• The frame of reference signals to the customers they goal they can achieve through using the brand
• The frame of reference may change as the product goes through its lifestyle, and as new competitors enter the market
• Example: Fed Ex as an overnight delivery service, then as a speed and dependable overnight service, now more focused on tracking capabilities (to compete with email and faxes that are often lost)

Are we leveraging our points of parity?

• Think through the points of parity your brand needs to have with competitors if it is to be accepted
• New brands – normally points of parity are thought of new brands
• Brand extensions – can be dangerous, is your point of differentiation go against the minimum requirements for the consumer to recognize you as a legitimate brand in this business
• Established brands – over time points of differentiation becomes points of parity

Are the points of difference compelling?

• Three types of difference:
1. Brand performance – how it meets the consumers functional needs based on intrinsic properties of the brand, does the product do what it says?
2. Brand imagery – when choices are based on experience, who uses the brand and under what circumstances?
3. Consumer insight associations – when imagery and performance is less attractive, show you know the customer

Don’t:

• Build awareness before position
• Talk about what customers don’t care about
• Invest in differences that are easily copied
• Focus too much on the competition
• Reposition unless absolutely needed

Must make sure position is internally consistent at any point in time.

“Ladder up” – first round describes concrete attributes, second round how those attributes change the users lifestyle, third round how better lifestyles lead to happiness

“The big idea” – identify the main idea and over time show a variety of attributes that imply the benefit

3 Trends explain why

• Changes in complexity of markets – shorter life cycles, cannot react
• Exponential growth in amount of market data – realtionship databases
• Need for share organizational assumptions for strategy development

Core Compentency Laws

1. It is unattainable by money alone
2. It takes time to cultivate
3. It is difficult to imitate
4. It is capable of multple uses
5. It is enhanced by repeated use

Market Driven Learning Process

Must strive to understand what is causing the changes

The Learning Organization

• Is serious about trial-and-error experimentation
• Needs a “inquiry center” an entity and attitude about how to reconcile the voice of the market
• Uses informed imitation of competitors by understand why their competitor succeeded and improving upon it

One attribute of a company is its customer focus versus competitor focus

Fear-of-failure syndrom – subverts trial-and-error experimentation

Security blanket reseach studies – studies done after the decision is made

Beaware of incomplete mental models and market amnesia

How to organizationally learn about markets

·        Bring mental models into the open

·        Use information technology to enhance learning

·        Activate sensors at the point of customer contact

·        Facillitate knowledge transfer

·        Value continuity

Sum up all concepts

Firms may use their resources to shape the competitive game in a way that makes the five forces more attractive.
 
Value Creation and Capture
Economic Profit = (AP-AC) Q
Where AC always includes opportunity cost.
 
‘B’ Consumer’s max willingness to pay
Consumer Surplus = ‘B’ – ‘P’  = value the consumer captures
Value Created = ‘B’ – ‘C’ = total value created
Firm Value Captured = ‘P’ – ‘C’
 
AC curve – Quantity X axis, Average Cost Y axis
Productivity frontier curve – ‘C’ on X axis, ‘B’ on Y axis, 

5 Force Analysis

Resource Based View

Game Theory

Main parts: players, actions, payoffs

Compeition vs. cooperation, the effect of commitment to a course of action such as sunk costs

Industry level effects – least profitable in one industry may still be more than best profitable in antoher industry

To determine Nash equlibrium, where no one has incentive to move to another decision, find the dominant or at least the dominated strategies

Cooperation can be hard when:lots of firms, no history of trust, hidden prices, and bad market conditions

Central route to persuasion - invloves higher involvement with the product or message, focuses on product related information

Peripheral route to persuasion - lower involvement, fun ad, remember the brand ads

Habits - Ads break them, aquire them, or reinforce them

Abraham Maslow - Hierarchy of needs

• Physiological -example: food
• Safety - example: breaks on a car
• Social - example: present for a friend
• Esteem -example: luxury car
• Self-actualization -examvple: golf lessons

Rossiter and Percy's Eight Fundamental Purchase and Usage Motives

Negative or informational motives:

• Problem Removal
• Problem Avoidance
• Incomplete Satisfaction
• Mixed Approach - avoidance
• Normal Depletion

Positive or transformational motives:

• Sensory gratification
• Intellectual Stimulation or mastery
• Social Approval

Theory of cognative dissonance - holds that people strive justify their behavior by reducing the dissonance between their cognations and reality, - many people read ads about products they've already purchased to satisfy the belief that the purchase was "good"

Marketing segmentation - demographics or psychographics

4 P's of Marketing - Product, Price, Place, Promotion

3 Rs of Marketing - Recruiting new customers, Retaining current, and regaining past customers

Fund Allocation - percentage of sales method or share of market method

Position Strategy - own a word in people's mind that associates with the product example: Levi's owns jeans

Top down marketing - Do a situation analysis, define objectives, create strategy to reach those objectives, determine the marketing tatics

Bottom up Marketing - Choose one tatic, then develop a strategy to support that tatic

5 M's of Media Strategy - Markets, money, media, mechanics, and methodology

Methods for Scheduling media

• Continuous
• flighting - periods of no advertising
• pulsing - low level all year with higher level at specific time
• Bursting in prime time
• Roadblock - buying same time on all 3 networks
• Blinking - flooded for short burst

Within the text of the advertisement

• Persona - who or what is talking to the customer
• Literary form
• Implied Customers - what does the advertising say about the implied customers

Message Dimensions Literary forms:

• autobiographical
• narrative
• drama 

Puffery - exaggerated commendation or hype, legal as defined in US, foreign governments have different rules

Ivan Preston's Six Levels of Puffery

• Best (strongest claim) - "it is the best"
• Best possible - "nothing does the job better..."
• Better - "just works better than the rest"
• Especially good -
• Good
• Subjective qualities

Advertising falls under comercialized speech laws in the US.

www.gala-marketlaw.com   - Market Law Site

http://www.caru.org/ - Advertising to Children Website

http://www.ftc.gov/ - Federal Trade Commission - Regulates US Advertising

Be humble and give credit. Eisenhower was humble. He always gave credit to his soldiers and was willing to take the blame.

See for yourself. During WWII, The General visited the front lines more than any other General. He liked to see the troops and encourage them. His visits helped the front-line soldiers. For example: when he found out officers were living in luxury compared to the troops he gave orders to even out the living quarters. 

Do not fail. Eisenhower knew that some officiers would underperform. He told Patton that one of the most important yet hardest things to do is to remove the incapable officers as soon as possible.  

Make the most of who you are. He became Supreme Commander because the French would not follow an English leader. Many of the Generals believe that they should be Supreme Commander, and Eisenhower appeased them by letting them get all the press (this made him even more popular in the press).

Be decisive. On D-Day there were several worries about the weather, Eisenhower was decisive, ordering a go.

Be responsible for the outcome. Eisenhower had written a statment that he intended to read to the press if D-Day was a failure, where he took credit for the failure.  

Stay in the middle of extermes. As President, many times he took the "middle way" and compromised between Democrats and Republicans.

Leaders – coping with change

• Set a direction and create visions – broad based thinkers willing to take risks
• Aligning people – empowering them, getting them to believe the vision
• Motivate and Inspire – the more change the more inspiration needed 

Management – coping with complexity

• Plans and budgets – planning is designed to produce orderly results, not change
• Organizing and staffing – create human system like architecture
• Controlling and problem solving – fast and efficient solutions to problems

This was a Harvard Business Review article that I read published in Leadership Insights a collection of 15 HBR articles. Although it talked about what leaders "do" it does not talk about one of the main Peter Senge leadsership topics: a leader leads through commitment to the vision, a manager manages though compliance. I think this is a key distinction that is maybe implied but not stated in this article.

Do managers just plan, organize, coordinate, and control? 

The author of this article doesn’t believe so. After conducting studies of managers in the work place the author has come to some other conclusions, classifying the managers role into three main categories:

1.)    Interpersonal Roles – a key to authority

·        Figurehead – ceremonial duties of someone with authority

·        Leader – motivate and encourage employees

·        Liason – making contacts outside the vertical chain of command

2.)    Informational Roles – comes from interpersonal relationships

·        Monitor – scanning the environment

·        Disseminator – letting subordinates in on information

·        Spokesperson – communication outside of the unit 

3.)    Decisional Roles – comes from information

·        Entrepreneur –improve the unit or group

·        Disturbance Handler –fix problems and handle pressures

·        Resource Allocator – deciding who will get what

·        Negotiator – making tradeoffs between two things 

The managers’ effectiveness is related to their insight into their own work which is an integrated job of the roles given in the list above.

“Influence is seen in the leader role, formal authority vests them with great power; leadership determines how much of it they will realize”

My Thoughts: It is interesting to see a article almost solely on management in a leadership compellation. I wish this article talked more on the differences between leadership and management. It sort of falls into the trap of thinking that all managers are leaders of their subordinates. Anyway I would summarize this as: managers’ personal contacts lead to information which leads to decision-making. Managers must do all three. I am not sold on the “leader” part without a further discussion of the difference between a manger and a leader.

I haven't read this book but the quote has come up in a bunch of my reading. For right now I'll paste a link to a book summary here.

http://my.fit.edu/~dclapp/sectb.htm#grtst

Hopefully I'll get to reading this book.  

• Structured (rules based)
• Unstructured (open market)

Business is a combo of both.

In unstructured actions you cannot take away more than you bring to the table.

Egocentric – focus on your position in the game

Allocentric – focus on other’s positions in the game

Business strategy is about shaping the game you play as much as playing the game (think of all the companies that have lobbied the government to “change the rules” of the game)

Business is not a war, there are many times you may op for a win-lose strategy but several other companies have made plenty of money working on a win-win strategy.

Three advantages of Win-Win

• More opportunities because less explored
• Easier to get cooperation
• Imitation helps

Value Net – (this sounds a lot like Porter's Five Forces)

• Customers and Suppliers,
• Complementary Products and Substitute Products

Five Elements of Game Theory (PARTS)

• Players
• Added Value – what each player brings to the game
• Rules – how the game is played
• Tactics – moves that shape how one plays the game and perception of the game
• Scope – boundaries that sometimes can be changed 

Changing Players – Coke and Pepsi example with Nutrasweet (they created a rival to Nutrasweet just for negotiation purposes, they didn't contract with the rival, the rival should have asked Pepsi and Coke to pay them just for exisiting), Pay me to play

Create Cheap Complements – Software companies that let any company create hardware

Changing Added Value – raise your own value (or protect your current value) or lower others (card match game where you burn matching cards to raise the value of yours - Did I read something similar in a judo-economics article?)

Change Rules – like “one price to all” rule , or have “last bid” clauses in contracts

Tactics: Change Perception – show the effects of a price war by starting a small one to prevent a big one

Change the scope – Nintendo didn’t follow Sega quickly into the 16-bit market so it could prolong its profits in the 8-bit market

Traps to Avoid

• Thinking you can’t change the game
• Thinking your change has to cause a win-lose situation
• Thinking you have to do something that others can’t do
• Failing to see the whole game
• Failing to think you’ll need to change the game again after you’ve done so already

This article was published in Harvard Business Review (R95402).

Operational Effectiveness – performing similar tasks better than your competitors

Strategy – performing different tasks or similar activities in different ways than your competitors 

Main Strategies 
Generic Strategies: Low Cost Leadership, Differentiation, Large or Small Segment Focus

More Detailed Versions of Generic

• Variety-based positioning – producing a subset of products or services (Jiffy Lube oil only), does not rely on customer preferences
• Needs-based positioning – targeting a segment of customers (Ikea – all home furnishings for customers) ), does not rely on customer preferences
• Access-based positioning – targeting customers who need different activities to reach them

• Threat of new Entry
  
• Intensity of rivalry among existing market
  
• Pressure from substitute products
  
• Bargaining power of buyers
  
• Bargaining power of suppliers

*Many people add that government is the sixth force

Productivity Frontier – a curve of buyer value (Y axis from low to high) versus cost position (X axis from high to low)

Because of rapid diffusion of best practices operational effectives does not span the test of time. It is not a strategy!

I like to think of this in Game Theory terms. If there are two companies and both have the decision to make or outsource Product X. If they both choose to make Product X themselves then the only advantage Player 1 can gain is to be more operationally effective than Player 2.  Similarly if both outsource the one that finds the best partner wins. In both of these cases it is operational effectiveness (which is easier to copy) rather than strategy that determines the outcome of the competition (in game theory this would be clear by the payout).

• Reposititioners – move to a new position
• Straddlers – hold same position but change to match benefits

Tradeoffs prevent imitation by creating the need for choice between two positions

Tradeoffs Occur for Three Reasons

• Reputation and Image
• Activities themselves
• Limits on internal coordination and control

Quality versus Cost tradeoff is only false when you are behind on the productivity frontier or the frontier shifts outward

“Strategy is making tradeoffs in competing”

“Strategy is choosing what not to do” - Without tradeoffs you could hold all positions at the same time. Tradeoffs therefore dictate strategy

Strategy fitness – all tradeoffs support the same position, activities support each other, lists like “core competencies”, “critical resources” and “key success factors” normally go against fitness 

Three Types of Strategy Fitness

• Simple Consistency – among activities (e.g. all are aligned on low cost strategy)
• Reinforcing Activities – activities make the other activities stronger
• Optimization of effort –

 “Strategy is creating fitness across a company’s activities”

What Prevents a Sound Strategy, (decreases fitness)

• Misguided View of competition
• Organizational Failures
• Desire to grow – forces broadening of position over deepening it
  

Many go after operational effectiveness because it is tangible and measurable

Extend your uniqueness

Blue Ocean – new markets

Example: Cirque Du Soleil over a  normal circus.

Stop trying to beat competition but instead make them irrelevant.

Industries never stand still.

Value Innovation -  is the cornerstone of Blue Ocean Strategy, drive costs down while driving value up (like cirque du Soleil they removed animals from a circus driving down costs while driving performance value up)

Strategy Canvas – what are the key factors in an industry, where does the premium players line up?, where do the low cost players line up?, each player has a value curve that they are offering , shows three things: industry factors, competitors strategy, and your value curve all in the same place

• Focus of the value curve – do not diffuse across all categories
• Shape of value curve diverges from competitors
• Clear tagline

• Over delivery without payback
• An Incoherent Strategy
• Strategic Contradictions
• Internal versus External Market Driven

• Trying to be best in your currently “defined” marketplace
• Striving to stand out in a narrow scope of your currently “defined” marketplace
• Focus on the same buyer groups
• Scope of products and services defined by industry
• Accept industries functional or emotional orientation
• Focus on same point in time and on competitive threats in their strategy

Substitute products – offer different form but fill same functionality

Alternative products – different forms but fill same purpose (restaurant or cinema fill the night out purpose)

Strategic groups within markets – luxury versus economy car builders don’t compete with each other, many companies look across strategic groups to create blue oceans

Purchaser, User, and Influencer of purchasing decisions are all important and all three hold different ideas of value

Untapped values are normally hidden in complementary services (cinema with a babysitter)

Three principles for trends, they need to be:

• decisive to your business
• irreversible
• have a clear trajectory 
  

Second Principle of Blue Ocean: Focus on the big picture, not numbers in your strategy

• Draw your “as-is” canvas
• Look to the six paths, get in the field yourself, find the value
• Create a new canvas based on opportunities in the six paths (eliminate, create, reduce, improve)
• Close the gap

Never outsource your eyes.

• Pioneer – pursue Blue Ocean,
• Migrators – Best in class Red Ocean
• Settlers – pursue Red Ocean

What is your portfolio PMS map? Revenue, profit, and market share cannot tell the future because the environment changes too fast. Instead use value and innovation to predict the future.

Instead of looking for customers, look at non customers

• those at the edge of your market
• those that refuse your market
• those that have never thought of your market as an option

Look at their commonalities and find the largest group of untapped customers

Fourth Principle of Blue Ocean: Get the strategic sequence right: buyer utility then price then cost then adoption
Buyer utility – price = customer value

You should not allow cost to drive price.  

Buyer Utility Map (Matrix) – 6 Levels versus 6 Levers, for each lever ask which level is the greatest block to buyer utility

Six Levels of Buyer Experience

• Purchase
• Delivery
• Use
• Supplements – Do you need other products to make this work?
• Maintain
• Dispose

Six Levers of Utility

• Customer Productivity
• Simplicity
• Convenience
• Risk
• Fun and Image
• Environmental Friendliness

Price

Knowing the price that captures the mass of the market is becoming more important, volumes are becoming more important in profitability, and many product exhibit the network effect (like the telephone, the more people that use it the more useful it is)

Rival good – cannot be copied by competitor, example an employee that works for one company cannot work for another

Non-Rival good – ideas that can be copied by your competitor

Price Corridor of the Mass

• Same form offerings
• Different form same function
• Different form and function, same objective

Plot (above) versus price tiers and find volume of customers at each tier

Factor in the excludability of your product

Excludability – the ability to exclude your competitors to using your concept, ideas, and strategy

Use Best Tier for Pricing

Derive Cost from target price minus the profit margin you want

Cost Levers

• Streamline Operations – MFG and Distro cost reductions
• Partnering
• Change the Pricing model of the industry: time-share, slice-share, equity interest instead of cash,

Three adopters – employees, business partners, and the public

Fifth principle: Overcome key hurdles to execute the strategy  
Execution’s four hurdles: cognitive, resources,  motivation, politics

Tipping point leadership – there are people, acts, and activities that influence a disproportionate amount of influence in any organization, change the tipping points and the rest will follow

Cognitive -“Seeing is believing” quickest way to change is to show positive or negative stimuli directly to the people who need to change, show the problem or solution to the stakeholders 

Resources

• Hot Spots – low resource input but high performance gain
• Cold Spots – high resource input but low performance gain
• Horse Trading – leverage excess resources from one area to another (outside of your normal boundaries)

Move resources from cold spots to hot spots and horse trade outside of your normal resources your excess

Motivation

• Kingpins – key influencers and natural leaders
• Fishbowls – place kingpins in a transparent fishbowl so everyone can see their progress base it on transparency, inclusion and a fair process
• Atomization – break strategy into small goals so no one can say its not attainabl
  

Politics

Get a strong number two on your team

Who are my biggest opponents? What is their argument?

Sixth principle: To build people’s trust and commitment to the strategy you need to build in execution from the start.

Need a fair process so people don’t feel coerced.

“People care as much about how a decision was produced as what the decision was”

Fair Process

• Engages – show you want input from everywhere
• Explains – shows everyone why this is important
• Expectation clarity – what is expected out of everyone

Commitment, trust, and voluntary cooperation are intangible capital.

Imitation Barriers to Blue Ocean

• It does not make sense as traditional strategy
• Brand image conflict helps prevent it
• Natural monopolies may form
• Patents or legal protection
• High Volume can be hard to overcome
• Network externalities
• Loyal following by being first on the market

1) Novice - lacks sense of the task, learns rules to follow

2) Advanced beginner - more rules, uses some situational elements that are learnt from experience but the use can't formalize them

3) Competent - recognise many context-free and situational elements but can get overwehlmed at the number of rules, understands strengths and weaknesses

4) Proficient - mostly performs tasks intuitively without analytical thought

5) Expert - always performs tasks intuitively, stops for relection on intutituion

So the key here is to improve communication by understanding skill level, when communication seems hard, think to yourself "What skill level am I?" "What skill level is the person that I am talking too?"

http://www.cornetdesign.com/2006/03/dreyfus-model-experiment.html

3 Types of Propositions:

• All benefits - you give the customers the list of all your benefits of your product, the more the better, answers the question, "Why should you buy our product?" little knowledge of their true needs is needed
• Favorable points of difference - compare yourself against the best competition, show all the favorable points of difference between you and your competitor, answers the question "Why should you buy our product over our compeititor's product?
• Resonating focus - one or two points of difference that delivers highest value to customer, you need to know your customer's main needs and main compeititor's value, answers the question "Why buy their product when ours has your most important needs in mind?"

Points of parity - you are equal to your competitors

Points of difference - you are different than your competitors

Substantiate Customer Value Propositions - use word equations to show your value

Value Case Histories - show proof of value through documented studies

Document customer value - to use for next customer, create "value calculator"

Use value proposition as a business strategy

This article was published in Havard Business Review.

"When a team is down, problems are at the top" Peter Gammons