What is the customer value proposition that pandora offers

Management Strategy, Planning And Implementation

CHAPTER 1 Strategy, Business Models, and Competitive Advantage

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LEARNING OBJECTIVES

Understand what is meant by a company's strategy.

Explain why a company needs a creative, distinctive strategy that sets it apart from rivals.

Explain why it is important for a company to have a viable business model that outlines the company’s customer value proposition and its profit formula.

Identify the five most dependable strategic approaches for setting a company apart from rivals and winning a sustainable competitive advantage.

Understand that a company’s strategy tends to evolve over time because of changing circumstances and ongoing management efforts to improve the company’s strategy.

Identify the three tests of a winning strategy.

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What Is Strategy?

Strategy involves choosing how to compete.

How to create products or services that attract and please customers.

How to position the company in its industry.

How to develop and deploy resources to build valuable competitive capabilities.

How each functional piece of the business (R&D, supply chain activities, production, sales and marketing, distribution, finance, and human resources) will be operated.

How to achieve the firm’s performance targets

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CORE CONCEPT: Strategy

A company’s strategy is the set of actions that its managers take to outperform the company's competitors and achieve superior profitability.

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The Importance of a Distinctive Strategy and Competitive Approach

A Company’s Strategy

Distinctive set of creative strategic choices

Manager’s decision

Apart from rivals

Competitive edge

Fit its own particular situation for competitive advantage

Compete differently

Doing what rival firms do not do or, better yet, what rival firms cannot do

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The Relationship Between a Company's Strategy and Business Model

Business Model

Management’s produces a blueprint for delivering a valuable product or service to customers that will yield an attractive profit.

Elements of the Business Model

The customer value proposition defines how the firm will satisfy buyer wants and needs at a price buyers will consider a good value.

The profit formula describes its approach to determining a cost structure that allows for acceptable profits given the pricing tied to its customer value proposition.

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CORE CONCEPT: Business Model

A company’s business model sets forth how its strategy and operating approaches will create value for customers, while at the same time generate ample revenues to cover costs and realize a profit.

The two elements of a company’s business model are its (1) customer value proposition and (2) its profit formula.

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CONCEPTS and CONNECTIONS 1.1

Customer value proposition or Profit formula Pandora Sirius XM Over-the-Air Radio Broadcasters
Customer value proposition Offers free-of-charge Internet radio, smartphone users can create playlists of music and comedy stations. Programming has brief ads; no ads for subscribers. Monthly subscription users get satellite-based music, news, sports, weather, traffic reports, and talk radio. Streaming is interrupted by brief, occasional ads. Provides free-of-charge music, news, traffic reports, weather, and talk radio. Ads frequently interrupt programming.
Profit formula Revenues come from ads targeted to different audiences and advertising-free subscriptions. Revenues come from monthly subscription fees, sales of satellite radio equipment, and advertising revenues. Revenues come from advertising sales to national and local businesses.
Profit formula Cost structure is comprised of the fixed and variable costs of developing user software, operating data centers supporting streaming network, royalties, and marketing. Cost structure is comprised of fixed costs of a satellite-based music and streaming service. Fixed and variable costs relate to programming and content royalties, marketing, and support. Cost structure is comprised of fixed and variable costs of terrestrial operations for news and advertising sales operations, affiliate fees, royalties, commercial production and support activities.
Profit formula Profit margin depends on advertising and subscription revenues to cover costs and provide profits. Profit margin depends on attracting a sufficiently large number of subscribers to cover costs and provide profits. Profit margin depends on generating sufficient advertising revenues to cover costs and provide attractive profits.
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Strategy and the Quest for Sustainable Competitive Advantage

Strategic Approaches to a Sustainable Competitive Advantage

A low-cost provider strategy achieves a cost-based advantage over rivals.

A broad differentiation strategy differentiates its products or services from rivals’ in ways that appeal to a broad spectrum of buyers.

A focused low-cost strategy outcompetes rivals in a narrow/niche market by achieving lower costs and offering its products at lower prices.

A focused differentiation strategy outcompetes rivals in a narrow/niche market by offering buyers customized and exclusive attributes.

A best-cost provider strategy gives customers more value by satisfying their expectations on key attributes, while beating their price expectations.

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CORE CONCEPT: Sustainable Competitive Advantage

A company achieves sustainable competitive advantage when an attractively large number of buyers develop a durable preference for its products or services over the offerings of competitors, despite the efforts of competitors to overcome or erode is advantage.

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CONCEPTS and CONNECTIONS 1.2

STARBUCKS’ STRATEGY IN THE SPECIALTY COFFEE MARKET

Train “baristas” to serve a variety of specialty coffee drinks to satisfy individual customer preferences in a customized way.

Emphasize store ambience and elevating customer experience at its stores.

Purchase and roast only top-quality coffee beans.

Commit to corporate responsibility.

Expand the number of its stores domestically and internationally.

Broaden and periodically refresh in-store product offerings.

Fully exploit the growing power of the Starbucks name and brand image with out-of-store sales.

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The Importance of Capabilities in Building and Sustaining Competitive Advantage

Competitively Valuable Capabilities

Cannot be easily bested, matched, or imitated by rivals

Represent superior know-how and specialized abilities that require time to fully develop and perfect

Result in a sustainable competitive advantage over rivals

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Why Strategy Evolves over Time

A strategy changes over time due to:

Unexpected moves of competitors

Shifting buyer needs and preferences

Emerging market opportunities

Managers’ new ideas for improving the strategy

Mounting evidence strategy is not working well

A strategy evolves:

Incremental (minor) adjustments or dramatic (major) shifts

Proactively and adaptively

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FIGURE 1.1 A Company’s Strategy Is a Blend of Planned Initiatives and Unplanned Reactive Adjustments

Jump to Appendix 1 for long image description

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CORE CONCEPT: Realized Strategy

A company’s realized strategy is a combination of deliberate planned elements and unplanned emergent elements. Some components of a company’s deliberate strategy will fail in the marketplace and become abandoned strategy elements.

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The Three Tests of a Winning Strategy

Strategic Fit

How well does the strategy fit the company’s situation?

Competitive Advantage

Is the strategy helping the company achieve a sustainable competitive advantage?

Performance

Is the strategy producing good company performance?

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Why Crafting and Executing Strategy Are Important Tasks

Good strategy and good strategy execution are the most telling indicators of good management.

A better-conceived, competently executed strategy makes it more likely that a firm will be a standout performer in the marketplace.

How well a firm performs directly reflects the caliber of its strategy and the proficiency of its execution.

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The Road Ahead

Strategy is about asking and answering a most important question.

What must managers do, and do well, to make a company a winner in the marketplace?

Doing a good job of managing inherently requires good strategic thinking and good management of the strategy-making, strategy-executing process.

Best wishes for success in the class!!

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Appendices

Long descriptions of images

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Appendix 1: A Company’s Strategy Is a Blend of Planned Initiatives and Unplanned Reactive Adjustments

The illustration shows how a company’s current realized business strategy is the result of deliberate strategy elements (planned new initiatives plus ongoing strategies continued from prior periods) and emergent strategy elements (unplanned reactive responses to changing circumstances by management).

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