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Business Strategy - Session 3: Competitive Advantage and Strategic Positioning

📋 Overview​

Key Questions:

  • How do we compete?

  • Where do we compete?

🎯 Competitive Advantage: Definition​

Competitive Advantage = A firm's ability to deliver superior value to customers or operate more efficiently than rivals

💡 Three Core Strategic Approaches​

1. Cost Leadership​

Essence: Being the industry's lowest-cost producer while maintaining acceptable quality

Examples:

CompanyStrategyKey Elements
WalmartEDLP (Everyday Low Prices)- Enormous buying power
- Logistics optimization
- Economies of scale
RyanairUltra-low-cost airline- No-frills service
- Secondary airports
- Paid add-ons
FoxconnManufacturing at scale- Economies of scale
- Labor specialization
- China/Vietnam production

Walmart Case Study:

  • Sam Walton started with one store in rural Arkansas

  • He was the only major buyer in small towns → could pressure suppliers

  • Low-cost strategy from the very beginning

  • As he expanded (2, 3 stores) - buying power increased

  • Built stores in rural areas, becoming the dominant buyer in each location

2. Differentiation​

Essence: Offering unique products/services that justify premium pricing

Examples:

CompanyUniquenessResult
AppleDesign + ecosystem + UXPremium pricing, loyalty
TeslaTechnology + sustainability + direct salesControl over customer experience
NikeInnovation + storytelling + athlete endorsementsEarly contracts with rising stars

Nike & Michael Jordan Case:

  • Jordan started with Adidas (short-term contract out of college)

  • Nike made a big bet on him early in his career

  • Result: huge part of Nike's success tied to Jordan

  • Other athletes wear his shoes → validates the strategy

  • Stock price correlation with Jordan's career almost lockstep

3. Focus Strategy​

Essence: Targeting a narrow niche with either cost leadership or differentiation

Examples:

CompanyNicheApproach
Rolls-RoyceLuxury automobiles- Limited production
- Absolute perfection
- Unique details (wood grain)
PatagoniaEnvironmentally conscious consumers- Clothing repair programs
- Take-back program
- Environmental activism

Rolls-Royce Distinctive Feature:

  • Wood grain on dashboard is unique to each car

  • They keep a duplicate grain at manufacturing plant

  • If damaged - free replacement with identical grain

  • Name has been synonymous with luxury for 8-9 decades

📊 Strategic Positioning Framework​

🎓 Key Concept: Begin with the End in Mind​

Real-World Example: Solar Fund Strategy Session

A financial advisory company wanted to start a fund to buy existing solar power plants and roll them up for investor returns.

Strategic Questions Framework:

  1. Where? - What market to focus on?

  2. Where exactly? - Developed vs. developing countries?

  3. How? - What's unique about us?

  4. What NOT to do? - Where will we NOT compete?

  5. Scale? - Large or small projects?

  6. Resources & Timeline? - What resources and duration?

  7. Competitors? - Have competitors been studied?

  8. Market Entry? - How easy for us and rivals?

  9. Risks? - What are we considering?

Key Insight: Even brilliant people with great ideas need to be pulled down from the clouds by asking fundamental strategic questions

💰 Value Creation Formula​

Value Creation Examples:​

CompanyCostPerceived ValueWhy?
Starbucks~$0.50$6"Third place", Wi-Fi, comfort, brand
Apple iPhone~$500$1200+Design, ecosystem, status
Rolex~$2000$10,000+Craftsmanship, scarcity, status

Starbucks Value Proposition:

  • $6 latte ≠ just coffee

  • You're paying "rent" for space

  • Can sit for 2 hours between meetings

  • Wi-Fi, bathroom access, comfort

  • Know what to expect (consistency across locations)

Apple & Foxconn:

  • Without Foxconn's cost leadership, Apple couldn't sell at current prices

  • Manufacturing efficiency creates economies of scale

  • Enables Apple's premium but accessible pricing strategy

⚖️ Trade-Offs: Critical Strategic Choice​

"There are no solutions, only trade-offs" - fundamental principle of strategy

Trade-offs Mean:

  • Actively choosing what to do

  • Actively continuing to do it

  • Actively saying "NO" to other opportunities

Real Example: Geographic Focus

  • Company initially worked in South America, Asia, and Africa

  • Too much spread for company size and resources

  • Decision: focus ONLY on Africa

  • Rationale: Close to Israel office, easier travel

  • Must constantly say "no" to other opportunities

  • Helps avoid wasting time "chasing every dollar down every alley"

Without Trade-offs:

  • Companies dilute their positioning

  • Increase operational complexity

  • Erode profitability

🔍 Selective Differentiation​

Concept: Differentiate in specific, targeted areas while controlling costs in others

Examples:​

CompanyDifferentiationCost Control
IKEAScandinavian design + store experienceFlat-pack, self-assembly, limited SKUs
Singapore AirlinesIn-flight service + cabin comfortStandardized long-haul fleet, efficient hub
ZaraSpeed + fashion freshnessMid-range materials, minimal advertising
XiaomiHigh-spec smartphones + clean softwareOnline-first sales, limited retail
DecathlonOwn-brand technical products + testing areasWarehouse-style stores, supply chain control

📦 Case Study: IKEA​

Key Features:​

Cost Leadership Elements:

  • Flat-pack → reduced transport/storage costs

  • Self-assembly → saves assembly costs

  • Limited assortment (best-sellers only)

  • Self-service showroom

Differentiation Elements:

  • Stylish Scandinavian design

  • Unique store experience (layouts, café)

  • Room setups and inspiration

Strategic Insight:

  • Perfect customer: newlyweds, new jobs, good income but no savings

  • Nice-looking furniture at accessible prices

  • Fun to assemble (when you don't have kids)

  • Adaptive strategy: Furniture in NJ store (serving NYC) was smaller than in Westchester store (serving houses)

  • Tailored to apartment sizes = part of strategic positioning

Trade-offs:

  • No standard delivery and assembly service

  • Limited product variety

  • Result: Global scalability and low prices

✈️ Case Study: Southwest Airlines​

Step 1: Primary Strategy - Cost Leadership​

Operational Efficiency:

  • Single aircraft type (Boeing 737) → reduced maintenance

  • Point-to-point routes → avoid expensive hub-and-spoke

  • Fast turnaround times → maximize aircraft utilization

  • Minimalistic onboard services → lower operating expenses

Step 2: Value Creation​

Customer Value:

  • Low fares = accessibility for price-sensitive travelers

  • Friendly staff = brand loyalty

  • On-time performance = reliability

Operational Value:

  • Short-haul routes

  • Maximum time in the air

  • Fewer delays

Step 3: Trade-Offs (What They DON'T Do)​

❌ No long-haul international flights

❌ No premium cabin

❌ No high-end in-flight services

❌ No assigned seats

❌ No in-flight meals

❌ Often secondary airports

Step 4: Sustainable Advantage​

✅ One of few consistently profitable U.S. airlines

✅ Strong brand association with affordability and fun

✅ Operational model difficult for full-service airlines to imitate

✅ Loyal customer base in price-sensitive segments

Selective Differentiation Elements:

  • Friendly, humorous customer service (brand personality)

  • Free checked bags (contrasts with competitors)

  • Emphasis on reliability

Strategic Clarity:

Southwest avoids complex loyalty programs, heavy business-class competition, and major alliances that complicate operations.

🏨 Examples of Strategy in Services​

Luxury Hotels: Shangri-La Singapore​

Strategic Elements:

  • Architectural experience (part of strategy)

  • Waterfalls, trees, curated sounds and smells

  • Every customer has a personal concierge

  • "Don't call anyone else but me" - for everything

  • Concierge handles: room questions, bags, tours, cabs, everything

Strategic Objective: Create a completely different experience that justifies premium pricing

Airport Hotels: Tokyo Innovation​

Business Model:

  • Hotels AFTER security, near gates

  • ~$150 for 4 hours

  • Privacy, shower, nap, or work space

  • Rapid turnover after checkout

  • 3-4 guests per 24-hour cycle = ~600/dayrevenuevs.600/day revenue vs. 150

Strategic Genius:

  • Charging luxury prices for non-luxury item

  • High turnover model

  • Serves price-insensitive business travelers with delays

  • Better alternative than airport lounges

🚗 Additional Strategic Examples​

Toyota - Reliability Strategy​

Strategic Focus: Long product life and reliability

  • Cars last 10-20 years without problems

  • Target: People who want reliability, not status

  • Example: Suburban doctor, 20-minute commute, same car for 15+ years

  • "No-brainer" if you want a car for 10+ years

  • Manufacturing strategy centered on durability

Tesla - Unique Distribution Model​

Key Differentiator:

  • No independent dealerships

  • Only Tesla stores (like Apple stores)

  • Direct sales to customers

  • Control over customer experience

  • Different from EVERY other automaker

Patagonia - Values-Based Focus​

Strategic Elements:

  • Target: Environmentally conscious consumers

  • Clothing repair programs

  • Take-back and refurbish program

  • Environmental activism

  • Focus on nature, hiking, camping lifestyle

Market Expansion:

  • Started with outdoor enthusiasts

  • Expanded to people who want "the look"

  • Many customers in NYC don't actually camp

  • Classic example of focused strategy expanding naturally

💼 Strategy in Professional Services​

Pricing Strategy for Services​

Fundamental Questions:

  1. Who are your customers?

    • Individuals vs. Institutions

    • Apple & Microsoft vs. doctors vs. stay-at-home parents

  2. Who are your competitors?

    • What are they charging?

  3. What does the industry look like?

    • High-margin vs. low-margin consulting?

  4. What is your internal expertise?

    • What makes you unique?

You can't forget the basics that we always start with - even in services

Example: Law Professor Career Strategy​

Strategic Choice:

  • Could be partners in law firms ($$$)

  • Choose: professorship + side practice

  • "Of counsel" for law firms

  • Clients = law firms (no client acquisition needed)

  • Less money, but more freedom and work-life balance

Example: McKinsey → Independent Consultant Path​

Strategic Process:

  1. Segment choice (e.g., biotech startups from seed to Series A)

  2. Know your market pricing

  3. Understand your competitive positioning

  4. Set pricing strategy accordingly

🎯 Strategy Beyond Business​

Universities: Williams College & Amherst Example​

Strategic Model:

  • Very small (1,500-1,700 per class)

  • Elite, highly selective

  • Founded in early 1800s

Competitive Advantage:

  • Mid-career earnings likely higher than Harvard/Yale graduates

  • Alumni network tighter than Ivy League schools

  • Strategy: Lifelong family membership

How It Works:

  • Training from day one: "You're part of the family for life"

  • If Williams alum can help, they WILL pick up the phone

  • You get access to people you'd never reach otherwise

  • Very high percentage of alumni giving

  • Strong endowments relative to size

Fraternity/Sorority Strategy​

What They're Selling:

  • College experience

  • Alumni network

  • Guarantee: Someone will always take your call

Real Example:

  • Calling CEO of Smith Barney as fraternity brother

  • Secretary expected to be at lunch, CEO answered

  • Immediate meeting next day at 11am

  • Strategy: Network access regardless of position in hierarchy

Strategic Value:

  • Join organization where everyone takes your call

  • Someone will at least listen to you

  • Creates lifetime professional network

📈 Netflix: Master of Strategic Transformation​

Strategic Brilliance:

Phase 1: Mail Delivery Revolution

  • Alternative to Blockbuster stores

  • Deliver to customer vs. customer coming to store

  • Genius at the time: convenience

Phase 2: Streaming (The Bold Move)

  • Nobody knew what streaming was

  • Kept mail business AND launched streaming

  • Willingly cannibalized own business

  • Very short period: could order VHS, CD, AND streaming

  • Way ahead of everyone else

  • Delivery business went to zero as streaming grew

Phase 3: Content Production

  • Started ~10 years ago

  • Now earn more from production than other business

  • Huge hits boosting quarterly earnings

Why Genius:

  • Saw technological changes coming

  • Weren't afraid to cannibalize existing business

  • Maintained both models during transition

  • First-mover advantage

  • Competitors disappeared ("in dustbin of history along with their investors")

Classic Case Study: Company that transformed strategy multiple times successfully, always ahead of market changes

🔄 Understanding Market Segmentation​

Supermarket Comparison: Strategy in Retail​

Dallas Supermarket (Broad Strategy):

  • Texas-sized (like an airport)

  • Offers everything: fruit from Israel, French cheeses, etc.

  • Wide variety strategy

  • Serves broad market

Zabar's NYC (Focus Strategy):

  • Specialty shopping experience

  • Focus: luxury, high-price items

  • Specialty: fish, caviar, lox (smoked salmon)

  • Large for Manhattan but focused selection

  • Always packed (any time of day/night)

  • Makes enormous money from narrow focus

Zabar's Founder Interviews:

  • Constantly articulated the strategy

  • "This is what we're looking for"

  • "This is my customer"

  • "This is what we do"

  • "No, I don't do that. That's not what we do"

  • "We don't compete that way"

  • Clear about NOT looking for "average Joe"

  • Strategy communicated so consistently it became conversational

🌏 Geographic and Cultural Strategy​

Comparison: Singapore Airlines vs. Southwest​

ElementSingapore AirlinesSouthwest Airlines
StrategyPremium experienceLow-cost efficiency
InvestmentCabin comfort, serviceOperational efficiency
TargetElite travelersPrice-sensitive travelers
ExperienceBest airline globally (25 years)Fun, friendly, basic

Singapore Airlines:

  • Not Southwest Airlines

  • Elite experience by design

  • Heavy investment in planes, cabin design

  • Extremely good service

  • Very distinctive design

  • Among best airlines globally for 25 years

  • Competition now from Gulf airlines (Dubai hub advantage)

🔑 Key Takeaways & Strategic Principles​

Strategic Questions Checklist​

When discussing any new initiative, ask:

  1. ✅ Where will we compete? (Geography, market segment)

  2. ✅ How will we compete? (What's unique about us?)

  3. ✅ What NOT to do? (Trade-offs)

  4. ✅ Who are our customers?

  5. ✅ Who are our competitors?

  6. ✅ What resources do we have?

  7. ✅ What is the scale? (Big or small projects)

  8. ✅ What is the timeline/duration?

  9. ✅ What are the risks?

  10. ✅ How easy is market entry? (For us and competitors)

The Simplest Questions​

"The problem is always the simplest question that trips you up. Prepare for the simplest questions."

Why This Matters:

  • In meetings with bosses, clients, investors

  • Simple questions reveal strategic clarity (or lack thereof)

  • Shows whether you truly understand your strategy

Strategy is Universal​

Strategy applies to:

  • ✅ Corporations

  • ✅ Universities

  • ✅ Charities

  • ✅ Professional sports teams (NFL is huge business)

  • ✅ Fraternities/Sororities

  • ✅ Individual career planning

  • ✅ Personal life decisions

Example: NFL as Business

  • Study showed: out of top 100 most-watched TV programs in U.S.

  • 75 were football games

  • In country of 330 million people

  • Massive business with clear strategy

  • "Who's on my team?" = strategic question

💡 Fundamental Strategic Principles​

1. Trade-Offs Create Defensible Advantages​

Without trade-offs:

  • Diluted positioning

  • Increased complexity

  • Eroded profitability

With clear trade-offs:

  • Strategic clarity

  • Easier to say "no"

  • Don't waste time chasing every opportunity

  • Focus on what you're supposed to do

2. Value Creation Formula​

Must deliver:

Perceived Value > Cost of Production

Even for seemingly simple products:

  • Starbucks: Selling space and experience, not just coffee

  • Rolex: Selling status and craftsmanship, not just timekeeping

  • Apple: Selling ecosystem and design, not just hardware

3. Operational Effectiveness ≠ Strategy​

Operational Effectiveness:

  • Performing similar activities better than rivals

  • Important but not sufficient

Strategy:

  • Performing different activities than rivals

  • Or performing similar activities in different ways

  • Creating unique value

4. Begin with the End in Mind​

Define Long-Term Goals Before Planning Actions

Examples:

  • Tesla: Sustainable transportation goal drives all decisions

  • IKEA: Affordable, stylish furniture for mass market

  • Southwest: Low-cost, reliable, point-to-point travel

5. Competitive Advantage Sustainability​

How to Sustain Advantage:

  • Choose activities difficult to imitate

  • Create configuration of activities that reinforce each other

  • Make trade-offs that competitors can't easily copy

  • Build barriers through network effects, scale, or expertise

Southwest Example:

  • Full-service airlines can't easily copy model

  • Would require abandoning premium services

  • Would conflict with existing hub-and-spoke systems

  • Configuration makes imitation very costly

🎯 Strategic Positioning Summary​

Strategy TypeGoalExampleKey to Success
Cost LeadershipLowest cost in industryWalmart, RyanairScale, efficiency, supply chain
DifferentiationUnique value justifying premiumApple, RolexInnovation, brand, quality
Cost FocusLow cost in nicheAldiLimited SKUs, private labels
Differentiation FocusUnique value in nichePatagoniaValues alignment, community

Integration Possibilities​

Some companies successfully integrate strategies:

  • IKEA: Cost leadership + design differentiation

  • Southwest: Cost leadership + service differentiation (friendliness, reliability)

  • Zara: Fast fashion differentiation + cost control

Key: Integration works when activities reinforce each other, not when they conflict

📊 How Strategy Shows Up in Daily Decisions​

Every Decision Relates to Strategy​

Product Decisions:

  • What features to include/exclude?

  • What quality level?

  • What price point?

Customer Decisions:

  • Which segments to serve?

  • Which segments to avoid?

  • How to communicate value?

Operational Decisions:

  • Make vs. buy?

  • Which capabilities to build internally?

  • Where to locate operations?

Investment Decisions:

  • What to invest in?

  • What NOT to invest in?

  • Resource allocation priorities?

💭 Critical Thinking Questions​

  1. Can a company successfully pursue both cost leadership AND differentiation?

    • When does it work? (IKEA, Southwest)

    • When does it fail?

  2. When should a company change its strategy?

    • Netflix example: external technology changes

    • What triggers strategic transformation?

  3. How do trade-offs create defensible competitive advantages?

    • Why can't competitors easily copy?

    • What makes positioning sustainable?

  4. Why is saying "NO" so important in strategy?

    • Focus benefits

    • Resource allocation

    • Avoiding complexity

  5. What happens when companies try to be "everything to everyone"?

    • Diluted positioning

    • Operational complexity

    • Profit erosion

🎬 Final Insights​

Strategic Thinking is About:​

  • 🔍 Seeing Patterns - Recognize strategic elements everywhere

  • 🎯 Making Conscious Choices - Deliberate decision-making

  • ⚖️ Accepting Trade-Offs - Understanding you can't do everything

  • 🚫 Actively Saying NO - Maintaining focus

  • 📊 Understanding Your Market - Know who you serve

  • 💡 Creating Unique Value - Differentiate or lead on cost

Looking at Things Differently​

"If the only thing I accomplish is getting you to look at things differently, then I was successful."

Apply Strategic Thinking To:

  • Business models you encounter

  • Companies you read about

  • Career decisions you make

  • Organizations you join

  • Problems you solve

Remember:

  • There are no perfect solutions, only trade-offs

  • The better you understand strategy fundamentals

  • The quicker you can analyze situations

  • The better decisions you'll make

📚 Key Terminology Review​

Competitive Advantage: Ability to deliver superior value or operate more efficiently than rivals

Cost Leadership: Being the lowest-cost producer while maintaining acceptable quality

Differentiation: Offering unique products/services justifying premium prices

Focus Strategy: Targeting narrow niche with cost or differentiation approach

Trade-Offs: Conscious choices about what to do and what NOT to do

Value Creation: Delivering perceived value greater than cost of production

Strategic Positioning: How a firm competes in a sustainable, hard-to-imitate way

Operational Effectiveness: Performing similar activities better than rivals (necessary but insufficient)

Selective Differentiation: Differentiating in specific areas while controlling costs in others

Perceived Value: Customer's subjective assessment of worth (can exceed actual cost significantly)

End of Session 3 Notes