Incumbency Advantages

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Information about Incumbency Advantages
Business & Mgmt

Published on March 10, 2009

Author: smehro

Source: slideshare.net

What you will learn in this Section ? Envisioning Strategy Definition Framework Visual Models External Analysis PEST PEST Impact Analysis Industry and Competitive Analysis Industry Structure Evolution of Industries Industry Supply Chain Potential Industry Earnings Porter’s 5 Forces Analysis Competitive Intensity Strategies for minimizing competitive forces Perceptual Map Barriers to Entry/Incumbency advantages DSIR effect Company Resources and Capabilities ARC Analysis/HR SWOT Analysis Value Creating Processes/Core Competencies Strategic Gameboard Balanced Scorecard Change Management © Sunil Mehrotra

Envisioning Strategy

Definition

Framework

Visual Models

External Analysis

PEST

PEST Impact Analysis

Industry and Competitive Analysis

Industry Structure

Evolution of Industries

Industry Supply Chain

Potential Industry Earnings

Porter’s 5 Forces Analysis

Competitive Intensity

Strategies for minimizing competitive forces

Perceptual Map

Barriers to Entry/Incumbency advantages

DSIR effect

Company Resources and Capabilities

ARC Analysis/HR

SWOT Analysis

Value Creating Processes/Core Competencies

Strategic Gameboard

Balanced Scorecard

Change Management

Barriers to Entry: Incumbency Advantage The incumbent firms Competitive rivalry Economies of Scale Cumulative Investments Learning economies Innovation advantage Promotional advantage Customer loyalty advantage Switching costs advantage Demand Side increasing returns advantage New entrant Suppliers Bargaining power of Suppliers Customers Bargaining power of

Economies of Scale

Cumulative Investments

Learning economies

Innovation advantage

Promotional advantage

Customer loyalty advantage

Switching costs advantage

Demand Side increasing returns advantage

Types of Incumbency Advantage Scale Advantage Cumulative Investment advantage Learning economies Innovation advantage Promotional Advantage Consumer Loyalty advantage Switching cost advantage Demand Side Increasing return advantage

Scale Advantage

Cumulative Investment advantage

Learning economies

Innovation advantage

Promotional Advantage

Consumer Loyalty advantage

Switching cost advantage

Demand Side Increasing return advantage

Economies of scale Incumbent firm's fixed cost/unit New entrant's firm's fixed cost/unit

How economies of scale create a barrier to entry Source; http://www.wikinvest.com/images/d/d5/CYCLEOFFIXEDCOSTS.jpg

Cumulative Investment Advantages Learning economies Unit cost to produce decreases with the cumulative quantity produced (cost of goods barrier)‏ Innovation advantage Probability of innovation increases based on past innovations (new entrants are disadvantaged)‏ Promotional Advantage When advertising has a cumulative effect on brand loyalty (new entrants have to invest more)‏

Learning economies

Unit cost to produce decreases with the cumulative quantity produced (cost of goods barrier)‏

Innovation advantage

Probability of innovation increases based on past innovations (new entrants are disadvantaged)‏

Promotional Advantage

When advertising has a cumulative effect on brand loyalty (new entrants have to invest more)‏

Cumulative Investment Advantages Learning economies Unit cost to produce decreases with the cumulative quantity produced (cost of goods barrier)‏‏ Qty. produced Variable cost/unit New entrant's firm's variable cost/unit Incumbent firm's variable cost/unit Cumulative Advantage

Learning economies

Unit cost to produce decreases with the cumulative quantity produced (cost of goods barrier)‏‏

Cumulative Investment Advantages: Innovation Advantage Innovation advantage Probability of innovation increases based on past innovations (new entrants are disadvantaged)‏ Or, Success breeds success! R&D

Innovation advantage

Probability of innovation increases based on past innovations (new entrants are disadvantaged)‏

Or, Success breeds success!

Cumulative Investment Advantages: Promotional Advantage Promotional Advantage When advertising has a cumulative effect on brand loyalty (new entrants have to invest more)‏ http://www.slideshare.net/coolstuff/the-brand-gap?src=related_normal&rel=54574 Branding Differentiation Positioning Brand loyalty Cumulative advertising

Promotional Advantage

When advertising has a cumulative effect on brand loyalty (new entrants have to invest more)‏

Consumer Loyalty advantage Consumer habits are formed, which are difficult for new entrants to change Consumer demand forces retailers to carry the brand limiting access to shelf space for new entrants. Creating a barrier to entry. New entrants have to spend more on advertising to induce trial to cause consumers to switch and incent retailers to carry their product.

Consumer habits are formed, which are difficult for new entrants to change

Consumer demand forces retailers to carry the brand limiting access to shelf space for new entrants. Creating a barrier to entry.

New entrants have to spend more on advertising to induce trial to cause consumers to switch and incent retailers to carry their product.

Incumbency advantages accrue at each stage in the value creation process R&D Innovation advantage Manf scale economies Learning economies Distribution scale & learning Retailers Promotional Consumers loyalty Barrier to entry New entrant

What is: “network effect”? “First mover advantage”?

Network Era Is Being Driven by the Interaction of Three 'Laws' more computing power More-valuable networks more communication bandwidth Moore’s Law Metcalfe’s Law Gilder’s Law Source: Prof. N. Venkatraman, Boston University Moore’s Law Metcalfe’s Law Gilder’s Law

Demand Side Increasing Returns Network Effect Network Effects occur when the benefits of a product increase to each user as the number of users increases. An example of network effects is telephone service. The more people who use them the more valuable they are to each user. The Web is an example with even more rapidly increasing DSIR than telephones or fax machines. Industries with Demand Side Increasing Returns have the characteristics of “winner takes all”. Many of the Web based industry exhibit this characteristic, example: eBay and more recently the social networking sites such as Facebook. Source: www.wikipedia.com

Positive Feedback loop creates “winner takes all” Base of users Attracts new users Gets a larger share of new purchases Installed base grows

 

 

Competing in markets with DSIR Installed base and tipping point Switching costs Expectations matter Bandwagons may emerge Early adopters jump start the process Intermediate adopters (fence sitters) are key and difficult to attract Source: Strategic Management; Saloner, Shepard and Podolny; Wiley

Installed base and tipping point

Switching costs

Expectations matter

Bandwagons may emerge

Early adopters jump start the process

Intermediate adopters (fence sitters) are key and difficult to attract

Strategies for competing in markets with DSIR http://web2.socialcomputingmagazine.com/ Strategies in the Web 2.0 world

Nappie 14 Types of Incumbency advantage Scale Advantage Cumulative Investment advantage Learning economies Innovation advantage Promotional Advantage Consumer Loyalty advantage Switching cost advantage Demand Side Increasing return advantage

Types of Incumbency advantage

Scale Advantage

Cumulative Investment advantage

Learning economies

Innovation advantage

Promotional Advantage

Consumer Loyalty advantage

Switching cost advantage

Demand Side Increasing return advantage

Mnemonic 6 Incumbency advantages accrue at each stage in the value chain R&D Innovation advantage Manf scale economies Learning economies Distribution scale & learning Retailers Promotional Consumers loyalty Barrier to entry New entrant

Mnemonic 7 Demand Side Increasing Returns: Positive Feedback loop creates “winner takes all” Base of users Attracts new users Gets a larger share of new purchases Installed base grows

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