Spring+2010+Section+09-SS+Week+6

Last Week Review
Pricing

Price Framing: • Inclusive: focus on core benefit, take extras for granted. • Itemized: focus on secondary

When you tell someone the price, you do so in a way that makes them think of the price in a positive way. For example, all-inclusive price vs. a pricing/benefit breakdown. Sometimes, when you break it down, they will focus on what they know and compare it to that known quantity to decide if it's a good value or not. Sometimes, it's not always good to break it down but can be good to itemize if you specialize in things, such as a specialty service.

Free: they’ve found a way to transfer the costs to someone else.

This week's focus: Place (or access)

Place
“The Hotelling Beach” Two food carts are on a beach. Assume that there equal spread of population up and down the beach... Question: Where will the carts end up?

{It'd be helpful to insert the slide photo here to illustrate but my laptop is being uncooperative. <-- Here you are}

In theory, they will end up in the middle, next to each other. A "clustering" effect. Idea being is that they could be afraid their competitors will have access to other ends of the beach-- maximize exposure and customer base.

The same thing would occur with a new one moving in at, say, point "D." Eventually, all three would cluster together.

Hotelling's law is an observation in economics that in many markets it is rational for producers to make their products as similar as possible… also referred to as the principle of minimum differentiation. The opposing phenomenon is product differentiation, usually considered to be a business advantage if executed properly.

How does one resolve this?

Businesses follow both product differentiation and Hotelling’s law… The example of JetBlue was given:
 * Markets itself as a revolutionary type of airline: Cheaper airfare, nicer plane, better locations.
 * Yet: as JetBlue tries to differentiate its product from its competitors, it also adopts similar flight schedules and similar service.

Recall from “Marketing Malpractice”— Disruptive Innovation Test #2 … “Does it help customers do what they are already trying to do – or does success depend on them changing their priorities?”

“Destination Shopping”
The idea is to both generate and to take advantage of spillover traffic. You "cluster" with similar stores (along the lines of a mall or shopping center with an anchor store and coordinating stores). The purpose of doing so is to get people //__to__// the stores and then, once they’re inside your store, that’s when you have the chance to differentiate yourself. Known as “co-opetition”.

Choice of Place: Where will I fit in?

“Strategy as Ecology”
Business Ecosystems
 * Loose networks that include: Suppliers, distributors, makers of related products, technology providers, etc...
 * Members share the fate of the network as a whole: symbiotic relationship


 * 1) Identify the organizations with which your future is most closely interwinded
 * 2) Assess the health of your ecosystem
 * Its ability to transform innovation into lower prices and new products
 * Return on invested capital
 * The capability to survive disruptions (example: technological change)
 * Measure: Survival rate of ecosystem members
 * Diversity within the ecosystem
 * Measure: Ability to create meaningful diversity through the creation of valuable, new functions (niches)

4 general strategies:
 * Keystone: create and share value, and capitalize on partner diversity & innovation-- much more sustainable way to go about it… most of the people around you are benefiting from you; you’re providing as much value as you extract (i.e., you’re useful to them).
 * Two part strategy
 * Create value within the ecosystem (i.e. platform)
 * Share the value with other participants (There is a delicate balance in deciding how much to hold and how much to hold)
 * Example: Ebay
 * Physical dominator: vertical / horizontal integration, or exploit the weak. (This is the old model for large corporations… the traditional GM model— try to buy or control as much as possible your suppliers).
 * Niche: high turbulence forces specialization and leveraging the assets of partners.
 * Most firms follow this strategy
 * Their core strategy is specialization and differentiation
 * Commodity: going it alone -- one product, limited need for partnerships.

=
Observation: Is Wal-Mart a "keystone" or "physical dominator"? In this case, the old addage of "beauty is in the eye of the beholder" is definitely applicable. Take for example Levis. Levis believes the requirements made by Wal-Mart to drive down costs made them more efficient. Contrast to Vlasik pickles who, unable to respond to Wal-Mart's requirements, filed for bankruptcy.======

There was a discussion about Microsoft being a keystone on its business ecosystem. However, I have a different perspective about Microsoft being a market dominator, attributed to a number of factors: Bill Gate’s vision and determination, aggressive business practices. A keystone company, would care about the overall health of their ecosystem, and provide common assets where every company of the system can build and develop its offerings. Microsoft has a big stake controlling the software environment, and there’re cases where it used that power against the growth of others, like when they integrated Internet Explore on every facet of the OS interaction, making complicated to integrate a third party browser.

Visual representation:
 * CORRECTION - in the graph above, the "Value Dominator" is the recommended strategy**, because the keystone is distributing the value to others, helping all those in the ecosystem thrive. The one below - the Physical Dominator - is the one that is not recommended - because while it may work for the main player for some period of time, it is not sustainable if the ecosystem as a whole is not benefitting from its presences. Examples cited were E-bay - a value dominator that created great value for itself, but also shared value for the buyers and sellers in the ecosystem; versus Enron, which only created value for itself and evenually led to the collapse of it ecosystem.


 * Disturbances in Ecosystems**

The Adaptive Cycle (and the idea of Adaptive Management) was developed by C.S. Holling, an ecologist and University of Florida professor known for his work in ecological economics.
 * Sustainability: adaptive cycle**

· Mirrors the business lifecycle - connectedness and vulnerability o Exploitation o Conservation - peek product lifecycle curve, everything is highly connected and reliant on each other. If one part collapses, the you go into the release. Most vulnerable business part of the cycle. If a keystone player fails, then the whole system fails. o Release - 2008 financial crises o Reorganization - business consolidation

Each cycle goes through these phases - basically an endless cycle of collapse and rebuilding:
 * Adaptive management** (AM), also known as **adaptive resource management** (ARM), is a structured, iterative process of optimal decision making in the face of uncertainty, with an aim to reducing uncertainty over time via system monitoring. In this way, decision making simultaneously maximizes one or more resource objectives and, either passively or actively, accrues information needed to improve future management. AM is often characterized as "learning by doing." READ MORE on Wikipedia: []
 * Reorganization
 * Exploritation
 * Conservation
 * Release

BOP – Most companies target consumers at the upper tiers of the economic pyramid, completely overlooking the business potential at its base. Cycle of Ignorance and Poverty- Every major civilization to date has gone through this (think of the Dark Ages after the fall of the Roman empire and the subsequent re-growth through present times). Are we experiencing the symptoms of the beginning of the decline (our Great Recession) or is this the beginning of a new curve?  Disturbances can change an entire ecosystem. Disruptive innovation are unexpected changes in the market that improve products and/or services usually by creating price competition or targeting a different segment, for example, customers who don't have a product already on the market. Such is the case of the //Zune//, introduced by Microsoft to create a disruption in the mp3 player market, most specifically, the iPod. Filling in the role of an alternate product until it later became a competitor by implementing improvements in the product.
 * Cycles with Cycles**

Hariyali Kisaan Bazaar Wide Angle "The Market Maker" The establishment of a commodities market in Ethiopia for market stabilization. []

Retail Placement

 * 1) Items need to be displayed grouped as people use them (sell complements together).
 * 2) A sensible, logical order of presentation will increase sales. (Make the primary item most prominent.)
 * 3) For each section, ask: what else is on the visitor’s mind here? Whatever it is, there should be a product.
 * 4) Don’t let your stock go stale or dated.

Natureview Farm: Case Study