Chapter 07 - Small Business Strategies: Imitation with a Twist

Chapter 07 - Small Business Strategies: Imitation with a Twist

CHAPTER 7: SMALL BUSINESS STRATEGIES: IMITATION WITH A TWIST

LEARNING OBJECTIVES

After you have read and studied this chapter, you should be able to:

1. Describe the decisions needed as a foundation for strategic planning.
2. Identify the forms for imitative and innovative businesses.
3. Articulate the benefits that win over customers.
4. Assess how industry changes can affect strategy.
5. Explain the major strategies of business – differentiation, cost, and focus.
6. Determine how to sustain competitive advantage through attracting customers and discouraging competition.

VOCABULARY REVIEW

Listed below are the important terms found in this chapter. Choose the correct term for each definition and write it in the space provided.

Blue ocean strategy / Growth stage / Niche market
Boom / Imitative strategy / Parallel competition
Competitive advantage / Incremental innovation / Perceptual map
Competition / Industry / Profit before taxes
Cost strategy / Industry analysis / Pure innovation
Decline / Industry dynamics / Retrenchment
Degree of similarity / Innovative strategy / Scale
Differentiation strategy / Introduction stage / Scope
Entry wedge / Magic number / Shake-out
Focus strategy / Market / Strategic actions
Generic strategies / Mass market / Tactical actions
Goal / Maturity stage
Gross profit / Net profit

1. Allison thought that having flexibility was a good ______in opening a new business
   
2. Allison also figured out that if she wanted to make $30,000 after taxes, her sales would need to be $62,000. Allison has calculated her ______.
   
3. A(n) ______is an opportunity that makes it possible for a new business to gain a foothold in a market
   
4. ______is a term used for the businesses in the same line of product or service.
   

1. When a firm essentially does what other firms are already doing, they are following a(n) ______.
   
2. When a firm does something very different than anything that has been done before, they are following a(n) ______.
   
3. ______relates to how close a business is to some other business.
   
4. If you have a high degree of similarity and compete in the same market then you have ______.
   
5. When you imitate with significant differences in one or two key areas you are doing a(n) ______
   
6. When a firm practices ______they have created a totally new product or service.
   
7. Another name for pure innovation is ______.
   
8. A group of customers for your product or service are your ______.
   
9. ______is the size of the market.
   
10. ______is the geographic spread of the market.
    
11. A(n) ______is a market consisting of very large portions of the populations – all men, for example.
    
12. A(n) ______is a narrowly defined segment of the population that are likely to share interests or concerns – people with diabetes, for example.
    
13. Other businesses that sell essentially the same product or service aimed at the same market are your ______.
    
14. By considering ______you can determine if you should get into a particular business and what sort of strategies you should consider.
    
15. Gene is a computer programmer. He remembers when he had just graduated from college and firms in Silicon Valley were in bidding wars to hire him. At that time the computer industry was experiencing a ______.
    

1. Gene considered himself lucky; after rapid growth, his firm survived the industry ______and Gene still has a job.
   
2. The ______is when a product or service is being invented and introduced to the market.
   
3. Blythe felt she had a lucky problem – her company had difficulty in keeping up with the demand for its products. Blythe was likely in the ______
   
4. In the ______, demand stabilizes and most firms use cost or differentiation strategies.
   
5. The ______is the last stage and is when prices plummet.
   
6. Sometimes a firm in decline can figure out a way to revitalize the market, this is known as ______.
   
7. ______is a research process that provides key information about the industry.
   
8. ______is money left over after accounting for the cost of goods sold.
   
9. ______is the money left over after expenses have been subtracted from gross profit.
   
10. ______is money that the owners can take out of the business annually.
    
11. ______consist of differentiation, cost focus, cost leadership, and focused differentiation strategies.
    
12. When a firm practices ______, their products are positioned to show how they are different from the other competition in the mass market.
    
13. When a firm uses ______, they show their customers how their product offers some combination of cost benefits.
    
14. Firms practicing ______target a portion of the market.
    
15. ______is a good tool to see where you might fit in with you competition.
    

1. A firm’s ______is the particular way you implement your customer benefits in order to stay ahead of the competition.
   
2. “Whoa!” Alan exclaimed. “If we need to expand to Asia in order to compete, we’ll need several million dollars.” Alan was considering a ______.
   
3. Alan’s partner, Shannon, countered, “Before we do that, let’s try some discounts and incentive programs.” Shannon preferred to try some ______first.

ASSESSMENT CHECK

Learning Objective 1

1. What are the four decisions that need to be made in order to start the strategic planning process?
   
2. ______
   
3. ______
   
4. ______
   
5. ______
   
6. What are the four strategy steps before starting a business? And the ongoing step afterwards?
   
7. ______
   
8. ______
   
9. ______
   
10. ______
    
11. ______
    

1. What are the five basic decisions of pre-strategy?
   
2. ______
   
3. ______
   
4. ______
   
5. ______
   
6. ______
   

Learning Objective 2

1. What are the two product strategies a firm could have?
   
2. ______
   
3. ______

Learning Objective 3

1. What are the two types of markets?
   
2. ______
   
3. ______
   
4. What are the four groups of attractive customers?
   
5. ______
   
6. ______
   
7. ______
   
8. ______
   

1. What are the possible thirteen value benefits?
   
2. ______
   
3. ______
   
4. ______
   
5. ______
   
6. ______
   
7. ______
   
8. ______
   
9. ______
   
10. ______
    
11. ______
    
12. ______
    
13. ______
    
14. ______

Learning Objective 4

1. What are the five stages for normal products in industry dynamics? What two subgroups are in the growth stage for “hot” products?
   
2. ______
   
3. ______
   
4. ______
   
5. ______
   
6. ______
   
7. ______
   
8. ______

Learning Objective 5

1. What are the three generic business strategies?
   
2. ______
   
3. ______
   
4. ______
   
5. Name the eleven supra-strategies.
   
6. ______
   
7. ______
   
8. ______
   
9. ______
   
10. ______
    
11. ______
    
12. ______
    
13. ______
    
14. ______
    
15. ______
    
16. ______

Learning Objective 6

1. What are the seven entry wedges?
   
2. ______
   
3. ______
   
4. ______
   
5. ______
   
6. ______
   
7. ______
   
8. ______
   

1. What are the five threats of competition for any business?
   

1. ______
   
2. ______
   
3. ______
   
4. ______
   
5. ______
   

1. What are the two major categories of competitive responses?
   

1. ______
   
2. ______
   

CRITICAL THINKING EXERCISES

Learning Objective 1

1. At a campus party, four friends were discussing their projects for the Business Start-Up class they were attending. “I think it’s great that Dr. Bockhorn wants us to come up with actual businesses a college student could start and run,” Tiffany stated. “The eBay store Tracey and I intend to start will capture customers from all around the world.”
   Tracey added, “It took us a while to come up with the idea of baby clothing and equipment resale, but I think it’s viable.”
   Tom said, “Well, there’s nothing too unique about the coffee shop Todd and I are starting other than it’ll be on campus and open 24 hours a day.”
   “Don’t forget, we’re open only for students, faculty and staff of the university,” Todd remarked.
   Between the four friends, they touched on the four basic decisions a potential new business should consider. What were they?
   

Learning Objective 2

1. Evaluate the following businesses and decide if these examples are likely to be parallel competition, incremental innovation or pure innovation
2. Bobbie is starting a ski-diving center to serve the greater Valparaiso, Indiana area.
3. George hand carves bookends from bricks
4. Hester is franchising her coffee shop idea.
5. Lillian has found a way to make bread from recycled plastics
   

Learning Objective 3

1. Several other students joined the group at the party (question 1). They, too, were in the same class. From their comments can you tell which of the important customer groups they were after?

1. Ray planned to clean offices.
2. Ronald had decided to sell NASCAR memorabilia online to NASCAR fans.
3. Ruthann’s plan included a frequent shopper discount.
4. Robbie Ann’s manicuring service would target fellow university students.
   

1. Looking at the ideas in question 2,decide if their scale is likely to be local or global, and their scope a niche or mass market.
   

1. Below are several industries that are typically mass market. Can you identify a niche within each market that might be profitable?
2. Makeup
3. Baked goods
4. Cars
5. Hotel rooms
6. Shoes
   
7. Using the list of value and cost benefits in your text, see if you can identify which one(s) each of the following entrepreneurs have:
8. Alma knows the name of everyone of her customers and uses it immediately when they walk into her accounting office.
9. Michael’s painting company has established an excellent reputation in the Upland, CA area and since he operates from his home, his costs are low.
10. Alco’s Discount Store purchases products by the truckload so as to pass along savings to its customers and is conveniently located next to the grocery store.
11. Ardell’s Appliances delivers and install each appliance within 24 hours and guarantees them for a full year beyond the manufacturer’s warranty.
12. Now that Don has made several dozen bookcases, he has figured out the most effective and efficient way of building them but yet maintaining the artistry and quality of each piece.
13. JoAnn’s website allows customers to order craft supplies from a large number of companies and pay by credit card on their secure site.
14. Purchasing a membership in Elmer’s Environmentalists not only means you can spend time with other environmentally conscious people, but you know that a portion of your membership dues goes towards cleaning up beaches around the country.
    

Learning Objective 4

1. Consider the following industries. Where do you think they fall in Industry Dynamics?
2. Tennis shoes
3. High-definition television
4. Pharmaceutical companies
5. Music downloading industry
6. Buggy whip manufacturers
7. Cell phone industry
8. On-line education
   

1. By using the SIC code for plumbers, Leona has found out that the industry is highly fragmented, growing, and relatively profitable. Through her study and interviews, she has found a niche for plumbers willing to work evening and weekend hours when it’s more convenient to have people to your home. These customers are willing to pay a premium for not having to take time from work. As best you can, evaluate Leona’s industry analysis.
   

Learning Objective 5

1. Match the company to the generic strategy it practices:
2. Cheapseats offers discount airfare to anyone with an Internet connection.
3. Altoids breath mint is the only one that is “curiously strong.”
4. Liz travels from nursing home to nursing home cutting and styling only senior citizens’ hair.
   
5. Match the entrepreneur to the supra-strategy list in your textbook.

1. Sonya opened a medical clinic in a ghetto area of her city.
2. Tiffany’s Truffles feature exceptional candies going for $4 each.
3. Antoinette decided to open a MacDonald’s.
4. Moody’s pharmacy has not “sold out” like other drugstores; it’s a pharmacy, nothing more.
5. Dougie advertises himself as “The Wal-Mart of Used Cars.”
6. When Wib builds a custom patio for you, he takes into account the topography of your yard, the style of your house and your lifestyle, giving a one-of-a-kind patio guaranteed to please.
7. Ken decided to sell patio furniture on-line and deliver directly to his customers.
8. Emmie makes hand-sewn quilts that she sells on consignment at art fairs.
9. When Craig sells you a used car, he offers six free oil changes and even stops by your house to see how the car is doing for you.
10. Korey was so successful with his online graphics design firm that he decided to do a online drafting company next.
11. Opal Anna’s sewing center featured a complete line of sewing needs, sewing machine repair, classes on every imaginable craft and a knowledgeable staff ready to solve customer’s problems.
    

1. Which wedge? Using the list in the book, which entry wedge does it appear each of the following firms are using?

1. Angelina Alvarez uses the fact that her tree and shrub removal service is both woman and minority owned to qualify for set asides.
2. Gary makes an innovative device that converts your cell phone into a GPS device. Everybody wants one, but there are no competitors yet.
3. Pam’s aunt ran a mail order business. She’d always wanted to have a stamp collection so she saved the stamps off of virtually every piece of mail she received. Pam discovered the cartons of stamps in her aunt’s attic and persuaded her to let her sell them on eBay.
4. The state government gave preferential treatment to Gary’s construction company when it recently remodeled one of it’s office building since Gary’s firm had a record of hiring disabled workers.
5. When Dominos decided to no longer delver pizzas out of the city limits, Judy’s Pizza Palace picked up a lot of the rural business.
6. When Orville left his company, he was able to persuade them to sign a contract allowing his new drafting firm to do all their blueprint work.

1. Leise wants to open a dance school in her hometown. Using Porter’s five threats, discuss the possible problems she may face.
   

PRACTICE TEST

Multiple-Choice

1. Strategy is important because:
2. Without it you cannot write a business plan
3. It increases your chances for survival by being a blueprint for planning or a standard against which to compare your actions
4. It’s the only way you’ll know what to do day-to-day
5. It’s required by law.
   
6. The four steps in preparing a strategy include all EXCEPT:
7. Goals
8. Customer and benefits
9. Industry dynamics and analysis
10. Competitive advantage
    
11. The goals area focuses on four key decisions, one of which is:
12. The scope of the market
13. The wages you’ll pay
14. How you intend to enter the business (e.g., start-up, buy-in, etc.)
15. What government regulations affect your business
    

1. A good way to find detailed industry information is to:
2. Network
3. Get assistance from the Small Business Association, SCORE or similar organizations
4. Research using the SIC or NAICS code
5. Hire a consultant to dig up the information for you
   
6. Business strategies run from:
7. Innovative to imitative
8. Cost-oriented to differentiation-oriented
9. Local to global
10. Mass market to niche
    
11. When you closely copy an existing business with only minor differences, you are practicing:
12. Parallel competition
13. Incremental innovation
14. Pure innovation
15. Mass marketing
    
16. When you copy an existing business but have differences in several key areas, you are practicing:
17. Parallel competition
18. Incremental innovation
19. Pure innovation
20. Mass marketing
    
21. When your business has never been done before, you are practicing:
22. Parallel competition
23. Incremental innovation
24. Pure innovation
25. Mass marketing
    
26. Which of the following is the best example of a niche market?
27. People in nursing homes
28. People between the age of 13 and 19
29. People in Norway
30. People who work
    
31. The scope of your business runs from:
32. Innovative to imitative
33. Cost-oriented to differentiation-oriented
34. Local to global
35. Mass market to niche
    

1. The scope of most small businesses is ______.
2. Local
3. Regional
4. National
5. International
   
6. For the purposes of business strategies, scale is ______
7. A musical term
8. Part of a fish
9. The size of your market
10. Something used to see if your diet is working.
    
11. The scale of your business is either:
12. Innovative or imitative
13. Cost-oriented or differentiation-oriented
14. Local or global
15. Mass market or niche
    
16. The two benefits your product may offer are
17. Technology or creativity
18. Scale or scope
19. Value or cost
20. Mass or niche markets
    
21. Quality, technology and personalization are examples of
22. Value benefits
23. Cost benefits
24. Entry wedges
25. Generic strategies
    
26. If the product is new and few people are aware of it, the industry is in the ______stage.
27. Introduction
28. Growth
29. Maturity
30. Decline
    
31. When firms start to focus on cost strategies, the industry is in the ______stage
32. Introduction
33. Growth
34. Maturity
35. Decline
    

1. The ______stage is when sales and profits start to fall.
2. Introduction
3. Growth
4. Maturity
5. Decline
   
6. Towards the close of the Decline stage there are two options:
7. Death and Retrenchment
8. Death and Revitalization
9. Death and Redesign
10. Death and Refocus
    
11. Focus, cost, and differentiation are ______
12. Value benefits
13. Cost benefits
14. Entry wedges
15. Generic strategies
    
16. If you have short delivery times or custom features, your supra-strategy is:
17. Craftsmanship
18. Customization
19. Super-support
20. Elite
    
21. Jon and Chris run a low cost “Everything Under a Buck” store and the store reflects their supra-strategy of ______.
22. Craftsmanship
23. Bare bones
24. Single-mindedness
25. Formula facilities
    
26. Brian sells batteries – car batteries, flashlight batteries, hearing aid batteries – every kind of battery you could possibly want on his Website. He is practicing which supra-strategy?
27. Craftsmanship
28. Bare bones
29. Single-mindedness
30. Formula facilities
    
31. If you have high-quality products with high prices, your supra-strategy is:
32. Craftsmanship
33. Customization
34. Super-support
35. Elite
    

1. The “serving the underserved” supra-strategy means:
2. Selling to minorities
3. Selling in disadvantaged neighborhoods
4. Selling to widows and orphans
5. Selling to any market forgotten or neglected by competition
   
6. The “comprehensiveness” supra-strategy means:
7. Being a one-stop shopping place
8. Being exceptionally thorough in your entire business strategy
9. Going after a comprehensive market, a mass market
10. Performing each step of the process – making, selling, after-sales service
    
11. Supply shortages, unutilized resources and favored purchasing are examples of
12. Value benefits
13. Cost benefits
14. Entry wedges
15. Generic strategies
    
16. When firms cut-back and leave certain markets, this is an entry wedge known as:
17. Customer contracting
18. Second sourcing
19. Government rule
20. Market relinquishment
    
21. Which of the following in NOT a part of Porter’s model of threats from competition?
22. Potential entrants into the business
23. Suppliers
24. Government regulation
25. Buyers
    
26. After carefully plotting all her competition on price and range of services offered, Clytie realized there was a gap in her ______for a low cost full service provider.
27. Strategic plan
28. Perceptual map
29. Feasibility study
30. Entry wedge
    

True/False