Unit 7: Strategy And Technology PDF

# Unit 7: Strategy and Technology ## Technical Standards and Format Wars * **Technical standards** * Set of technical specifications that producers adhere to when making the product, or a component of it. * **Format wars** * Battles to control the source of differentiation, and the value...

# Unit 7: Strategy and Technology ## Technical Standards and Format Wars * **Technical standards** * Set of technical specifications that producers adhere to when making the product, or a component of it. * **Format wars** * Battles to control the source of differentiation, and the value that such differentiation can create for the customer. * **Dominant design** * Common set of features or design characteristics. ## Benefits of Standards * Guarantees compatibility between products and their complements. * Reduces confusion in the minds of consumers. * Reduces production costs and risks associated with supplying complementary products. * Leads to low-cost and differentiation advantages for individual companies. * Helps raise the level of industry profitability. ## Establishment of Standards * Standards emerge in an industry when the benefits of establishing are recognized. * Technical standards are set by cooperation among businesses, through the medium of an industry association. * When the government sets standards they fall into the public domain. * **Public domain**: Any company can freely incorporate the knowledge and technology upon which the standard is based into its products. ## Network Effects, Positive Feedback, and Lockout * **Network effects**: Network of complementary products as a primary determinant of the demand for an industry's product. * **Positive feedback loops**: Increase in demand for a technology that triggers an increase in demand for products that support it. * **Alternative standards get locked out** as consumers are unwilling to bear the switching costs. ## Strategies for Winning a Format War * Make network effects work in one's favor and against competitors. * Build the installed base for the standard as rapidly as possible. * Ensure a supply of complements. * Leverage killer applications. * **Killer applications**: Applications or uses of a new technology or product so compelling that customers adopt them in droves, killing competing formats. * Pursue aggressive pricing and marketing. * **Razor and blade strategy**: Pricing the product low to stimulate demand, and pricing complements high. * Cooperate with competitors. * License the format. ## First Mover * **Firm that pioneers a particular product category or feature by being first to offer it to the market.** * Creation of a revolutionary product results in a monopoly position. * **First-mover advantage**: Pioneering new technologies and products that lead to slowing the rate of imitation. * **First-mover disadvantages**: Competitive disadvantages associated with being first. ## Strategic Implications: Crossing the Chasm | Advantages | Disadvantages | |---|---| | Opportunity to exploit network effects and positive feedback loops. | Bear significant pioneering costs. | | Ability to establish brand loyalty and increase sales volume ahead of rivals. | More prone to making mistakes. | | Ability to create switching costs for customers and accumulate knowledge. | Risk of building the wrong resources and capabilities. | | | Risk of investing in inferior or obsolete technology. | ## Strategies for Exploiting First-Mover Advantages * Develop and market the innovation. * Develop and market the innovation jointly with other companies. * Through a strategic alliance or joint venture. * License the innovation to others and allow them to develop the market. ## Factors to Consider When Selecting a Strategy * **Complementary assets** * Required to exploit a new innovation and gain a competitive advantage. * Help build brand loyalty and achieve rapid market penetration. * **Height of barriers to imitation** * Higher the barriers, longer it takes for rivals to imitate. * Give the innovator more time to build an enduring competitive advantage. * **Capable competitors** * Companies that can move quickly to imitate the pioneering company. * Competitors’ capability depends on their research and development skills and access to complementary assets. ## Figure 7.4: Positive Feedback in the Market for VCRs The image shows a diagram with four boxes connected by arrows. The boxes are labeled as follows: * **Installed base of VHS format VCRs** * **Demand for VHS players** * **Supply of movies for rent on VHS tapes** * **Value of VHS players to consumers** Each arrow between the boxes is labeled with a plus sign (+), indicating a positive relationship between the elements in the boxes. **Description**: The diagram illustrates the positive feedback loop that contributed to the dominance of VHS over Betamax in the VCR market. An increase in the installed base of VHS format VCRs led to increased demand for VHS players, which in turn resulted in a greater supply of movies for rent on VHS tapes. This further increased the installed base of VHS VCRs, creating a positive feedback loop that amplified the success of VHS.