive
advantage as suppliers held high bargaining power due to suppliers monopolies and
standard pricing; and the thin margins due to high cost of stock obsolescence and high
cost of selling as indirect buyers held high bargaining power.
bi)
1. IBM outsourced the microprocessor and operating system. Bad strategic move as they did not
have the foresight to see that these 2 are the essential components of the PC.
2. Wintel standard is the key point which pushes the industry to a low standpoint and eliminates
the area for product differentiation, forcing companies to enter into price war
3. Intel and Microsoft created a level playing field in terms of price, and allocated the quantity
based on manufacturers loyalty to them in terms of their past orders. They were the biggest
winner!

bj) Question 2: Why has Dell been so successful despite the low average
profitability in the PC industry?
bk)
bl) While PC manufacturers strive to establish low cost leadership in the low average
profitability PC industry, Dell succeeded in carving a sustainable competitive advantage
through its integrated cost leadership/differentiation strategy, using the Direct Model.
bm)
bn) Unlike its well established competitors, Dell only sold to direct customers since
incorporation. This gave Dell a competitive advantage as the inherent risk of stock
obsolescence associated with rapid technological advancement led to high selling costs
of buybacks and price protection, which thinned margins for competitors who sold
indirectly through distributors and resellers. Dell history of direct sales reduced the cost
of using distributors and retailers as it protected Dell from the channel resistance and
the inertia to drop indirect sales channels that its competitors face as they tried to
expand into the more profitable direct sales channel.
bo)
bp) The Direct Model features a just-in-time production which allows Dell to have high
inventory turnover. This reduced Dells exposure to the inherent risk of stock
obsolescence and the cost to write-down and dispose of inventory which was a key
cause for its competitors low profitability. Dell did not suffer from wastage costs as it
only buys the supplies it requires with no buffer inventory.
bq)
br) The Direct Model was a sustainable competitive advantage for Dell as it enables Dell
to meet customers need for low price and customised PC features. The Direct Model
consists of 4 components: investment and maintenance of customer relationship,
supplier contracts, shipping contracts and creating synergy with its suppliers and thirdparty shippers.
1. Having direct access to its customers, Dell was able to receive information about its
customers needs and is able to profile them into Relationship and Transaction buyers and
further categorise them into subdivisions. To facilitate customer interactions, Dell invested
in teams of sales rep, hotlines and websites specifically for each customer profile so that it
could understand each customers specific needs and provide the relevant information.
2. Dell invested in a vendor management system that allows vendors to access real time
inventory information to optimise inventory management. By working closely with its
suppliers, Dell created a system that allocates resources efficiently and creates a cost
advantage over its competitors as it eliminates inventory holding costs.
3. Dell also actively maintained its shipping contracts with third-party shippers and created a
three-party synergy as suppliers were encouraged to co-locate their facilities to Dells
manufacturing plants. This allows efficient resource allocation as shippers could easily pick
up goods from both Dell and its suppliers and ship it directly to the customer. This
eliminates redundant shipping and storage costs of suppliers goods to Dells warehouse. It
also shortens the production process to 1.5 days which is below the industry average of a
few weeks. This also allows Dell to accept emergency large orders and fulfil them quickly.
bs)
bt) Other than its Direct Model for its production process, Dell also provided reliable and
accessible after sales support. Dell invested in a customer support information website,
a 24 hour hotline and a diagnostic software that allows support specialists to solve
customers problems over the phone. Remarkable service was provided for problems
requiring on-site visits. Diagnostic reports were also used to identify any areas of defect
and areas for continuous improvement.
bu)
bv) Dell success was also due to its effective capital management that has experienced
senior management to closely monitor and manage the days of inventories, payables
and receivables to be better than industry average. Senior management also
strategically monitored and reviewed margins, selling price and overheads were
optimised. The result was a 186% return on invested capital.
bw)

bx) Dells commitment to provide good customer service in both its sales and after sales

service was what differentiated Dell from its competitor and its efficient manufacturing
process and capital management gave Dell a cost advantage over its competitor in this
low profitability industry. How effective have competitors been I responding to the challenge posed
by Dell's advantage? How big is Dell's remaining advantage?

by) IBM
cc) AAP Model 0s
cd) Ambra to go
direct
ce)
cf) Channels
conflicts
shows up in
the IBM move
into direct
channels

bz) Compaq
cg) Optimised
Distribution
Model
ch) DirectPlus
Program
ci)
cj) Appeased
channel
resistance by
promising to not
undercut prices
offered by
resellers which
was a FAIL
because the
idea of selling
direct was to
bring costs
down

ca) HP
cb) Gateway
ck) Extended
cp) Started with
Solutions
Direct
Partnership
cq) Home/small
Program
business
cl)
cr)
cm) Did not swing
cs) Tried to sell
to sell direct
to large
and decide to
corporations
maintain
but it failed
strong
as it did not
channels
have the
relationship.
resources to
Advertised to
expand its
inform
sales team
channels of
ct)
their loyalty to
cu) Brand of the
them to not
cow was
swing into
removed
conflict with
cv)
them
cw) Large
cn)
corporation
co) This was the
were already
better move
loyal
as they
customers to
require a good
Dell and they
relationship
with channels.
This allowed
HP to
negotiate
better terms
with channels
to create a
cost
advantage
over other
channel users
cx) Based on 1998 data of comparison of major PC manufacturers, it is clear that Dell is way ahead of its
rivals with an impressive 62.9% of return on equity. However, due to the transparency of competitive
advantage that Dell possessed, the likelihood of imitation by its strongest competitors was extremely high.
For example, Gateway which operates on a similar strategy as Dell did surpass Dell briefly in 1994.
Major PC manufacturers could not effectively challenge the dominance of Dell despite the fact that the
direct business model was regarded as easy to imitate. This was due to the fact that the challenge was
deriving value out of the business model itself. The complexity of building an efficient supply chain and

production system could not be met immediately by Dell's competitors. Costly changes in infrastructure
and relocation of facilities is an economic deterrence to competitors. Imitating Dell's model requires
investment in technology and hiring of experienced work force. Dell also created a very strong brand
value and loyalty, which other firms can only acquire very slowly at high expense. However this will not
deter the competition in the extremely volatile PC industry.
2003 data shows that there is a small risk that Dell's remaining advantage will be eroded due to imitation
by its rivals. Dell's rivals have been effectively improving their sourcing, production and distribution system
with mixed results. Notably, Gateway has managed to reduce its days in inventory to 10 days. Dell's
capabilities are durable and difficult to imitate but Dell must continue to innovate in order to maintain its
market leadership in the future by leveraging its economies of experience

cy)
cz) Ch4. Case 3 Business strategy: Huksy injection molding system
1. Husky
a) Machine industry
i.
Intensive rivalry
ii.
Buyers: processors high BP
1. Need for reliability, good reputation as breakdown in their system would
incur large operating costs
iii.
Suppliers: raw materials of metal, hydraulic systems which are commodities
low medium BP
iv.
Barriers to entry:
1. High capital requirement
2. Substitutes are low
b) Mold industry is not attractive
2. What is Huskys business-level strategy? Why has the company been so successful in
the period prior to the recent problems?
a) The mold and machine industry is not very attractive. Thus Huskys success can be
attributed to its competitive advantage
b) Business level strategy: FOCUSED DIFFERENTIATION
i.
Targets the PET Preform market
c) How Husky differentiated itself?
i.
Offer integration of system (vertical)
1. Value added services to augment value to what they are offering,
customization
ii.
Technological leadership (AMC)
1. Led to improved resin utilization which translated to higher speed
machines
2. The increased efficiency led to more brand loyalty
iii.
Exclusively internal sales force
1. High richness of customer service: in house are more capable to educate
customers about the quality of their products
2. Provide consistent service level to maintain the reputation they have built
3. Agency costs of not being promoted if agent is offered higher commission
by competitors
iv.
CEOs commitment to the environment
v.
Ability to customize machines (increasing efficiency)
vi.
Developing personal wellness (intrinsic motivation)
vii.
Values > Dedication, egalitarian
viii.
Visionary leadership (shapes culture of company)
1. Foresight to have an integrated system and to provide value added
services
ix.
Campus (improves image and emphasis on values
x.
Procurement of components from external vendors increases cost structure
1. But this is to focus on their core competencies of R&D
xi.
Is in the mold business not because it is attractive but because it is also
essential for processors to ensure that the quality of the manufacturing is kept
high during the 2 stage process
3. What has caused Huskys current difficulties? How should Robert Schad, Huskys CEO,
and the company respond?
a) Difficulties
i.
Shortage of resin which affected the demand
ii.
Entering of competitors who saw how they were profitable despite the
shortage of resin
iii.
Consolidation trend
1. Fewer players but they are more powerful
b) Recommendation
i.
Find ways to bring the cost down in their operations
1. Operation efficiency
2. Better improve partnership
3. Make vs buy: transaction cost
4. R&D innovative ways to make production more efficient
ii.
Change of product/business scope

1. Geographical expansion
2. Exit mold business
3. Product expansion
iii.
Adjustment of willingness to pay
1. Increase R&D to find another breakthrough
2. Marketing
a) Output per capital/savings on resin/electricity savings to educate
customer the value of purchasing a Husky machine
b) Their green initiatives to boost their brand image
iv.
Difficult to switch to low cost production strategy from a focused differentiation
4. Summary
a) Generate superior value among a targeted set of buyers with a particular range of
products then charge a premium
b) Husky tailors all of its activities in a reinforcing manner to support the premium
charged, these activities FIT together and they fit the demands of external
environment
c) Hazard of successful focused companies
i.
Entry by broader competitors into their profitable niche
d) When altering it strategy the move requires a coordinated set of changes
throughout the company
i.
da)

db)Ch3. Case 2 Southwest airline (will be discussed in week

3)
dc) Internal Resources 4 Criteria

dd) Why Southwest airline is so successful compared to its rival?

What is their difference competitive advantage?
First mover advantage as a no-frills airline
o Point to point instead of hub-and-spoke
Customer service
Resource
de) Tangible
df) Intangible
Boeing
CEO with strategic mind
Financial capital
Brand reputation & innovation
Code-sharing agreement
Customer knowledge
Supplier relationship with Boeing
Capabilities
o Oil Hedging strategy
o Customer understanding, customer relationship management
o Short turnover time
Flexible work rules
No co-sharing
No assigned seats
Maximization of utilization of their 3 planes when
o Low baggage loss rate
o Position at less busy airports to serve the unfilled gap
o Talent attraction
Company culture, right fit
o Hiring policies
o Marketing innovative & creative
o Successful transfer of company culture through transferring of veterans on
assignments
Core competencies look at the history of the capabilities
o Company culture
Difficult to imitate and takes time to develop
Internalized services culture in their employees, flexible work rules
o Effective HR management
Hiring policies, motivating, talent retention
o Low cost carrier strategy
Not very lasting as the business model of no frills can be copied
It used to be their competitive advantage but not so now
o Short turnaround time
Temporary CA as
o Innovation
Fuel hedging, changing the system
Actively responding to changes,
o Fuel hedging
Not lasting as the fuel hedging strategy was copied
Strategy consist of a lot of risk and volatility and the success of the strategy is
dependent on the oil prices
dg)

dh) Stakeholder Analysis Mapping the core competencies to stakeholder needs

Customers business travelers, leisure
o Reliability On-time arrival/departure
o Convenience
o Low prices
o Reward system
o Frequency of flights
o Safety and assurance low baggage lost rate
o Alternative offering fun experience
o Value added service
Employees
o Fun, positive, passionate, team player, flexible, committed, customer oriented
o Empowerment
o Reward system, recognition, work satisfaction
di)
dj) Changes implemented in the company
No assigned seats Premium to reserve seats
Short-distance Expanding into long-distance flight, new airports
Technology code-sharing, more revenue through expanding of network
Expansions to grow revenue to meet shareholders needs
LaGuardia whether to enter?
o Small investment cost of $7.5million
o New opportunities
o Philadelphia failure
o High risk to damage reputation of on time arrival
o Customer service level may be reduced when operating in busy airports
Able to maintain customer service as their employees are willing to transfer to
work at LaGuardia
o High cost landing cost in a busy airport, labour cost higher
Southwest eventually expanded into LaGuardia and it was proved to be
successful and profitable

dk) Case Takeaway

Bundled and fitted capabilities to form a network of core competencies making it

difficult for competitors to imitate
dl)

dm)

Ch2. Case 1 Cola war (will be discussed in week 2)

dn) External Environment Porters 5 Forces

-

do) Cola Wars

The strength of a brand can influence every aspect of the Porter 5 forces
Understand the underlying economics of any given industry
The economics of the upstream / downstream industry can vary widely in the supply chain.

dp) Using Porters 5-forces, analyze the industry structure faced by the concentrate
producers and the bottlers (2 industry analyses). Discuss the key determinants that
drive the most important single force for each industry
dq) Coke / Pepsi Concentrate producers
New entrants (Low):
o High barriers to entry due to brand perception,

Brand equity takes a long time to build and cannot not be gained overnight and it is not
easily

Established and wide distribution network resulting in a low threat of new entrants

Invested in establishing supplier relationships to negotiate favourable terms

Capital requirement is high

Trade secret for the recipe

o Expected retaliation: due to their large market share, they are able to force potential new
entrants out by lowering their price points
Substitutes (Low): The substitute of a drink is any other drink that is able to quench thirst.
However, Coke / Pepsi is selling the experience of having that drink. Little or no substitute to the
experience of having Coke / Pepsi.
o Largest impact of brand on the profitability of the industry
o Substitutes do not decrease the profitability of the industry (Other products similar in
providing 1 or more aspects of the product)
o However the new health trend increases the substitutability threat

Soda tax, banned of sales, information

Vs Lifestyle, addiction
Bargaining Power Supplier (Low): Most of the suppliers to concentrate producers are
commodities firm. The commodities industry is made up of fragmented suppliers and they reap
the benefit of being associated with a large and reputable brand. This allows commodities firm to
supply in large and stable quantities.
Bargaining Power Buyer Bottlers (Low): Bottlers are required to follow the exclusive
agreement and are not able to bottle competing brands. Pricing is also determined by the
concentrate producers via the formula
Bargaining Power Buyer Consumers (Low-Med)
o Low due to them being fragmented
o However they do dictate trends
Competitive Rivalry (Low): Concentrate producers compete based on product
differentiation. Wide diversity in competition. High switching costs for buyers.
o Positive rivalry in the industry (Positive sum game)

Product variety, distribution channel, expansion, business operation, marketing &

advertising
o Does not decrease the profitability in the industry even if the rivalry is high.
o Smaller players are the ones who are losing in this war
dr) Bottlers
ds) New entrants (High): Only barrier is the high fixed costs. New entrants only have to
invest in the bottling machineries to enter the industry.
Substitutes (No): No similar services that do bottling.
Bargaining Power Supplier (High): Subjected to the formula of concentrated producers.
Suppliers determine the pricing levels. Controlled industry.
Bargaining Power Buyer (Low): Downstream buyers such as the
o Consumers (Low power due to the strong brand perception)
o Retailers (sales dependent on the brand that Coke and Pepsi brings to shoppers)
o Fountains (Lower profit margin but gain huge brand presence in the popular, high human

traffic fast food restaurants)

Least profitable: Sales is at wholesale price and may even be to a wholesaler, instead of a
direct sales to the restaurants
o Vending machines suppliers (Convenience & Location but require popular brands to attract
customers to use the machines to increase volume turnover)

Most profitable because there is no intermediary, it is a direct sales channel

o Supermarket: they are big players, they can discount and they bear the cost of the
discount
o Profitability: Vending machine > Convenience stores > Supermarket > Fountains
Competitive Rivalry (High): High fixed costs (Distribution network, delivery trucks, bottling
machineries), low margins drive the decrease in profitability.
dt) Why do bottlers want to be in the bottling industry?
The power of the brand component of Coke and Pepsi flows down to the consumers and
bottlers are able to reap the benefits of high volume without incurring advertising costs.
Consolidation of bottlers by Coke and Pepsi: Increase control over the bottling
facilities and distribution network choices to control the strategic direction for the brand.
o Change of external environment lead to difference in strategy.
Forced to saturate the market by Concentrate producers
du)
dv)
dw) 2)
Using the SWOT-plot tool, compare Coke and Pepsi at two points in history. The
choice of time is up to your team, but must be more than 10 years apart. More points
awarded for interesting choices. Show the inputs and bubble chart.
dx)
dy) 3)
Analyze the economics of the cola industry both upstream and downstream. Show
financial data that indicates where the profit is flowing, who is making the money, and
what financial ratios most clearly indicate this. Who would you rather be? A
concentrate producer or a bottler? Explain why.
dz)
ea) There is no constraint on format or length. Be concise, be relevant. Label all charts and
show references.
eb)
ec) Game theory
To identify a marketing tactic and determines what happens when both/each/none does it?
Negative / Neutral for both if both do not do it
One stand to gain if it implements the marketing tactic and one stand to lose if it does
nothing.
Both win if both do the marketing tactic.
o Increase the intensity of rivalry
o Positive sum game as it increases the overall Coke/Pepsi market.
Coke Family
Pepsi Youthful, energetic and lively.
ed)
ee)