Fall+2008+Section+07-PS+Week+4

= Class Discussion For Week 4=

Please expand upon each of these topics and if you would like to pose a topic for discussion please do so in RED. If you would like to put your name at the end of your post to let others know who posted the idea please do so, if not that is ok. = • Rosewood Hotels and Resorts  =   We didn't get a chance to discuss Rosewood in class, but basically, I thought that using the NPV (Thank you Manohar) was the best way to determine if this was the way to move forward. I said to do it with the following assumptions: a corporate branding strategy doesn't effect their customer base. -Jilian

With respect to Rosewood. I found this to be an interesting case. However, I strongly feel that "going corporate" was the wrong direction for them. Of course, Rosewood is no Residence Inn, but I feel that the strong branding Rosewood may erode the exact "luxury" brand they are trying to maintain (almost makes them "cheapy").

The major issue with regards to the Rosewood case is whether adopting a corporate wide branding strategy would help the company to increase revenue, increase cash flow, and increase their overall profit. With respect to the above, I disagree 100%. I would argue, and believe that brands such as The Four Seasons, and The Marriott would also disagree that having a corporate brand somehow makes them "cheapy". Adopting the corporate branding strategy increases the average number of visits per year, per guest from 1.2 to 1.3, which raises the number of repeat guests up to 26,538 (1-(1/1.3))*115,000, and increases the margin multiple from $296 to $335.30. By adopting the branding strategy, Rosewood increases the NPV of CLV from $660.25 to $741.79. Rosewood also increases firm value based on customer equity from roughly $76M up to a bit of $85M, thus increasing cash flow, and the bottom line. Rosewood should (and ultimately does) absolutely adopt the corporate branding strategy in order to maximize customer value. They will still be seen as a luxury brand. -Dave = = = • Conjoint Analysis - Flight Choice = Conjoint analysis or trade-off analysis matches things you can do with what the customer wants. Instead of just asking "What do you want?" you ask customers to rank their preferences. According to Wikipedia, these are some of the advantages and disadvantages: Advantages: Disadvantages: >
 * estimates psychological trade offs that consumers make when evaluating several attributes together
 * measures preferences at the individual level
 * uncovers real or hidden drivers which may not be apparent to the respondent themselves
 * realistic choice or shopping task
 * able to use physical objects
 * if appropriately designed, the ability to model interactions between attributes can be used to deve__lop [|needs based segmentation] __
 * designing conjoint studies can be complex
 * with too many options, respondents resort to simplification strategies
 * difficult to use for product positioning research because there is no procedure for converting perceptions about actual features to perceptions about a reduced set of underlying features
 * **respondents are unable to articulate attitudes toward new categories (I think this is critical to consider with any type of survey...allowing for the complete voice of the customer to come through.)**
 * poorly designed studies may over-value emotional/preference variables and undervalue concrete variables
 * does not take into account the number items per purchase so it can give a poor reading of market share (Stephanie)

= • Disruptive Innovation - Guy Kawasaki - "Jumping the curve" = If you have 56 minutes great presentation [|Art of Innovation] Troy

"Curve Jumping", it almost sounds like something teenagers with skateboards would do (and perhaps it is). Personally, I completely agree with Kawasaki-san's model. Successful firms seem to become too entrenched in their own achievements, thus become lethargic and apposed to change. As such, rarely are dramatic (and disruptive) innovations sprung from traditional molds. I think of my own company for example. We are one of the largest firms in our industry, yet it is so very difficult for me to get new models and systems in place that I feel would revolutionize our business environment......

I would slightly disagree; I think more modern companies like Google will be able to see that new curve coming up, and if they have the capability they will move into it. Or what I really think will happen is they would just come up with a whole new company to meet the new needs of the customers and the old company will eventually die out. This way they will be able to ride the current curve for as long as it is profitable, while establishing a foothold in the new curve.

Below is a visual aid depicting Mr. Kawasaki's Ice curve jumping approach

[|Embedded Innovation - Strategic Management Incubators for Knowledge Hegemony] The article from the [|South African Journal of Industrial Engineering] exploring how curve jumping should be part of an organizations global competitiveness is worth reading. "The companies that succeed here are the ones that develop and implement a sector strategy, that have detailed knowledge of the strengths and weaknesses of the firm and inter-firm institutions within that sector. They typically understand the challenges and opportunities that the participants face, coupled with a collective vision that embraces these problems"

=  • Best chapters 7 and 1 1 = = • Moore’s “Darwin and the Demon” = = = Moore’s world requires innovation, but he describes a timeline of different types. These types of innovation should be implemented during different periods in a product’s life cycle in order to capitalize on that period’s strengths. Moore believes that companies must adapt to the life cycle to sustain their returns.  <span style="FONT-SIZE: 80%; FONT-FAMILY: 'Times New Roman',Times,serif"> = • <span style="FONT-FAMILY: 'Times New Roman',Times,serif">Market Development Model   = = • Starbucks = <span style="COLOR: rgb(255,0,32)">As we reviewed the Starbucks case we discussed how coffee sales have reached the point on the product cycle as a commodity. From this point we discussed how Starbucks could be a Disruptive Innovator (Creating a market out of nowhere driving new wealth) by “Curve Jumping” (illustrated by Guy Kawasaki) As we tried conceptualize what it would look like for Starbucks to “Curve Jump” we looked at the example Guy Kawasaki gave us with the Ice Cutter to Ice Makers to the Refrigerator. <span style="COLOR: rgb(255,0,32)">Using this concept we can say an Ice Cutter is to an Ice maker as Coffee is to? -- Troy //<span style="COLOR: rgb(246,44,40)">Guy makes the point, however that the ice cutter doesn't become the Ice Maker who also doesn't mke refrigerators. One reason is at the low end of the curve jump it is so low tech it is easily ignored. The Ice Maker initially isn't as efficient as the Ice Cutter. So whatever innovation comes by, an initial cost benefit analysis on the part of Starbucks would clearly ignore it. And I reiterate MY statement, how much innovation can come out of coffee? Clearly, the coffee curve jump would be coming from me! -Jilian //

<span style="COLOR: rgb(234,19,16)">What if Starbucks were to do nothing, but keep doing what they have been doing? "Starbucks" may be a fad, but coffee is not. Coffee drinkers will continue to be coffee drinkers, and many Starbuck-drinkers will remain as such. I'm sure Slurpee Drinks from 7-11 were popular at one time, and 7-11 has managed to stay around and keep the convenience-store commodity alive. I do not believe that Starbucks has the resources, capacity, or even the desire to make the curve jump. -Stephanie Does Starbucks need to do anything within the retail coffee market? They operate 15,000+/- stores in over 40 countries around the world. Peet's has 200+/- locations in the US. Has Starbucks saturated the retail coffee market already? I don't see Starbucks having the same level of growth that it has had over the past 20 years going forward with just coffee. Innovation may allow Starbucks to grow, but I don't think the company will lose a significant share of the current retail coffee market if they take Stephanie's suggestion and do 'nothing'. <span style="COLOR: rgb(255,0,0)">

Below is an interesting article on coffee fair trade from 2001, which is a little before the research for our Starbucks case was performed. Consumers rarely hear margin concerns for producers of goods, especially in the food industries. More attention is focused on the company that brings food to market. Starbucks does carry a fair trade certified line. Perhaps they could bring more attention and product lines to this cause. Would consumers reward companies who participate in fair trade? Would they pay a price premium for fair trade products? Fair Trade 2001 [|article]

People often DO pay premium prices for fair trade products, thanks to companies promoting their fair trade products without really explainined what it means. Just as many consumers look for organic products because of cultural influences, fair trade labels may create a higher selling price based on status alone. Fair trade coffee holds growers to specific operational standards, and ensures that buyers pay an appropriate price, but fair trade regualtions for coffee do not include any quality standards for the product purchased. Bringing attention to a fair trade product that is the same quality (possibly worse) may not get pass the savy Starbucks consumer. Starbucks may have the goal of world domination through coffee, but getting there may not require a 'curve jump,' but just better strategic growth management.

Two interesting links are Starbucks finanical reports and actions taken in 2008 and a consumer review site: [|Starbucks Financials] //Recent Company Actions// //-- Starbucks announced on July 1, 2008, the decision to close approximately 600 company-operated stores in the U.S. as a result of the company's rigorous evaluation of the U.S. company-operated store portfolio.// //-- As part of its multi-faceted plan to transform the company, on July 29, 2008, Starbucks announced the reduction of approximately 1,000 open and filled positions within its leadership structure and its non-store organization.// //-- On July 29, 2008, Starbucks announced it will close 61 stores in Australia by August 3, 2008, while 23 stores will remain open in the market. After evaluating several alternatives to improve its business in Australia, Starbucks determined that this decision, which is in-line with the company's strategy to focus on profitable growth, operational efficiencies and an enhanced experience for customers and partners globally, was the appropriate course of action.//

[|Starbucks Reviews] Like most review sites, the majority of consumers who take the time to write a review on a product either love it or hate it. According to this site, the majority of the reviews feel Starbucks offers a "great" product. It looks as though consumer preference according to this site hasn't directly translated into profitable business. Taking these actions will hopefully help Starbucks head in the right direction to operate more efficiently.

ASSUMPTIONS Starbucks is assuming that:
 * By increasing customer loyalty they will increase revenue (or more than the additional 5.5% or $40million that is required for additional staff hours). The case mentioned that there is a correlation between the two, but does not give specifics of strength.
 * Its customers do not often visit other coffee shops and increasing loyalty means increasing coffee consumption and does not necessarily consider increasing market share.
 * Increasing staff levels will decrease wait times.
 * Decreasing wait times will increase customer satisfaction and ultimately customer loyalty.
 * Most drinks take less than its target three minutes to prepare.
 * Wait times and satisfaction are independent from other factors and customer opinions (i.e. Starbucks only wants my money so it doesn't matter how fast they are, I'm not going to go there. I'll go to StumpTown instead).
 * Others?

= • <span style="FONT-FAMILY: 'Times New Roman',Times,serif">RKS Guitars = = = RKS has a great business model. It is difficult to force innovation, however RKS (like Google) seems to be a perfect environment for innovative ideas. From my perspective this comes from a few variables. First, leadership at RKS (and Google) is not afraid to take risks and invest in "new ideas". Second, both companies have employees who think out of the box (interestingly many of the engineers on the RKS guitar project had little musical experience and so were not hampered by known "laws" that govern guitar design). Finally, both RKS and Google encourage employees to take a certain amount of "on-clock" time to work on "auxiliary" projects..........this I feel allows for innovation and fosters new ideas!

Obviously the RKS model paid off in the end. I visited the RKS Guitar website and was fascinated to discover that the product line-up has expanded drastically from what we covered in the case (see link below). Additionally, I prawled the internet and read multiple reviews for RKS guitar products. I was amazed about the amount of positive feedback that has been posted. Finally, and perhaps most interesting, I found an article that covers RKS, included are pictures of workshop and Ravi Sawhney (again, link below). In summary, according to my research RKS is still going strong! http://www.rksguitars.com/main.php http://www.modernguitars.com/archives/001454.html

RKS jumped the S curve because of their staff's composition. These designers were not musicians and did not have any preconceived notions regarding guitar shapes or a method of making music. This is an interesting and important point. Companies are often stuck with modes of operation or a certain perspective for product lines. This is often due to "the way things have always been." While there is no need to reinvent the wheel, resigning one's staff to a complete blank slate can result in the greatest breakthroughs. Why have we always had a closed body for guitars? Why have the tuning mechanisms always been on the top of the guitar? Coming at the guitar from a completely naive point of view proved successful for RKS, and this method of product development has the capability of being beneficial for other products as well.