Lecture 3 - Managing Competition

Question 1

Define a complement.

Answer 1

A product that increases the value of another. For example, coffee pods can increase the value of a coffee machine.

Question 2

How is the value of a complement distributed?

Answer 2

It is shared between producers of complementary products.
Profit accrues to the supplier with the stronger market position (monopolisation, differentiation and short supply).

Question 3

What tends to happen when there is a change in a business ecosystem?

Answer 3

Value tends to migrate between firms and groups of firms, e.g. becoming a guardian of quality or irreplaceable.

Question 4

What is an example of a change in a business ecosystem?

Answer 4

A change in regulation outlawing previous materials/techniques

Question 5

What are network effects?

Answer 5

When one customer of a product or service has a positive effect on the value of that product for other customers.

Question 6

What product completely embodies the idea of networking effects? Why?

Answer 6

Social medias - more users make a better experience for others which then entices more users and so on and so forth. Uber is another example of the same idea.

Question 7

What tends to happen in extreme scale economy or network effect markets?

Answer 7

It ends up being a kind of winner-takes-all outcome where few companies control the majority of the market share.

Question 8

What is the purpose of mapping out a business model?

Answer 8

To outline the core logic behind why and how one is creating value for the customer.

Question 9

What aspects/factors/features relate/are similar between game theory and business?

Answer 9

In business we also have elements of:
Competition and cooperation (when is one more useful than the other?)
Deterrence (changing the payoffs of the game to deter the competitor from certain actions)
Commitment (can take the shape of irrevocable deployment of assets that gives credibility to threats)
Signalling (communication to influence a competitor’s decision)

Question 10

What is a business ecosystem?

Answer 10

Interdependent firms using common standards and collectively providing goods and services to their customers.

Question 11

What are the 3 elements to a business model?

Answer 11

Value configuration (how do you do that?), value creation (what are you making and why is it useful?) and value capture (how are you going to capitalise?).

Question 12

What factors should be considered in a competitor analysis?

Answer 12

Objectives of the competitor
Their strategy
The assumptions they have made about themselves and the industry
Their resources and capabilities

Question 13

Give one reason why co-operating could be useful.

Answer 13

Gives more scale to the companies when working together. If there is a much bigger competitor in the same market then gives more leeway to compete with them.

Question 14

What are 4 examples of ways a firm can influence value migrations within a business ecosystem?

Answer 14

• Becoming a guardian of quality
• Becoming irreplaceable
• Exploiting changing customer needs
• Reconfiguring the value chain

Question 15

What is a platform business model?

Answer 15

One that connects buyers and sellers

Question 16

What two predictions/answers to questions are key outcomes of competitor analysis?

Answer 16

• What strategy changes will the competitor initiate?
• How will the competitor respond to our strategic initiatives?

Question 17

What is segmentation and what is its link to managing competition?

Answer 17

You are segmenting the market.
If you break down what segments there are in the market and who is in each segment, then you can figure out:
a) What customers you want to target based on attractiveness
b) Who is already in that area
c) If there is any similarity in the KSFs in each segment
d) Whether there are benefits to broad vs narrow scope