Video Transcript: Lecture 6

Hello, welcome back for Module number six, and today we are talking about  business strategy. So one of the important things to know about business level  strategy is, what kind of strategy will you have? Is it going to be a generic  strategy? Is it going to be with cost or differentiation? What's your approach  going to be? Are you going to do cross broad cost leadership or broad  differentiation? Are you going to do target markets? What are you going to do so all this is very difficult to figure out. Certainly, there's a factor of uniqueness  which is going to add value when it when it comes but you got to pick what your  broad level, your general strategy is going to be. And remember, once you pick  that strategy, then you are constantly going through an improvement process to  try to improve upon that strategy that you have. So so these are things to keep  in mind as we, as we go through, go through this, this learning today. So why do  we examine generic strategies and how will firms compete in a particular  industry? The book, it kind of breaks this down in a nifty little table, and I want to  bring that up for you all to see right now, but you can see here that it has what,  what competitive advantage, where you go for cost, where you're going to go for a broad market, or are you going to go for a narrow target market? You know  that that that's something that you have to consider. You can see here that talks  about Walmart. They want a large customer base, and they want to keep prices  low by buying a lot a lot of quantity of those goods. Costco and Sam's Club offer similar models, where you buy in bulk, therefore the cost is a little bit lower. Then you have the narrow target market, which, Dollar General, offers a very, very,  very small number of products. But those products are often priced to move  another company that does that very, very well. Is Aldi's, which is grocery stores, they do that very well, where they offer their food prices very low. But if you were to go into an Aldi's, then you would see that you do not have a large selection of  things. So that's cost a differentiation that would be offering designer  merchandise as Nordstrom. So they have a broad target market with  exceptional services, and then narrow target market would be Anthropology,  which sells unique women's apparel, accessories and home furnishings. And I  can say that I don't know why I have been in both of those. Never mind I was  about to say I haven't been in either one of those, but I have one of the things to  remember is that what is a what is your competitive advantage? Do you offer  something unique to the market? What is your competitive advantage? That's  something that you have to keep in mind, and then remember what your the  other dimension would be, what your scope of operations are, and what your the way you operate a business. So there are some business level strategies that  we will talk about, and that's broad cost leadership, broad differentiation,  focused cost leadership and focused differentiation. So we will get get into  those. So when we're talking about broad cost leadership, again, the book does  a good job of giving some examples of these Dunkin Donuts. And you can see  here this, they make more money selling coffee than it does from selling donuts. 

And the coffee is advertised as being cheap. It's a low price alternative. So that's their broadcast leadership strategy. And something interesting about Dunkin is I  always go there and get half off tea or or tea under $1 where you can get a very  

large tea for for 99 cents. And that's attractive. So I may not go there and get  donuts, as this is saying, but I will certainly go there and get iced tea. Payless is  another one, even though they are there, they're kind of going through some  trouble, but their one Supercuts is named as one and then Little Debbie. So I  want to take a second, and I just want to give you the opportunity to think of  some other examples of firms that are pursuing a broad cost leadership strategy. And one of the things that I want you to think is that you think about when you  think about this kind of strategy, you think about people selling inferior products.  Certainly, marketers have tried to position things that the more you pay for  something, the better quality it is. That's certainly not always the case, but  certainly that is something that that is pursued. You know, Kmart has had that  reputation, and they're mentioned in the book, Kmart has had the reputation of  having inferior products, but that's not true. Some of their products are really,  really, really good. So keep in mind that a cost leadership strategy is very, very  successful, but it does have some advantages and some disadvantages, which,  again, are talked about in detail. And here's a good job. So high profits are  definitely a advantage if there's a high market share. So KOAs are used, I would argue that they're not low cost camping. They're actually not low cost camping at all. They are very expensive. And I'll give you an example. There's this place in  South Carolina, and there's two campgrounds there, and they're right next to  each other, and the KOA is significantly more than the other one, but it's also  significantly nicer low cost firms such as golf courses, they can withstand price  wars, because high price competitors will not compete directly. So that's  something to keep in mind as well. So if you're a golf course that offers, you,  know, $15 for nine holes and and then two other rival golf courses are at $60  and go 70 and go to 80 and go up to 90 or whatever. You don't have to worry  about that, because you're going to stay at $15 they're not competing with you.  They're offering different services, and they're trying to do different things. So  they're they're not a competition for you. Again, marketers have done a very  good job of equating dollar amount to quality, and as such, quality becomes too  low. Businesses will suffer. Large volumes of sales are a must because the  margins are low, so that means you have to sell. You have to sell a lot in order to make your money. So if something costs seven cents to make and and to buy  and get your store and you're selling it for 12 cents, obviously that's five cents  profit, but five cents if you only sell 10 of them, that's 50 cents. That's not really  worth all the rest of stuff. You got to sell a lot of them to make money. This says  that environmental trends, and when we're talking environmental trends, we're  not talking about the environment, we're talking about environmental trends.  Remember those internal and external factors and those kind of things. This is 

saying that cost leaders, when they have to keep costs low, they might be late to detect those I don't know if that's necessarily true. I don't really agree with that.  What I would say is that you always as a company, regardless of whether you're taking this low cost strategy or whether you're not, you always, as a competitor,  have to look at you have to look at what, what external factors exist, what  internal factors exist, what competitors are doing. You constantly have to be  going through this analysis and thinking about it, and then focus on efficiency  makes it difficult to change. I would also argue that one and say that just  because you focus on efficiency doesn't mean that you're not willing to change,  certainly, if you are consistent, constantly looking to gain efficiencies then then  you're. Constantly trying to get better, you're constantly changing. So I would  argue that one as well. But certainly, when you become very lean, it is difficult to  change course. So looking at it from that perspective, I would agree, let's see.  Let's go down here. Okay, so one of the, one of the things that you may have  heard the terms, a term that you may have heard quite a bit, is this term  differentiation. And what is differentiation? So it's a way for you to make your  product different from other people. So Morton Salt is what this talks about. Is  different, and they when it rains, it pours, that's how they differentiated their salt  through their slogans. FedEx has competed against ups and the United States  Postal Service with their slogan by saying that when it has to be there overnight, we'll send it. You know, these are ways that are there some differentiation  between the products? If you think about it, a car is a car is a car. So what  makes these cars different from other cars? They all do the other thing. But what is Mercedes differentiation strategy? So I will give you some time to ponder that  some of the other differentiation strategies, Walt Disney Company says they, I  mean, they have incredible customer service standards, as well as focusing on  their well known figures as well. So, you know, everybody knows who Mickey  Mouse is, or most people know who Mickey Mouse is. So there's, there's, and  this, the book talks about this, but this is something that I was mentioning earlier is there's a cliche that says you get what you pay for, and some people are  convinced to pay a premium for goods and services. And I just want to give you  an example of that, and I'm going to use Apple, and I'm going to use Microsoft,  so there are a lot of videos that are out right now that are talking about the  difference of products and the difference of the differences between the  Microsoft Surface Pro and the iPad Pro and and they're trying to differentiate  themselves. You know, one of the things that you can see in these commercials, if you take the time to watch these commercials that that they will highlight some of those differences between them, but, but they will also, and Microsoft is really  good at this, is they're really good at talking about the fact that their their product is far superior because It's actually computer, a computer, and can do things  where something like an iPad is just a tablet and can't and and certainly that  argument can be made, but, but when you think about differentiation, when you 

Think about different strategies, surfaces, strategy has been to be a lot lower in  price than Microsoft and and also to offer different products and different  distinctions. So the iPad Pro cannot necessarily be a a the iPad Pro cannot be a complete computer replacement as the Microsoft Surface can be. So those are  some examples of differentiation between products. And you know, obviously,  when we're talking about differentiation strategy, there's a little bit of a difference you will pay what you will for their products. So when, when you're talking about  differentiation, and this is why I wanted to bring in Apple versus Microsoft,  certainly buyer loyalty. Is an advantage to differentiation strategy. As we learned  in the last lecture, 92% of people are loyal to Apple products and then their  name, just the name Apple allows people to they allow them to charge a lot  more. Give a premium on the price of their products, but if you look at a  Microsoft Surface computer versus a surface laptop versus the Apple laptop,  they're basically comparable in specs, but Apple is charging a lot more than  Microsoft. Well, Microsoft has very good brand recognition as well. Some of the  DISA disadvantages of going to differentiation route, as opposed to the cost  route, is imitations may steal customers. You see that with knockoff handbags.  There are certainly websites that you can find where you can find illegal and  imitation products, and there's definitely some less expensive bags that exist out there, when we're talking about bags that give people a trendy look, or look cool  or whatever, that focus on that design that people want, where they would be  willing to pay the money for that, as opposed to going out and buying a very  expensive in this case, handbag or computer or whatever. Aesthetic appeal is  very important in any age of consumerism, at least in the United States. I  remember when the Apple Watch came out, there was a lot the Apple Watch  came out, there was a lot of talk about the squareness of it, where watches are  generally round. So the aesthetic appeal there matters to people quite a bit. So  there's advantages and disadvantages, which we talked about, and positioning  that comes along with that. Remember that differentiation people are willing to  pay for, meaning premium if you offer a unique feature or something that people  are willing to pay for to get your product. In Apple's case, it's an integrated  ecosystem. Is one of the things that they would say. It's good design, good  appeal, those kind of things. And just remember that there's different strategies  to pursuing both both of those. So now that we talked about general strategies,  let's talk about focus strategies. So there are people and companies that that go  for a focus strategy as well. And some of those examples are Papa Murphy's,  which does pizzas. They're pretty good if you've never had them. Claire's is one  and indoor seating creates expenses. So Checkers, drive in, drive through, if  you never had it, they have very greasy fries, but it's pretty good food. They they are able to lower costs because they do not offer indoor seating. So that is an  example of a cost leadership strategy where you're going to do distinguishing  feature, and it's going to allow you to do lower cost such as take and bake 

pizzas, red box DVD rentals, which I don't know if people are really using those  anymore. And then indoor seating avoiding that at certain restaurants, Aldi's has  one, which is to you know, you have to pay for your own cart. So, you know, you put a little quarter in the slot, and then you go, and you take your cart back, and  they don't have people to come in and wrangle your cart. Wrangle your cart from the parking lot, you have to bring it back to get your quarterback. So that's their  way of doing it. Or, I guess, if you don't want to put your cart back, then you lose 

a quarter a focus, differentiation strategy. Some examples. Is Mercedes Benz,  actually, we talked about them earlier. They are. They focus on cutting edge  technology. Build a Bear is one that's that's kind of a fun little build your own little bear. And put, put a little, put your voice in it. And Cinnabon is one as well. I  personally need to stay away from Cinnabon, because, though they're delicious, I'm trying to lose weight. But certainly they are a they are a leader in that market  as well. So how do you execute a focus strategy? Certainly Mercedes Benz.  And some others have been very good at doing that. REI, they command a  premium because they use feature brands like North Face, which I use, I have a lot of North Face stuff, or Marmot, they also, you know, offer expertise, so when  I needed to buy hiking boots for a trip I'm taking, I went there because I knew  they had a lot of expertise and they would help steer me in the right direction to  get the shoes. And actually, what I loved about REI is when I went in there to  buy the shoes, I talked to the guy. He told me exactly what I would need. He  helped me, he fitted me, he gave me all those things, and then he said to me,  Look, don't buy it from us, because we're going to charge you extra. Go and and buy it online. You can get it much cheaper. In this instance, I want to make you a loyal customer that's going to come back, so I'm telling you to go get your shoes somewhere else. So I thought that was pretty cool. I if anybody works for REI is  watching this and wants to know who that person is, I'll take it to my grave. But I  really appreciated that, and certainly that person has a loyal customer for life.  There's disadvantages for having a focus strategy and remember that you're  you have competition. They want to remove your competitive advantage. They  want to have their own competitive advantage, and they want to take over your  stuff. So, you know, people are always going after going after places, so they're  always coming after your business model, and remember that little demand  exists for specialized goods and services. Not that many people want to buy  special pens, for instance, when they can just go and get Bic pen, and that  works just as well. So there's limited demand for specialty pens and then or any  product. And then remember as a disadvantage that you know that when you  have a model where you're offering special specialties, there might be even  narrower focuses that do well as well. So in this example on table 6.8 it talks  about somebody like REI may lose business to a ski shop, a specific ski shop  and or a special made bicycle shop or something. And that's that may be true,  but you may be willing to sacrifice that depending on what your focus strategy is.

So that is basically what we're going to talk about with strategy. Just the thing  that I think is a very key takeaway is when you're thinking about that cost  strategy and you're thinking about a broad strategy, or you're thinking about a  very focused strategy. And I gave some examples of both, and I kind of used like I use Mercedes and both, you know, just to illustrate the start thinking about  these brands, start thinking about what their strategy is, and then how they're  executing that strategy, how they can continue to execute that strategy. I think  one of the things that you're going to find in businesses is the businesses that  are doing it well have a very, very, very, very, they know what they are, and they  constantly work to be better at what they are. And those that don't go away and  fade away. So keep in keep that in mind as we go down into, you know,  selecting as we go down into the next chapter, which where we will be talking  about, we will be talking about innovation, and innovation is one of my favorite  topics. I'm really looking forward to that before I do, I do, I do want to mention a  second to middle strategy, and that's where you do not really offer features that  are unique enough to convince customers to buy, and your and your prices are  either too high to compete or too low, and you're kind of stuck in the middle, and  you don't perform very well. When that is the case, think of for those of you in  the United States that are a little bit older, you may remember something like  Circuit City, which was an electronic store or Radio Shack. Radio Shack is a  good example, which kind of got stuck in the middle with their strategy. They  were a little bit higher price. They were supposed to be experts, but they got  pushed out by other brands that did offer the superior service, because their  strategy was not really well defined so with that, we will now move into number  seven, which is innovation. But before we do like we always do, let's take a  moment to pray heavenly father. Thank you so much for this class. Thank you  for the opportunity to learn about different broad, general business strategies,  whether it's cost or differentiation, help us to take those strategies and be able to apply them in our own lives, in our in our churches, in our in our businesses, and help us to be able to use these strategies to do wonderful things for you, Lord,  thank you for this day that you have given us. Thank you for this class, and I  pray that we will continue to follow you and look for opportunities to proclaim  Your Greatness each and every day in Jesus name, we pray amen. Thank you  so much, and we will see you back here for number seven.