by Cole Augustine, Cynthia Austin, Bradley Carson, and Jennifer Long

Redbox has seen a meteoric rise to the top of the movie rental business, despite their focus on a dying form of media. As the company’s built in expiration date draws closer, Redbox must ask itself, “What Now?” This article will provide an overview of how Redbox got to the top, a preview into the future of the video rental industry, and suggestions for how Redbox can stay relevant in a changing industry.

In the midst of huge losses amongst video rental companies such as Blockbuster and Hollywood Video, Redbox emerged as an innovator by targeting a low price strategy and partnering with other companies known for value to increase volume. Originally a subsidiary of McDonald’s, Redbox entered the market with $1 DVD rental kiosks in many high traffic McDonald’s locations. The Redbox $1 DVD rental price point aligned well to the low income McDonald’s target market, and paying per DVD rental (transaction-based pricing) reinforced the low priced model, translating consumer spending directly to consumption (rather than a subscription-based pricing model where the consumer pays regardless of consumption). Furthermore, the initial rental price of $1 implied value; the consumer perceived the product was low priced regardless of whether they were charged more due to late fees. By 2005, with more than 1,200 Redbox machines, McDonald’s entered into an agreement with new investor Coinstar and subsequently Redbox was split from McDonald’s. Two years later, Redbox had more than 6,100 locations and had patented its well-known “rent anywhere” system. In 2009, McDonald’s announced that it would sell its remaining stake in Redbox to Coinstar. Coinstar extended partnerships to many large chains that share similar low price strategies (including Wal-Mart, Walgreens, and 7-Eleven), increasing Redbox locations to over 28,000 kiosks in the United States, and expanded the product offering to include DVDs, Blu-Ray discs, and video games for a number of consoles (Redbox, 2011).

Redbox enjoyed significant growth due to their low cost strategy focusing on partnerships to drive volume. Superficially, one could argue Redbox’s growth is consistent enough to forecast the same in the near term; in reality the long-term future for the company could be bleak. In 2010, consumer spending on packaged physical media declined to $3.9 billion, down a whopping 7.1% from 2009, a trend that is expected to be repeated in the coming years (IGN). Although the DVD is predicted to be the primary media format through 2014/2015, it is unlikely that it will remain so past then (Tribbey). A study commissioned by Redbox predicted DVD rentals would remain strong for another ten years (Cluckey), therefore Redbox must create a long term, sustainable strategy with this in mind.

Physical Media Trend.
Physical media, a term used to describe products such as CDs, DVDs, and Blu-Ray discs that are used to store and access music, video, or information, is a format believed by many to be at the end of its lifecycle. In recent years, readily available high-speed Internet and the increasing availability of digital movie and music content have been touted as the reasons for sharp declines in the sales of CDs, DVDs, and Blu-Ray discs in favor of streaming options. The market is shifting from physical media to digital transmission, tightening the DVD rental market. “Physical discs are the dominant source of revenue for the industry but continue to lose ground, posting a 16% decline in rental and sell-through revenues over the two-year period” (Movie Consumption at Home). Beginning in 2008, the US economy fell into a recession, this impacted the sales of physical media for 2009. From 2009 to 2010, Blockbuster lost 20% in revenue while Netflix gained almost 30% (Plunkett), which would indicate a trend away from physical rental. However, Redbox’s unique position in the market encouraged revenue growth, up 50% in 2010 over 2009 and another 32.8% through 2011Q3 (Coinstar Update).

Intellectual property, protected under U.S. law, requires proper licensing to download movies for distribution, which gives movie studios substantial supplier power. Licensing is the highest barrier for entry, as the cost of licensing a media catalog from a major studio is expected to increase to as much as $50-100 Million per year by 2012. As an example, Netflix’s annual licensing costs are predicted to increase from around $180 Million in 2010 to nearly $2 Billion in 2012 (Pepitone). Consumers with a digital media mindset place pressure on the supplier power of movie studios as demand for physical ownership declines. “As consumers move from high-margin purchases to low-margin rentals, Morgan Stanley estimated in March that studios’ annual profit per household would tumble from $135 in 2005 to just $89 by 2015” (Edgecliffe-Johnson). However, rather than becoming more open and flexible to new partnerships to offset declines, studios themselves are becoming competitors as they attempt to redefine the shift away from the “nation of renters” mindset providing consumers with both digital rights (using cloud-based models like UltraViolet) and physical rights with each DVD purchase (Bradshaw).

Video on Demand (VOD).
Redbox’s competitors for streaming VOD content include Netflix, Amazon Prime, Hulu/Hulu Plus, HBO GO, Comcast Xfinity, and DishOnline. Netflix reported that 75% of new subscribers in the second quarter 2011 were comprised of the streaming only option (Netflix). The trend in favor of streaming content continued after Netflix announced the split and subsequent rejoining of their physical and streaming business resulting with only 7% choosing the physical DVD. Netflix indicated in investor updates that they “are directing savings generated from declining DVD demand into additional streaming content and marketing” (Netflix). In an effort to expand their product offering and minimize their costs, Netflix also “increased its instant streaming content library through deals with ABC, Nickelodeon, Disney, Twentieth Century Fox and others” (Plunkett Netflix). “Our estimate is that by end of Q3 (2011) in the U.S., we’ll have about 22 million people subscribing to our streaming service, about 15 million people subscribing to our DVD service, and about 25 million total U.S. subscribers (with about 12 million people subscribing to both streaming and DVD)” (Netflix). Thirty percent of Redbox users are also Netflix subscribers (Cluckey). Despite the rapid shift to streaming subscriptions seen by Netflix, or perhaps because of it, Redbox is seeing their share of their DVD market grow; up 10.3% 2011Q3 vs. 2010Q3 (Coinstar Conference).

Expansion into Streaming Market.
On February 16th, 2011, Redbox announced plans to launch a subscription-based streaming video service that will compete directly with Netflix, Hulu, and Amazon allowing users to stream video on multiple devices in addition to accessing DVDs from the company’s kiosk network. This subscription-based model deviates from the company’s previous transaction-based model and raises the question whether it will work (Los Angeles Times). At a glance, it appears that this service easily leverages the Redbox brand and the financial strength of the company to enter the VOD market. However, the company’s major competitor, Netflix, has estimated that its licensing costs will increase tenfold in between 2010 and 2012, making the barriers for entry incredibly high for subscription-based rental companies (Pepitone). In order to effectively compete, Redbox needs to find partnerships with studios that could reduce their licensing expenses while building their streaming libraries. Rather than a subscription-based model, Redbox could utilize a combination of a subscription-based and pay-per-view model, similar to the model Blockbuster has recently introduced (Blockbuster). The combination of a transaction-based and subscription-based model would allow Redbox to leverage their brand to offer on-demand content. They could include “second tier” movies in their subscription-based service and major motion pictures in their pay-per-view and kiosk sites.

Verizon Partnership Rumors.
Rumors abounded in early December 2011 about a Verizon and Redbox partnership to offer streaming media. The rumored plan, set to launch in May 2012, would be a subscription-based model allowing customers to rent DVDs or stream TV shows and movies (e.g. one new release for two credits). Partnering with Verizon provides Redbox with access to over 90 million current wireless customers. Verizon’s network reaches even more consumers, and they plan to increase their speedy 4G LTE coverage area from 186 million people to match their current 3G coverage of 290 million people by the end of 2013 (Verizon Fact Sheet). Through Verizon’s recent partnership to offer FiOS channels on the Xbox 360, Redbox could also gain access to huge number of gaming consoles (Niu). This could lead to large growth in video game rentals. Although there are no plans to offer the service on FiOS set-top boxes, the partnership service would be available on a multitude of mobile and home platforms (Coldewey). The effectiveness of this partnership remains questionable. Neither company has significant experience streaming media nor do they have significant streaming content licensed. Also, not launching in FiOS areas could limit growth. And more recent rumors suggest Verizon may buy Netflix (who already has a substantial library) instead, leaving Redbox to find their own way into VOD (Smith).

International Expansion.
As the use of DVD and Blu-Ray diminishes and online streaming becomes the primary means of movie distribution in the US, Redbox must consider what to do with their physical inventory investments in kiosks and DVDs. One opportunity lies in the global marketplace. Redbox could transition their kiosk approach overseas and introduce their brand to developing countries where technology limitations inhibit video streaming. The US DVD market is not dead yet, but as it dissipates and consumers transition to online streaming, Redbox has an opportunity to build their brand globally and earn revenue through international expansion. They can continue their ‘low priced’ strategy for DVD distribution and partner with international film distributors to also offer local movie and TV series options. A feasible international expansion approach for Netflix would be to focus on the BRICS countries – Brazil, Russia, India, China and South Africa. The International Monetary Fund predicted that by 2014, the original four BRIC economies, prior to South Africa’s entrance as a BRICS economy, will generate around 60% of global growth. These original BRIC nations have “played a pivotal role in the push to maintain global growth in the face of the global financial crisis” (Noury). These large and emerging BRICS economies have large populations with increasing GDP and would be likely to accept Redbox’s current DVD distribution model with obvious adjustments to meet local needs such as language requirements, local distribution partnerships and movie preferences. Most notably, India boasts the most prolific film industry in the world, especially Bollywood the country’s Hindi language film industry, with approximately 1,000 new movie releases per year (Fontanella-Khan). This presents an incredible opportunity for Redbox in an emerging economy with the second largest population in the world that is so obviously devoted to the movie industry.

Redbox successfully focused on its core competencies, low priced appearance and strategic partnerships driving high rental volumes, to succeed in the DVD rental market. Although current threats from competitors in the online streaming industry, such as Hulu and Netflix, exist, the company established a large ‘brick and mortar’ type of footprint and consumer base without the capital investment of actual retail stores. As the industry trends away from physical media toward streaming content, Redbox may enjoy huge potential for growth if they adapt to the decline of physical media as they continue to mature. Entering the VOD market is necessary for their long-term sustainability. A major key to their success will be based on their ability to cultivate relationships with suppliers in order to get newly released movies at lower costs sooner than competitors such as Blockbuster. Facing the challenges of licensing costs and incumbent competition, Redbox must focus on their core competencies in order to sustain their business; expanding into new product offerings, fostering future strategic partnerships, and continuing to open kiosks in new locations (particularly international markets). By adapting their strategy to embrace the consumer trends in movie consumption, Redbox can endure the sunset of physical media and emerge as a leader in the dawn of digital media.

Works Cited

Blockbuster On Demand. N.p., 2011. Web. 17 Dec 2011. <http://www.blockbuster.com/download>.

Bradshaw, Tim. “Warner Bros Sheds Light on UltraViolet.” Financial Times. 3 Mar 2011: n. page. Web. 16 Dec. 2011. <http://blogs.ft.com/fttechhub/2011/03/tsujihara/>.

Cluckey, Suzanne. “Despite Challenges, Coinstar CEO Sees Rosy Future for Redbox | Kioskmarketplace.com.”Kiosk Marketplace | Kioskmarketplace.com. NetWorld Alliance, 9 Aug. 2011. Web. 16 Dec. 2011.<http://www.kioskmarketplace.com/article/183109/Despite-challenges-Coinstar-CEO-sees-rosy-future-for-redbox>.

Coldewey, Devin. “Verizon And RedBox Planning Major Partnership For Early 2012 Launch.” TechCrunch. AOL Inc., 7 Dec. 2011. Web. 17 Dec. 2011. <http://techcrunch.com/2011/12/07/verizon-and-redbox-planning-major-partnership-for-early-2012-launch/>.

Coinstar, Inc. (2011). Investor Update 2011 Q3 Retreived from <http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDQ0OTA4fENoaWxkSUQ9NDY3ODc1fFR5cGU9MQ==&t=1>.

Coinstar, Inc. (2011). 2011 Q3 Conference Call Slides Retrieved from <http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIwNTkzMXxDaGlsZElEPTQ0NDg4MnxUeXBlPTI=&t=1>.

Edgecliffe-Johnson , Andrew. “Content Owners Find Nothing Going On But the Rent.” Financial Times. 15 Jun2011: n. page. Web. 16 Dec. 2011. <http://www.ft.com/intl/cms/s/5daa13e0-9776-11e0-af13-00144feab49a,Authorised=false.html?_i_location=http://www.ft.com/cms/s/0/5daa13e0-9776-11e0-af13-00144feab49a.html&_i_referer=http://search.ft.com/search?queryText=physical+media&ftsearchType=type_news>.

“Disc Sales Continue to Decline.” IGN. IGN, 2011. Web. 13 Dec 2011. <http://dvd.ign.com/articles/118/1186516p1.html>.

Fontanella-Khan, James. “Disney Looks to Expand in India.”Financial Times [Los Angeles] 26 07 2011, n. pag.Web. 17 Dec. 2011. <http://www.ft.com/intl/cms/s/0/d676ef94-b799-11e0-8523-00144feabdc0.html>.

Movie Consumption at Home. Rep. US: Mintel Group, 2011. Mintel Oxygen. Web. 20 Nov. 2011. <http://http://academic.mintel.com.ezproxy.t-bird.edu/sinatra/oxygen_academic/search_results/show&/display/id=543382>.

Netflix, Inc. (2011). Q2 2011 Letter to Investors Retrieved from<http://ir.netflix.com/common/download/download.cfm?companyid=NFLX&fileid=485533&filekey=e230e7dc-cb82-4175-b944-d9ddc3c0960c&filename=July%20Investor%20Letter%201130am.pdf>

Noury, Valerie. “What BRICS Membership Means to Africa.” African Business 2011: 37-9. ABI/INFORM Global. Web. 18 Dec. 2011.

Pepitone, J.. “Netflix’s Vanished Sony Films Are an Ominous Sign .” CNN Money. CNN Money, 2011. Web. 17Dec 2011. <http://money.cnn.com/2011/07/08/technology/netflix_starz_contract/index.htm>.

Plunkett, Jack W. “NETFLIX INC.” Search All. Plunkett Research Online, 19 Dec. 2011. Web. 17 Dec. 2011.<http://www.plunkettresearchonline.com>.

“Redbox Digital Service Will Go Toe-to-Toe with Netflix.” Los Angeles Times. Los Angeles Times, 2011. Web. 17 Dec 2011. <http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/02/redbox-digital-service-will-compete-directly-with-netflix.html>.

“Redbox.” Rent Movies Online – DVDs, Blu-Ray  & Games | Movie Rentals at Redbox. Redbox, 2011. Web. 17 Nov. 2011. <http://www.redbox.com/history>.

Smith, Shane. “Inside Redbox » Verizon to Buy Netflix?” Inside Redbox. Inside Redbox, 12 Dec. 2011. Web. 17 Dec. 2011. <http://www.insideredbox.com/verizon-to-buy-netflix/>.

Tribbey, Chris. “Physical Media Will Stand the Test of Time, According to a Redbox Study | Home Media Magazine.” Home Media Magazine | Covering DVD News, Blu-ray, High-def and Electronic Sellthrough for Hollywood, Studios and Retailers. Questex Media Group LLC, 6 Apr. 2011. Web. 13 Dec. 2011. <http://www.homemediamagazine.com/redbox/exclusive-study-stresses-staying-power-disc-23570>.

“Verizon | Verizon Communications Fact Sheet.” Verizon | News Center – Homepage. Verizon, Nov. 2011. Web. 17 Dec. 2011. http://newscenter.verizon.com/kit/vcorp/factsheet.html

GM4468J2 – Competitive Strategy. December 2011.

Team 4 – ‘The Angry Birds of Thunder’ – Amina Ahmed, Marquita Blanding, Benjamin Donner, Julia Glad, Carla Vila

SIMPLE PLEASURES FOR SUN-SEEKERS: JETBLUE REDEFINES THE “BUDGET” AIRLINE THROUGH COMFORT AND TECHNOLOGY

Introduction

Positioned as a budget airline company with a tourism focus, JetBlue is synonymous with the keywords ‘quality’ and ‘customer satisfaction’. JetBlue offered many firsts in the airline industry, including: satellite TV, satellite access to e-mails, vacation packages on eBay, and a ‘customer bill of rights’— that enables customers to be compensated for their inconveniences. Today, JetBlue has expanded its operations to include partnerships with international airlines, with a fleet of more than 400 airplanes. Despite the fierce competition of the airline industry, JetBlue continues to rise in popularity and revenues.  How does JetBlue manage to continue its growth, especially while competing with rival discount airline Southwest? 

Fierce Competition – Jet Blue and the airline Industry

The airline industry has changed dramatically since the early 2000s, due, in part, to the volatile global economy. Many airlines, more so in the U.S., have had to alter their competitive plans in order to keep up with the changing dynamics of the industry. In order to stay afloat, many full-service airlines looked to cost-cutting options, while airlines like Jet Blue and Southwest focused on delivering services differently than their competitors. At the time, these services were either standard or unique to the industry. Ultimately, full-service airlines found it much harder to compete with low-cost, convenient service airlines. Some of those airlines either went out of business, or completely re-engineered their business plan, or merged with other airlines to be competitive. Some of the most noteworthy mergers and acquisitions are United and Continental, US Airways and American West, American Airlines and TWA, and Southwest and AirTran.

Despite all of the industry changes and airline consolidations, Jet Blue has remained true to its strategy, and has shown consistent growth through the economic downturn. Based on passenger revenue miles from October 2010 – September 2011, the top domestic airline market share leaders are Delta (16.3%), Southwest (14.8%), American (13.3%), United (9.6%), and US Airways (7.9%). JetBlue rounds out this group by taking the tenth spot, with 4.5%.

According to Hoover, Jet Blue’s top three competitors are AMR Corporation (the holding company of American Airlines and TWA), Southwest, and United Continental, whose annual sales in 2010 were $3,779M, $22,170M, $12,104M, $23,229M, respectively. Although it appears that Jet Blue is falling short in annual sales, the company is showing strong financial potential to meet or surpass its competitors. With AMR Corp. filing for Chapter 11 bankruptcy on November 29, 2011, it remains to be seen how the industry dynamics change and who will become the new markets leaders.

“Aruba, Jamaica, Ooo I want to take ya…”

Catering to the sun cravings of the urban northeast, JetBlue’s services are right in line with travelers looking for convenient, fun, travel experiences to sun-soaked destinations: there is no business/first class, one free checked bag, Caribbean-bound flights, and flights to major tourism destination cities.  By focusing only on tourist destinations, JetBlue has streamlined the number of routes it offers. Although some potential customers might find JetBlue’s limited selection of destinations frustrating, JetBlue has created a competitive advantage by only servicing those major tourist traffic destinations—in doing so, JetBlue can ensure that its planes are even more full than its biggest budget competitor (the average 2010 Load Factor for JetBlue was 81.3% compared to 79.2% for competitor Southwest). The strength of their approach can be seen in their most popular routes: JFK (New York) to San Juan, PR; Boston Logan to Fort Lauderdale, FL; JFK to Orlando, FL, and Fort Lauderdale to Buffalo Niagara, NY.

To further cater to the needs of tourists, JetBlue conducted research on unused vacation days, and upon discovering that the customer’s fear of approaching their bosses was a major reason vacation time went unclaimed, it created “Getaways Granter:” an “app” for employees to ease the process of requesting vacation time.

This tourism focus does have one major downturn in terms of cost: viz., fuel costs.  With long flights to the Caribbean from the northeast, JetBlue’s average fuel cost per passenger fare is $48.02, while Southwest’s is nearly $6 cheaper per passenger at $41.87. Consequently, JetBlue has to work hard to secure fuel at good prices and balance out fluctuations in oil costs. 

Comfort and In-flight Entertainment

On the way to vacation, fliers want their comfort to start as soon as they leave home, so it is crucial that JetBlue is known for its amenities and comfort. The seats are plush leather and offer extra room and slanted backs for passengers. Although some may see this move as counter-intuitive (if you add more room, then you have fewer passengers and less revenue), JetBlue justifies this as an advantage. By removing an entire row of seats on its planes, JetBlue has eliminated the need for an additional flight attendant. Furthermore, since JetBlue is known for its comfort and style as well as its value level prices, more customers choose JetBlue, translating into lower cost per customer. This is an example of how truly JetBlue’s activities fit with its strategy and positioning.

More leg room than your average carrier is only the start. JetBlue was the first to offer -in-flight satellite TV for each individual seat to entertain families on their way to vacation, and will be the first to set up cutting edge broadband satellite wireless internet- that will be introduced in 2012- to allow for media internet streaming to further expand the entertainment offerings.

Keeping Costs Low

JetBlue is able to position themselves as the most affordable option for this tourism market segment due to its low operating costs. These are made possible by: the tradeoff of fewer end destinations, choice of smaller airports with lower air traffic, and efficient employees.  While they keep costs down by not serving meals and charging for some of the extras other airlines offer for free (like pillows), they make up for these tradeoffs by providing excellent customer services.

Another way JetBlue keeps costs low is by avoiding non-tourist locations – for example: the non-coastal skiing capital Salt Lake City and the gambling mecca Las Vegas.  The few interior cities it does serve have a population large enough to have strong outbound tourism: Chicago and Dallas make the cut as fitting within JetBlue’s model.  In addition to the strong tourist pull JetBlue offers, its Northeast – Caribbean/Latin America connections also serve the strong Hispanic population, particularly Dominicans and Puerto Ricans, present in the northeast, which undoubtedly helps smooth out the strong seasonal fluctuations in tourism. 

Another crucial cost-management factor for Jet Blue pertains to their employees.  JetBlue is a non-union airline, and as such it has more liberties than other airlines. For example, it can adjust seat numbers to minimize the number of flight attendants. These liberties mean that JetBlue can cut costs in places where other airlines cannot. The amount of wage expense per dollar of passenger fare revenue is significantly lower for JetBlue (at $0.26 per dollar of passenger revenue) than it is for its competitor SW ($0.32), though both, in keeping with their service-oriented positioning, are higher than budget competitor airline Airtran ($0.22).

Finally, as a new airline that has invested in new planes, JetBlue has the somewhat short-term advantage of lower maintenance costs:  JetBlue’s Ratio of Airplane Maintenance to Revenue is 4.5% while Southwest is forced to expend 6.2% of its revenue for airplane upkeep.  Over time it will lose this advantage unless it chooses to sell off older planes and purchase new ones, but in the meantime it does help this relatively young airplane save capital to keep costs lower for passengers. 

JetBlue’s Song of Survival: Response to the Economic Downturn

It is significant to note that in 2010, during the economic downturn, JetBlue achieved $3.7 billion in sales, and recorded a net income of $97 million. Income growth was 67.2% and overall growth was 15%. By using the formula of low fares, new planes, and efficient personnel, JetBlue was able to drive home its value proposition as an airline that neither endorsed high fares (its fares are 65% lower than those of major airlines) nor subjected its passengers to frequent delays. Thus, JetBlue dealt with the high force of buyers by differentiating its product and efficient operations. The keywords by which it operated were – ‘reliability’ and ‘value for money’. After all, its CEO David Neeleman was aiming to “bring the humanity back to air travel”. It turned out that this was a worthy goal at a time when the economy was facing a downturn, and JetBlue’s formula for success helped achieve this admirably. Today, JetBlue is ranked as a 4-star low-cost carrier by SkyTrax.

In the years 2010 and 2011, JetBlue has in fact grown by signing interline contracts with American Airlines, South African Airways, Virgin Atlantic, and Jet Airways (of India). It also signed a codeshare agreement with ElAl (of Israel), LAN Airlines (South American), and TAM Airlines (of Brazil). Quite a lot of travelling for a small jet, and a low-cost one at that!

In 2010, JetBlue marketed its customer-centric image with its ‘You Above All’ campaign. Its message was to show the world that it flew people, not airlines. Interestingly, in the period after 9/11 when the airline industry was hard hit, JetBlue was similarly consistently recording profits. At this time, JetBlue faced some competition from mini-carriers introduced by Delta Airlines (‘Song’) and United (‘Ted’). However, both these rivals folded up, unlike JetBlue that has been going strong with its superior service. 

It was only in February 2006 that JetBlue recorded its first quarterly loss (-$42.4 million). The reasons for this were cited as rising fuel costs, operating inefficiency, and fleet costs. The situation was quickly remedied by cutting $50 million in costs, and aiming to raise revenue by $30 million. This was achieved in the very next quarter with a profit of $14 million.

Maintaining Competitive Advantage

Currently, JetBlue is attempting to increase their routes, and thus lessen the threat of copycats. It has announced new routes at low costs serving more people. However, JetBlue’s model and product are still easily imitated by new entrants/rivals. While JetBlue can work to maintain customer loyalty via its points program, enhance flight availability for through partnerships, and continue being innovative with services such as in-flight digital services that prove successful for JetBlue, all of their actions can be easily adopted by their competitors. 

JetBlue’s organizational fit is what makes their strategy successful. Everything is in line with serving the needs of tourist travelers desiring low-cost transportation to tropical locales, with customer service and physical comfort being the perfect introduction to a pleasant vacation.  Costs are kept down through the use of efficient, service-oriented employees, a limited number of smaller airports with less traffic, and their new planes which offer greater comfort and service by way of greater leg room, digital connectivity, and the Customer Bill of Rights. 

Only time will tell how JetBlue will fare, but if Porter’s theory that strategy, competitive advantages and fits are any indication of a company’s future success, than JetBlue will be around for a while longer. Its amenities and comfort fit with its positioning as a tourist airline. Its servicing of high-traffic destinations fits with its strategy of keeping costs down, as does removing an aisle of seats to cut down the number of flight attendants.  JetBlue continues to expand its reach, through partnerships and by adding new destinations. If it stays true to its positioning and strategy, the company could enjoy long-term success.

Bibliography

1. www.JetBlue.com – JetBlue website
2. www.transtats.bts.gov/ – Bureau of Transportation Statistics website
3. J.D.Power and Associates website http://www.jdpower.com/news/pressrelease.aspx?ID=2011075 –
4. http://www.airlinequality.com/Airlines/B6.htm
5. “The Steady, Strategic Ascent of JetBlue Airways” http://knowledge.wharton.upenn.edu/article.cfm?articleid=1342
6. http://www.usatoday.com/travel/news/2004-07-05-biztravel-comparison_x.htm
7. http://www.discoverylearning.com/Documents/JetBlue_CaseStudy.pdf
8. http://video.foxbusiness.com/v/3892359/rivals-southwest-vs-JetBlue/
9. http://airlinefinancials.com
10. http://www.transtats.bts.gov/
11. http://subscriber.hoovers.com.ezproxy.t-bird.edu/H/company360/quickReport.html?companyId=99674000000000

Smartphone users are a notoriously fickle bunch. The slightest flaw in a phone sends users off to a new phone faster than you can say “service contract.” Research-In-Motion, or RIM, has remained relatively immune to all of this until recently.

More than a decade ago, RIM created its own competition-free market space when it introduced the Blackberry; the company created what industry specialists like to call a “blue ocean.”  Nearly everyone in my salary-challenged office had to have one: a mobile device that offered email.  By 2002, RIM added short messaging service (SMS) and Internet surfing, and then even the janitor had one (although it was only for a couple of weeks).

Times were good for RIM. By 2004, they had addicted more than a million subscribers, giving rise to the term “crackberry.” By 2009, even the drug cartels never had it so good—RIM had 41.6% of the U.S. Smartphone market. Mighty Apple stood in their shadow with only 26.5%, and little Google nipped at both their heels with just 5.2%. Even the President Obama was hooked on the Canadian marvel, as he became the first sitting president to have twiddled his (sore) thumbs in office while still being considered busy.

But by April of 2011, RIM their ocean had turned red with new competitors as their 41.6% market share had dropped to 25.7% and kept falling.  Mighty Apple fell just a percent while Google’s Android grew up to be the little OS that could, grabbing more than 20% more of the market to stand tall at 36.4%.  A chilling survey revealed that just 42% of current Blackberry users expected to buy another phone from RIM. The Blackberry was now the has-been opiate of the masses.  What happened?

Have we put a lid on RIM?

Some devotees blamed the new phones and operating systems of Apple and Google, as well as the pressure from recent entrants like Microsoft, Samsung, and HTC corp.  Indeed, warranty research conducted last month revealed Apple’s iPhone to be the most reliable phone and OS with the makers of Android phones trailing right behind.  Blackberry, in contrast, had triple their failure rate (6.3-6.7% in the first 12 months).  Apparently reliability matters, as little yapping Google is expected to grow up to become the dominant Smartphone operating system in the U.S. by 2014.

Others blame RIM’s schizoid dual-CEO organizational structure.  Are two heads really better than one?  Ask RIM’s shareholders, who have expressed worry that Siamese CEOs could inhibit RIM’s ability to make necessary organizational, operational, and positioning changes.  Separating them could prove more difficult than cutting along the dotted line, however.  Together, the two CEOs own around 10% of RIM, and far from tearing the body in two different directions, they seem insistent on taking the company down a path that many shareholders insist is the wrong one.

Then there are those who point to tablets as the reason for RIM’s declining market share.  They argue that Apple created its own “blue ocean” with the holy trinity of iTunes, the iPhone, and the iPad.  RIM’s response to this was to take on Apple on its own turf, launching the Blackberry Playbook in 2010.  “Crackbook,” it was not: through the third quarter of 2011, Apple had sold 9.2 million iPads—46 times the sales of the Playbook.

RIM on the ropes

RIM isn’t just a copycat.  It has fought back in other ways, to be sure.  In a rate that eerily matches their phone’s failure statistic, RIM spends 3 times as much as Apple on R&D, or 6.8% of its revenue.  This allowed RIM to mimic its competitors in other ways too.

Like Google and Apple, RIM took control of its supply chain, shedding its outsourced OS and acquiring Ubitexx to create the BES operating system.  Like Apple, RIM took control of its production by reducing the suppliers of 90% of their production to just five companies for which RIM was a major customer—allowing the company to negotiate prices that were proportionally lower with their falling profits.  Finally, like you-know-who, RIM also took full control of its application channel, launching “Blackberry App World” in early 2009.

But RIM didn’t stop there.  It acquired QNX software systems, one of the largest suppliers of software for infotainment systems in cars.  This company gave RIM’s Blackberry and Playbook devices new communications capabilities.  Did you know that your Blackberry can now talk to cars?  RIM envisions a future where its devices can talk to homes and appliances.  Have you ever wanted to text your toaster in the morning?

RIM: in a red ocean or circling the drain?

For all of RIM’s faults and desperate attempts to grab blue water, the company has a very valuable brand.  The Blackberry is the 25^th most recognizable brand name in the world, but perhaps that is part of the problem: while the brand continues to gain awareness globally, it’s still the same Blackberry in the minds of these potential new customers—a phone that looks like a scientific calculator in a world of slick bricks of glass and polished aluminum with colorful social apps.

But what company will fill the void left by RIM if it drowns?  It is quite likely that many of the readers of this article would be left without a business Smartphone alternative in a future without RIM.  The company is the only Smartphone maker whose device has a brand association synonymous with government and enterprise communication.  Can any other Smartphone maker boast the same level of commitment to those areas?  Does any other Smartphone maker have a device with cutting edge security features that have won it industry awards and led its ban from certain countries?  The answer to both questions is a resounding no, and that is because they are both RIM’s competitive advantages in the Smartphone market.  And yet the company is barely treading water among its competitors.

RIM is worth saving, if only because there is no other company that that can take its place.  But for lack of a lifeguard in the ocean, what RIM needs to do is swim somewhere else. The company can’t compete with companies like Google or Apple who are now synonymous with flexibility, adaptability, individuality, and new trends. RIM’s only option is to reevaluate the recently expanded size of its consumer scope and then make the decision to redouble its focus again on its original customers: target markets that are business-like in nature and require high levels of security with their communication devices—where its traditional strengths of Enterprise-branding and security confer competitive advantages on the company.

These markets, which include the oft-neglected and security-sensitive government and military, require safe, easy, and convenient communication.  They can leverage RIM’s capabilities and supply higher demand that the company’s competitors are not actively targeting. RIM’s current capabilities surely aren’t giving it market share in the areas that Google and Apple are vying for. Only these steps will invigorate RIM’s position, strengthen consumer and shareholder confidence, and establish a blue ocean to float the Blackberry brand on in the future.  Peculiarly enough, it may turn out that RIM’s bluest waters to come are the very same waters it tried to leave.

And after all, do you really want the POTUS to play ‘Angry Birds’ during staff meetings?

–Team 6, Competitive Strategy OD

Works Cited:

Comscore- Dec 2009; ComScore Reports-December 2009 U.S. Mobile Subscriber Market Share

(http://www.comscore.com/Press_Events/Press_Releases/2010/2/comScore_Reports_December_2009_U.S._Mobile_Subscriber_Market_Share).

Comscore – April 2011; ComScore Reports-April 2011 U.S. Mobile Subscriber Market Share (http://www.comscore.com/Press_Events/Press_Releases/2011/6/comScore_Reports_April_2011_U.S._Mobile_Subscriber_Market_Share).

RIM 2002 Financials; 2002 RIM Investor Report; http://www.rim.com/investors/documents/

RIM 2004 Financials; 2004 RIM Investor Report; http://www.rim.com/investors/documents/

WSJ; Corporate News: Pressure Mounts on RIM — With Stock Plunging to New Lows, Fresh Calls for Change to Co-CEO Structure; Will Connors, Joann S. Lublin. Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 15, 2011. pg. B.3

Woyke, Elizabeth. “BlackBerry Battles Back.” Forbes. 28 2 2011: 34-36. Print.

Datamonitor: Research in Motion Limited SWOT Analysis,Jun2011, p1-9, 9p, 2 Charts

Data Green Study: Smart phone U.S market share analysis, August 2011.

The Boston Beer Company: Can it Live up to Recent Hype?

A Corporate Strategy article by Thunderbird students Andrea Bly, Jennifer Garcia, Liang-Kuan “Albert” Ho, Steve Juntunen, and Kara Nguyen

Shares of The Boston Beer Company, Inc. (NYSE: SAM) closed Friday, December 16, 2011 at $103.05, up 40% since October.  The company, who spearheaded the craft beer revolution in the US, has grown to produce over 32 varieties of beer under the company’s flagship brand, Samuel Adams Boston Lager and a variety of malt beverages and hard cider products under brand names Twisted Tea and HardCore Cider. 

Under its Samuel Adams line, Boston Beer Company leads the craft brewery industry with annual revenues of $500 million in 2010. They have outperformed the uninspired beer market this year, reporting solid increases in sales and profits every month in 2011.  This exploding success in the specialty market occurred against the backdrop of dismal growth in the mass market.  But even within the specialty segment, Boston Beer has outperformed rivals with 6.6% volume growth in 2011, compared to 5% growth in the craft beer category.

This spectacular performance has attracted a lot of attention. Currently trading at 25 times the consensus earnings; should investors call it quits before a crash or will The Boston Beer Company be able to leverage recent success into sustainable growth?

 From carefully selected ingredients, creative new brews, and calculated distribution, Boston Beer Company’s value and strategy is simple: to brew and deliver full-flavored, high-quality beer.  Founder, Jim Koch pursued his passion for quality, flavorful beer by using family recipes and traditional brewing processes passed down the generations of his family.  In 1984, Samuel Adams Boston Lager was born and became the Boston Beer Company’s trademark beer.  Within the first six weeks of its release, Samuel Adams was voted “The Best Beer in America” at The Great American Beer Festival’s Consumer Preference Poll and it would continue winning more beer taste test awards than any other brewery in the market.

“There’s an incredible pleasure every time I have a Sam Adams,” says Koch.  “In that beer, I can taste all of the history and all of the passion for brewing something wonderful.  To me, it’s an incredibly complex symphony of flavors.”

What makes Boston Beer Company unique from the other leading companies is their image as a craft brewery.  They aim to use only the finest ingredients and pay great attention to detail to ensure fresh quality beer.

In order to get their start in the industry, Jim Koch started small. Koch allowed local bartenders in Boston, Massachusetts to sample Sam Adams so that they could make informed recommendations to their customers.

“If you’re a little guy, you can’t compete with the big guys,” says Koch.  “I won’t be competing with them.  I’ll be making something better.  And there are drinkers who will drink that”.

Boston Beer Company does not use gimmicky bottles that indicate if your beer is cold or flashy packaging to catch your attention at the grocery store.  Instead, Boston Beer Company spends their time and money pioneering ways to deliver the best-quality product.  For instance, their “Freshest Beer” program calculates and reduces the amount of time Boston Beer Company’s products sit at a wholesaler to ensure that consumers get the freshest beer out of the brewery.

Although the Freshest Beer program may require more expenses upfront, while it is perfected, Koch believes it will result in savings in the long run.  It will result in less waste of beer that is destroyed due to expiration and increase profits as people continue to turn to Boston Beer Company for the freshest beer available.

The Boston Beer Company has managed to be quite successful while monitoring and responding to risks. As they continue to expand, it is imperative that they address various risks identified in their 10K filing and beyond. Boston Beer competes in a saturated industry with strong rivals at the local, domestic, and international level. They not only have to capture and maintain loyalty by customers, but they also have to compete for shelf space by distributors. They have pointed marketing efforts toward identifying a discriminating and educated consumer base. Meanwhile, a focus on fostering loyalty through distributors has proven to be a winning strategic formula.

Although these same measures will continue to provide positive outcomes for the company, a strategy for moving forward is the ultimate question. Offering a sustainable strategy to offset the existing and potential risks moving forward will be a new challenge for Boston Beer Company. Maintaining a loyal customer base and strong distribution network to add more distributors and expand shelf space will be essential to future success of the company.

The Boston Beer Company is cognizant that the public has the potential to be fickle toward acceptance of alcoholic beverages and that intake varies based on health trends, shifting consumer interests and values, and other factors. This was vividly illustrated in the 1990’s when Starbucks Coffee went from an obscure company in Seattle to a multi-national presence. Starbuck’s strategy was largely shaped by a decision to cater to the trend of a newly minted consumer base that was, health conscious and mindful of quality, freshness, and knowledge of where the product derived from. While it is true that many of Starbucks customers were searching for alternatives to alcoholic beverages, another portion of their consumer base was driven by the fact that Starbucks offered a high quality, uniquely sourced product.

Given the industry that Boston Beer Company is in, a non-alcoholic offering was not a viable strategic option. But rather than succumbing to the risk of less alcohol consumption, the company focused on another aspect of a changing public, targeting consumers with discriminating taste directly spoke to their market.  The company managed a trend in lower alcohol consumption by focusing on other values in their product-line; quality, freshness, and provenance of ingredients. Integrating their devotion to customer values into their marketing campaigns proved to be a successful strategy for managing risk.

 Nevertheless, both the research and development process and trade-off costs that are consequentially absorbed by adhering to a devotion to quality are substantial. Their most recent -Freshest Beer distribution program has raised costs at Boston Beer Company due to additional infrastructure upgrade requirements. Managing these costs will be an ongoing challenge for the company. But company management forecast that as more distributors participate in the program the proportional costs will decrease as metrics for predicting demand will become more reliable with more participants.

 Moving forward, the company must monitor and respond to risks proactively and creatively, exhibiting the same insights and nimbleness that they have shown in prior instances. With a focus on social trends, distribution management, and close monitoring of sales metrics The Boston Beer Company will hopefully be able to leverage its recent growth.  Managing the programs that the company has put in place and staying true to their values will with a bit of luck keep the bubble from bursting.  As the rivals become more competitive and customers become more knowledgeable and powerful, can Boston Beer adapt its strategy to avoid becoming obsolete?

__________________________________

Image courtesy of Boston.com

Team 8: John Angstadt; Christa Gyori; Charbel Haber; Christopher Jones; Mike Zehender

On March 23, 2010, President Obama signed the Affordable Care Act. The law puts in place comprehensive health insurance reforms that will roll out over four years and threatens to have a major impact on the Pharmaceutical Industry. This is just one of a myriad of factors impacting the industry. The industry, once described as profitable by Porter due to the corresponding low structural forces, is facing significant changes to the competitive forces operating in its space. Many factors are threatening to change the industry structure; these included imminent expirations of major patents in 2011-2012 (coined as the “patent cliff”), pricing pressure due to cuts in reimbursement, and new regulations with stricter focus on drug safety. Novartis Pharma has made many smart moves, but is it fully prepared for the future?

1. Company background
Novartis Pharma: Founded in 1996, Novartis is one of the largest pharmaceutical companies in the world with a diversified portfolio of products that span across a number of categories including pharmaceuticals, generics, vaccines and diagnostics, and consumer health products. Novartis has more than 110,000 associates in more than 140 countries. Its headquarters is based in Basel, Switzerland and their net sales reached $50 Billion in 2010. Their Product Leadership business model is reflected in their Mission Statement, “We want to discover, develop and successfully market innovative products to prevent and cure diseases, to ease suffering and to enhance the quality of life.”

2. Changing Government Regulations
The evolving landscape of the US Pharma industry will lead to challenges in maintaining the present high growth rates. Following a number of safety crises such as Phen Phen, Vioxx, and Avandia, which were linked to severe adverse reactions including increase risk of deaths, the FDA has become more conservative. The FDA has been requesting more safety data, which translates to clinical trials, and therefore, higher cost of drug development.

Health Care Reform, specifically the Affordable Care Act and the recent passage of The Biologics Price Competition and Innovation Act of 2009 have also put more price pressure onto the pharmaceutical industry.

Potential effects of the Affordable Care Act will include lower pricing on prescription medication for elderly customers, but an increase in the number of Americans having insurance. While lowered pricing for elderly customers will lower profit margins, it is estimated that with increased numbers of insured younger Americans, more will take advantage of prescription medications, thus leading to long term higher volume and profitability. However, many prescription drug manufacturers have already cut R&D expenditures and outsourced manufacturing and clinical operations. Further, Pharma companies are focusing more attention on orphan drug development due to the reduced scrutiny and faster approval process by the FDA and higher profit margins due to niche marketing.

3. Current Trends
How are the industry leaders managing the change? A survey of the various strategies adopted by the pharmaceutical companies does not point to a single clear strategy. Mergers, acquisitions, divestiture and investment in new capabilities, are all de rigueur. Caven Redmond, Group President at Pfizer recently stated “I don’t think there’s been a time in recent history where the industry has had a more divergent approach to the future.” These approaches, as diverse as they are, stem from differences in opinion on the future of the health care industry in general.

Due to the power of insurance companies to affect the decision process in drug selection, more pharmaceutical companies are focusing their attention on insurance companies and negotiating pricing with them to encourage these companies to authorize their drugs. Some companies are even engaging payers early on in drug development in order to design pivotal studies aimed to support drugs and claims that would eventually be reimbursed by payers. More and more, pharma companies are having to prove that the new medications are more effective, safer or have a greater health value than already approved drugs that have generic substitutes.

Rivalry within the industry is intense and efforts to cut costs are increasing. Recent trends involve the outsourcing or transferring of labor to lower cost locations in countries such as China and India.
Additional strategies also involve opening new markets in developing or emerging countries where the middle class is growing. However, patent law and intellectual property rights within these countries vary from the US and Europe and could lead to losses of rights or patents.

4. Betting on the future
Though strategies differ among the top 50 Pharmaceutical companies, there is one common thread – Biologics and the associated generic version, Biosimilars. Nearly all large pharmaceutical firms have made an investment in this area. Biologics are treatments that are derived from living organisms and marketed after the patent expiration of similar therapies. But how successful are biologics? According to Global Pharmaceutical Market Review of the top twenty best selling drugs of 2010, “Six biologics made the top 12 as the best selling global drug brands.”

A natural extension of Biologics is their generic version, on Follow-on Biologics, also known as Biosimilars. According to Ian Evans, of the Yale school for Biomedicine “Key characteristics of follow-on biologics (Biosimilars) make them a worthwhile investment for big pharma companies: They command high prices, will likely have fewer entrants than generics due to high barriers to entry, and play to the existing strengths of big pharma firms.”

The development of Biosimilars represents a diversification strategy that is based in strategic alignment with a company’s core capabilities. According to Authors Alex Kandybin and Vessela Genova of Business + Strategy Magazine, this type of diversification is necessary in an industry where there is no telling what the future will bring. New investments should create further value for the company through strategic alignment. The steps in this process, much like the blue ocean process, are to 1) \Identify the company’s core competencies and value drivers, 2) Identify areas of new opportunity that can better position the company to succeed and where there may be some competitive advantage due to core capabilities or new demand and 3) Align the organization to leverage and support the new strategic direction. An example of this is the development of the generics business by Novartis. Joseph Jimenez, Chief Executive of Novartis explains “Fundamentally, we are pro-patent, but we believe that when those patents expire, it is our obligation to offer low-cost, high-quality generics to help lower total health care costs.”

5. Novartis Response Strategies
In order to mitigate the effects of recent changes to the pharmaceutical landscape, Novartis has implemented the following strategies:

Restructuring: Just like most pharma companies, Novartis has shed many jobs in Europe and in the US and shifted most of these positions to Asia. For example, in 2011, Novartis announced the elimination of 2,000 positions in Switzerland while it continued its integration of an R&D center in Shanghai’s Zhangjiang Hi-Tech Park. Further, Novartis has reduced R&D expenses by outsourcing some of its clinical trials to contract research organizations (CROs).

Re-Prioritizing Research Goals: Novartis has decided to exit the field of Neuroscience including work in Alzheimer and Parkinson because of the inherent development challenges in these disease areas including identifying the proper endpoints to demonstrate the efficacy of the drugs.

Expanding Niche Medicine: Novartis has been targeting diseases that present a high unmet medical need. Some of the diseases have a relatively small prevalence leading to small volumes; however, the regulatory hurdles are significantly lower and the corresponding prices are higher. In addition, after getting the drug approved in a smaller population, then Novartis would work on expanding the indications to target larger segments.

This strategy is highlighted by Ilaris (canakinumab) targeting cryopyrin-associated periodic syndrome (CAPS), a rare auto-inflammatory disease leading to death. With approval secured, Novartis is pursuing other indications including gout, Asthma and psoriasis using the same compound.

Mergers & Acquisitions (M&A): Similar to other companies, Novartis has decided to use its cash to acquire other companies to diversify its portfolio, enrich its pipeline, and target high growth markets. One key acquisition was the eye care company Alcon, for which Novartis paid Billion dollars.

Growth in Emerging Markets: Although most of the Novartis sales came from the US market ($30 Billion) in 2010, the highest percentage growth came from emerging markets, specifically China (Novartis Annual Report 2010). Novartis China grew 42% in the third quarter in 2011 (Q3 Financial Results).

Developing Own Generic/Biosimilar Division: Novartis recognized early on the value of generics and thus built a strong division, Sandoz, to develop generic and biosimilar compounds. Sandoz leverages on Novartis’ know-how and is able to deliver high-quality generics. It is important to note that Sandoz was the first company that was able to license a biosimilar, Omnitrope, which is a human growth hormone. The Biosimilars market has the potential to reach $76 Billion by 2020 (FierceBiotech, 2011).

Novartis Strategy – Corporate Social Responsibility (CSR): Novartis has created a foundation, Novartis Foundation for Sustainable Development that aims to create value by tackling societal challenges that are related to health care, which according to Porter, affords the optimal opportunity to use the company’s resources and maximize benefits to the patients. Although this Foundation has spearheaded a number of initiatives (offering malaria drugs at cost in Africa, leprosy medication free-of-charge, etc.), we are going to focus on one particular initiative. The aim is to provide access to healthcare to poor people living in remote areas in developing countries like India or sub-Saharan Africa. For example in Mali, 20% of children die before the age of 5, mostly due to preventable and treatable diseases.

Novartis reached out to partners in these remote communities and provided 1) training to educate people about diseases and manifestation of symptoms, 2) setting up the infrastructure with respect to roads and makeshift clinics, 3) sent out healthcare workers on a regular basis to the remote areas, and 4) provided a combination of generic drugs and vaccines at low cost to the patients. The program has been successful in reducing child mortality and treating a lot of people. What is striking is that this program is sustainable, in the sense that it does not require any additional funding from the company and it is paid for through the drugs that are sold. Although observers in the Western world may not have “social identification with the affected party,” this initiative received a lot of traction and generated a lot of PR value to Novartis. As example, the Foundation’s president was awarded the first-ever Outstanding Contribution to Global Health Award by the UN in Sep 2011. Most importantly, patients have access to healthcare, where they did not before, which forms a competitive advantage as Novartis was a 1st mover reaching a huge untapped segment of people and being positioned to serve this market as it grows and develops.

6. Summary

Given all of the changes in government regulations, pricing pressure from payers, and approaching the patent cliff, the structural forces around the pharmaceutical industry are intensifying and impacting negatively its profitability. Novartis, however, has anticipated some of the trends in the forces and is in a better position compared with the competition because of its leveraging on the acquisition of Alcon, growing its generic business through Sandoz, expanding geographically in emerging markets, refocusing its R&D strategy, and restructuring its workforce, and focusing on niche markets. Its CSR strategy, although sustainable but not profitable at the moment, positions the company to compete in the future in developing markets.

Appendix

Citations

Conover, Damien. “Novartis AG Analyst Report.” 13 June 2011. Morningstar http://quicktake.morningstar.com/StockNet/analysisarchive.aspx?docid=384062&year=2011&country=CHE&symbol=NOVN

FDA web site. 14 Dec 2011 http://www.fda.gov/Drugs/default.htm

“Pharmaceutical Key Trends 2010.” Data Monitor. March 2010
Evans, I. Follow-on Biologics: A New Play for Big Pharma. Yale Journal of Biology and Medicine, 2010 June: 83(2): 97 – 100. Available from: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2892764/?log$=activity
Farkas C, van Biesen T. The Real Reason Big Pharma Mergers Are Wise. Forbes Magazine [Internet] 2009 Jun 26; Available from: http://www.forbes.com/2009/06/26/big-pharma-mergers-leadership-governance-acquisitions.html .
Kandybin A., Genova V. Big Pharma’s Uncertain Future. Strategy +Business Magazine[Internet] 2011 Nov 23; Available from http://www.strategy-business.com/media/file/00095-Big-Pharma-Uncertain-Future.pdf
Maggon, K. Top Ten/Twenty Best Selling Drugs of 2010. 2011 Dec, Available from: http://knol.google.com/k/krishan-maggon/top-ten-twenty-best-selling-drugs-2010/3fy5eowy8suq3/141#
IMS Health Midas [Internet]. Top 15 Global Products, 2009, Total Audited Markets. 2009. Dec, Available from: http://www.imshealth.com/deployedfiles/imshealth/Global/Content/StaticFile/Top_Line_Data/Top%2015%20Global%20Products_2009.pdf .
Amgen [Internet]. Press Release. 2001. Dec 17, Available from: http://www.amgen.com/pdfs/immunex/pressRelease011217.pdf .
Bethencourt V. Merck joins the biotech game. NatBiotech. 2009;27(2):104.
Rockoff J, Loftus P. Pfizer Pushes on New Biotech Drugs. Wall Street Journal. 2010 Apr 28; Available from: http://online.wsj.com/article/SB10001424052748704464704575208580328253618.html .
Kambhammettu S. The European Biosimilars Market: Trends and Key Success Factors. Scicast Special Reports. 2008 Oct 27; Available from: http://scicasts.com/specialreports/20-biopharmaceuticals/2152-the-european-biosimilars-market-trends-and-key-success-factors .
Emerging Health Care Issues: Follow-on Biologic Drug Competition Federal Trade Commission Report. 2009 Jun; Available from: http://www.ftc.gov/os/2009/06/P083901biologicsreport.pdf .
“Novartis India wins Award for Corporate Social Responsibility.” Novartis Corporate Citizenship. N.p., 8 Jan. 2008. Web. 17 Dec. 2011. .
(FierceBiotech, 2011). Hospira preps PhIII biosimilar study as it grabs lead on new market. Available from
[Accessed December 17, 2011]

Novartis Annual Report 2010.

Source: Jobcast.net

A corporate strategy article by Thunderbird students Leah Burdick, Ilan Fehler, Nicholas Kincaid, Peter Klein and David Ryan

More so than traditional businesses, online businesses have the distinct advantage of acquiring more information about their customers. The more that is known about online users’ habits, needs and preferences, the greater the value that is derived from that relationship, as the businesses are better able to cater to the needs of those online users.  An online network, a system of users, is enhanced not only by the relationship the business has with the user but also by the relationships that the users have with one other. Take the telephone for example. If you were one of the first three people to own one, you could only call the other two. Fortunately, today millions of people have access to telephones and anyone of them could theoretically call any other one.  Therefore, a network of users derives greater value through the network’s size and ubiquity — the larger the network, the greater the value to both businesses and consumers.

The primary benefit of pursuing a “Blue Ocean” strategy is getting a massive head start over potential competitors, and online, the “Blue Ocean” strategy is first developing a critical mass of users. By recognizing that the key to attracting new members is “first mover advantage” — identifying a unique user need and establishing a platform that fills that need, companies can position themselves for continued exponential membership growth, which leads to sustained profitability. While the barriers to entry of creating a website may be low, the barrier to entry of creating an enormous massive network of loyal and repeat users is much higher. When the size of a network hits a critical mass, additional revenue generators, such as subscription fees and advertising can be introduced. Once a critical mass is achieved, services can be refined and improved upon so that the cost of switching to a rival or substitute is counterproductive or inconvenient for the user.  These points are epitomized in the success story of the world’s largest online professional network, LinkedIn.

LinkedIn: The Professional Network
With more than 135 million members in over 200 countries, and growing at an estimated rate of two users per second, LinkedIn’s network is the source of their immense “Blue Ocean” competitive advantage. Purposely foregoing profitability during their first four years in a concerted effort to establish their network, LinkedIn’s professional network displaced market share from the original job-board websites, such as Monster.com and Careerbuilder.com. Monster was one of the worst performing stocks of 2011 according to Yahoo Finance, the year in which LinkedIn had its initial public offering valued at $8.9 billion.

According to Mikolaj Jan Piskorski of the Harvard Business School, the success behind professional networks like LinkedIn is that they provide a way for people to participate passively in the job market while also having the excuse of using the system to enhance current job performance.  Where most Monster.com users would log in and post their resumes only while actively searching job openings, LinkedIn’s network of professionals log on repeatedly to read the status updates of their peers, connect to more users, and to update their profiles as they gain work or educational experience.

Competition: Direct
While creating a business online is easy, competing with an established network of millions is not. A company that attempted to directly compete with LinkedIn in the professional network space was Visible Path. Founded in 2007, Visible Path received early press attention but ultimately did not gain sufficient network prowess to remain viable. The site lasted a few years and is now defunct.

LinkedIn’s main competitors in the professional social networking industry are established country-specific sites such as Germany’s 10 million-member Xing.com. Another professional network player is France’s 40-million-member Viadeo.com, which has subsidiary websites servicing China and Asia. While Xing and Viadeo have established networks, LinkedIn is growing at a faster rate than either of those companies in their home countries because users want to network with professionals on a global scale. In this case, the global network is proving more attractive to users.

Competition: Indirect
A professional network allows users to maintain professional ties and easily establish new ones. LinkedIn, for instance, has over 1 million unique groups on specialized subjects that users can join to collaborate and establish new contacts. A purely social network such as Facebook, LinkedIn’s greatest threat, functions primarily as a means for users to socialize and keep in touch. LinkedIn’s users, who average five years older than those on Facebook, prefer to keep their personal and professional lives separate. Industry analysts at 360i, a prominent digital agency specializing in social media, believe that Facebook will never replace LinkedIn because the two are polar opposites in terms of their “raison d’être.”

Facebook, with its larger network of 800 million users (as of July 2011), has attempted to develop job search applications and functionality to rival LinkedIn; however, they have yet to have a noticeable impact on LinkedIn’s operations. Another recent attempt to enter into the social and professional network space was Google+. Although Google has a user based to rival that of Facebook, the Google+ network has yet to gain a foothold in the “Red Ocean,” now crowded social media space.

The Business Model
LinkedIn generates profits from three sources: 1) advertising, 2) premium subscription fees, and 3) the licensing of its proprietary tools to recruiters. Individual career seekers can purchase a premium membership to LinkedIn, allowing, among other things, their individual profiles to show up more frequently in recruiter searches. Today, most recruiters actively use LinkedIn, and many have paid for premium subscriptions. The licensed Corporate Recruiting Solutions tool gives recruiters access to individuals’ profiles and allows them to search for talent using keywords in talent profiles, enabling recruiters to find very specialized talent for jobs they are seeking to fill. Recruiters can mine LinkedIn’s rich database of professionals and also use tools to promote jobs to countless people within minutes. For companies, LinkedIn has created targeted advertisement-placement technology to place company job advertisements next to relevant professional profiles. It also charges companies to post job vacancies to its job boards and to create enhanced company profile pages. The competitive advantage derived from the strength of 135 million members, has enabled them provide more value to advertisers, users, and corporate recruiters alike and accordingly to charge a premium for that value.

The Network of the Future
As the most popular social networks approach maximum adoption levels, their future for continued expansion is to create ecosystems of other applications that leverage their existing power networks and attract new users. A successful example of this is Zynga, Facebook’s gaming application provider. Zynga has a contract with Facebook to provide popular online games such as Farmville, Cafe World, Zynga Pokers and others exclusively on Facebook’s platform. This arrangement demonstrates Facebook’s supplier power to dictate that Zynga only provide its games via their platform.

LinkedIn is adopting this same strategy within the professional realm. Despite the reputation for tightly guarding its code, on June 30, 2011, LinkedIn laid the foundation for developing an ecosystem with the creation of LinkedIn Groups API. The recent launch of LinkedIn Groups API marked the company’s new willingness to allow outside developers to embed functionality from Groups into other applications.
Lastly, LinkedIn envisions the future of job hunting as a resume obsolete world. Already some companies encourage job applicants to submit their LinkedIn profiles in lieu of their professional resumes. By utilizing LinkedIn’s new API, several career-related services have begun to intertwine their service offerings with LinkedIn. It’s only a matter of time before any career-oriented product or service worth its weight will have to partner with LinkedIn.

Works Cited:

Fraser, Matthew, and Soumitra Dutta. Online Social Networking and the Economic Crisis. France, Fountainebleau: INSEAD, 2009. ABI/INFORM Global. Web. 17 Dec. 2011.

“LinkedIn.” Venturebeatprofiles.com. Venture Beat Profiles, n.d. Web 19 Nov. 2011.

“LinkedIn.” Wikipedia.com. n.p.  13 Nov. 2011. Web 19 Nov. 2011.

LinkedIn family of webpages. LinkedIn.com, n.d. 20 Nov. -17 Dec 2011. <http://www.LinkedIn.com>.

“LinkedIn Reviews.” Glassdoor.com. 27 Oct. 2011.  Web. 19 Nov. 2011.
<http://www.glassdoor.com/Reviews/LinkedIn-Reviews-E34865.htm>

“No Longer Your Mothers Employment Database, LinkedIn Proves Powerful for PR.” PR News 67.19 (2011): n/a,n/a. ABI/INFORM Global. Web. 17 Dec. 2011.

Plunkett, Jack W. “LINKEDIN CORP.” E-Commerce & Internet Industry. Plunkett Research Online, 11 Feb. 2011. Web. 18 Nov. 2011. <http://www.plunkettresearchonline.com>.

Slutsky, Irina. “Why LinkedIn is the Social Network that Will Never Die.” Advertising Age 81.43 (2010): 2-. ABI/INFORM Global. Web. 17 Dec. 2011.

“Social Contracts;” The Economist Jan 30 2010: 16-S16. ABI/INFORM Global. Web. 17 Dec. 2011.
Stone, Brad. “LinkedIns Overseas Route to an IPO.” Business week Sep 06 2010: 1. ABI/INFORM Global. Web. 17 Dec. 2011

“Visible Path.” Crunchbase.com. Crunchbase, n.d. Web. 19 Nov. 2011.

Under Armour – Positioning Themselves For The Next Win

The Under Armour brand evokes an image of elite athleticism, almost at odds with the company’s humble beginnings in the home basement of the founder’s grandmother. A simple idea ultimately developed into one of the most prominent names in the industry. As the company evolved, the relative importance of the strategic challenges they faced changed as well. One shift has already occurred – from word of mouth advertising to promotion by professional athletes – and this will likely be insufficient to expand their market in the direction that they are focusing on with their newest production lines. Their marketing strategies and ability to maintain the share they have established will be tested as they move away from their traditional customer base and into new niche markets. The challenge to Under Armour is whether to change their strategy as they expand, or to apply their initial model in new, innovative ways. Both have risks if not executed properly.

History

Under Armour founder and CEO Kevin Plank played college football at the University of Maryland, where the inspiration for Under Armour was born. He complained of heaviness and weighed-down feeling of his cotton undershirts during football games and desired a better solution. He researched and found such solution. After developing his first prototypes, his former teammates, now in the NFL, were his test subjects [8].
Under Armour was founded in 1996 with one goal: to create an athletic shirt that was superior to cotton, enhancing performance on the field. What they created was a compression fitting, sweat wicking shirt around which the early business model was structured. They did not have the financial means of the market leaders – at the time Nike and Adidas – to start large marketing campaigns, and therefore focused their marketing on direct, inexpensive measures. In its first year of operations, Under Armour generated $17,000 of revenue driven solely by word of mouth advertising. The following year Jeff George, then the quarterback for the Oakland Raiders, wore an Under Armour mock turtleneck on the front page of USA today. Once NFL players were seen wearing his gear, Plank focused on marketing Under Armour to entire football programs. The move was successful. This serendipitous product placement led to small contracts with universities. The biggest break for Under Armour, though, came when a jock strap prominently displaying the company logo was featured in “Any Given Sunday”. At this juncture, they shifted their strategy from pure word of mouth to couple the movie release with an ESPN ad. This was the company’s first step into strategic marketing, as well as the first time that they had used any marketing efforts outside of free samples to promote the brand.
Despite not previously having a clearly defined marketing strategy, Under Armour was able to build a strong market presence, excelling in part because of their underdog image. They were ignored by the well-established brands due to their size, and not deemed a threat because of their niche base. By 2007, after only 10 years in the industry, it was estimated that the company controlled 75% of the performance athletic apparel market. Throughout Under Armour’s history, the customer base target was highly concentrated on a particular set of individuals: young, high performance athletes. By creating buzz within this market in the early stages of development through deals with colleges and associations with professional athletes, they were able to dominate this niche market.
One of the more unique aspects of this rise is that Under Armour’s strategy did not include registering patents on the specialized materials or processes used to manufacture their clothing. The material that initially launched the business was not invented by Under Armour, continues to be widely manufactured, and has been in existence for an extended period of time. Subsequent to their rise in popularity, the company has expanded to cotton-based products and recycled materials. Their early market success, however, was based solely on one specific material that the company did not control.
Under Armour began doing business with an access-based positioning strategy, providing only college and pro athletes with access to their products [9]. The positive publicity created by these athletes shaped the market for consumers to want to own those same products.
The company’s 2005 Annual Report states that “our uniforms, batting gloves, socks and other items of apparel are seen on the field, giving our products exposure to various consumer audiences, through television, magazines and live atsporting events. This exposure to consumers helps us establish on-field authenticity as consumers can see ourproducts being worn by high-performing athletes.” Even with the brand permeating into high schools and regular consumers across the nation, the same sentiment remains true today. Under Armour creates buzz and brand recognition with its college and professional athletes/teams. This was made ever apparent during a 2011 football game played by the University of Maryland Terrapins, for whom Under Armour designed a uniform based on their state flag. This uniform itself created news across the nation, and got people discussing both Maryland football and Under Armour.

Will Under Armour’s marketing strategy hinder its future growth?

Under Armour’s growth over the past 5 years has been substantial with its revenue exceeding $1 Billion in sales and its 5-year compound annual growth rate being upwards of 30%, but it still only holds a minority share of the athletic wear market, with Nike still in a dominant position with revenue of approximately $18 billion in 2010 [5]. In addition to being a relatively small volume player, Under Armour also maintains that its advantage lies in its strong brand image and focus on long term customer relationships. This core strength is somewhat tenuous to maintain; whereas competitors like Nike espouse expertise and competitive advantage in operations, marketing, distribution, and retailing, among others. One specific example is that Under Armour, as of year ending 2010, did not own any patents, whereas Nike holds 4000+ patents. Additionally, Nike focuses very strategically on cross functional innovation from product design, manufacturing, distribution, as well as retailing to continually drive increased revenues and keep ahead of its competitors [6]. Under Armour, on the other hand, maintains numerous trademarks and copyrights, and is more recently filing for patents on some of its more advanced functional apparel. However, it still seems to not be generating and maintaining “new and innovative” knowledge as measured in patents (read inventions) even in its core competencies like product design.. Their products are easily copied from a material and form perspectives so near duplicates are available if not direct substitute offering from Nike, Adidas or other competitors.
This places them in a tenuous long term position. In recent earnings reports they expressed concern about maintaining growth in revenue, demand, and business complexity. Under Armour is beginning to look for growth through expansion. While their brand identity remains its primary values, they are looking for new ways to serve the customers who already value the Under Armour brand. They are expanding beyond the high performance athletic wear into other arenas including footwear, women’s clothes and hunting gear. This is a major shift for a company that for its first 5 years produced a single shirt and took another 5 years adding small modifications such as sleeve length and tightness. The Under Armour brand has developed value and strength in this segment through a continued commitment to meeting the athlete’s needs and servicing of high end clients such as college athletic departments. As they push into these newer spaces though, they cannot carry all this brand value with them because it is not the value upon which they have built their image. Their iconic images of football players in the skin tight athletic shirts do not have a clear way to translate to these new spaces. Their focus on their brand image has allowed them to strengthen their core but has given them a more difficult path to expand than companies who are driven by technology. They will need to find a way to create a similar brand identity in these arenas. This is definitely possible as consumers like avid hunters can see value in a brand with a dedicated design team focused on their specific needs and prioritize high end gear, but that image will need to be cultivated and grown in order for Under Armour to show its brand is a leader in hunting gear or footwear and therefore lead toward success and growth for the company overall.
While Under Armour’s move into hunting and women’s apparel seems to indicate that the company sees its market as needing to expand, they need to have a concerted and strategically focused effort to make this move successful. The fickle tastes of the consumer market could make their existing image an outdated model, preventing them from expanding in a meaningful and profitable way. Interestingly, the brand currently retains its strength, as evidenced through market rumors of a possible tender offer by Nike to acquire the company as recently as September.
The importance of Under Armour’s original strategy of word-of-mouth advertising can’t be stressed enough. The simple idea of applying an existing sweat-wicking technology to athletic attire and marketing the product through elite athletes was a blue ocean strategy that managed to sidestep the existing brand behemoths. The strategy enabled Under Armour to grow faster and more profitably than could otherwise have been achieved, but the evolution needs to continue to ensure sustained success. Rumors of a potential acquisition by one of their biggest competitors show the strength still in the brand; it’s up to Under Armour’s management team to find that strategic move to keep catapulting themselves forward.

[1] http://www.thefreelibrary.com/Protecting+the+house+of+Under+Armour.-a0201712741
[2]http://abcnews.go.com/Nightline/armours-rise-athletic-ranks/story?id=10973405
[3] http://files.shareholder.com/downloads/UARM/1478596026×0x452384/C8786075-4201-4DF1-9FC8-
[4] http://www.businessweek.com/magazine/content/07_18/b4032069.htm
[5] 2011 Nike Annual Report. Letter to Stockholders
[6] 2010 Under Armour Annual Report
[7]http://www.lobshots.com/wp-content/uploads/2011/09/309205_280191921998109_227904353893533_1312505_4961672_n.jpg
[8] http://sportsillustrated.cnn.com/2009/more/04/09/under.armour/index.html
[9] Porter, Michael. “What Is Strategy?”
[10] 2005 Under Armour Annual Report
[11] http://blog.vistage.com/business-innovation/the-3-stages-of-innovation/

Team No. 3:
Eric Chown
Veronica Yusz
David Prestin
Sarah Olsem
Rosemary Geelan

TTM Technologies Acquisition of Meadville – A Retrospective Strategic Analysis

A shift in the Printed Circuit Board (PCB) industry has motivated leading US defense PCB manufacturers to collaborate with international businesses, particularly in China. In 2010, TTM became the largest US-owned Printed Circuit Board manufacturer and the fifth largest worldwide by acquiring Hong Kong-based Meadville, a high volume PCB manufacturer. Leading into the 2010 decision, TTM was arguably the most prominent military and aerospace PCB provider in US and possibly the globe. Since the mid-2000s, the PCB industry has had a new emphasis on less complex, high volume standard boards over the high complexity, lower volume PCBs required for the aerospace and defense industry – TTM’s core competency. In an effort to help diversify its manufacturing and lower costs, TTM acquired Meadville in April 2010, a somewhat controversial move that may well bring an end to TTM’s contracts with the US government.

Readers might not recognize the term PCB, but without them, many electronics used every today would not exist. One might better identify PCBs as the green backbone of everyday electronics. TTM’s 10-K describes PCBS as:

Printed circuit boards provide the foundation for virtually every electronic product. Industry leaders rely on TTM Technologies’ unique combination of speed and technology to support their most demanding applications. From the navigation system in commercial aircraft, to a high-speed router in a corporate network, to an advanced diagnostic imaging system in a leading medical center, the breadth and scope of high-performance applications supported by our interconnect solutions is extremely varied. [TTM 10-K]

In order to frame TTM’s decision to pursue Meadville, we must first understand the PCB industry. They do not include the mounted components such as processors, resistors, capacitors, and connectors. The process for manufacturing PCBs is predominantly a chemical process. PCBs can be placed into two broad categories of boards: application-specific “custom” type boards and “standard” commodity type boards. Custom boards are designed for specific systems while standard boards are used industry-wide (i.e. Cellular or PC industries) with customization post-PCB production conducted by OEMs or Original Equipment Manufacturers (i.e. Apple and Dell). Standard boards are significantly less expensive to produce and when possible are preferred due to the significant cost savings. In addition to complexity, the other primary discriminating difference between custom and standard boards is manufacturing quality, which leads to product reliability. Unlike normal consumer electronic applications such as cell phones, which are replaced every twelve to eighteen months, many satellite or military combat systems have mission life cycle requirements exceeding twenty years.

One of the major means of bypassing some of the high costs of custom PCBs is the use of standard boards in conjunction with “glue logic” components. These glue logic components can operate complex systems able to meet advanced requirements while shifting the costs from the customer production to software intensive logic programming. These “glue” chips can be simply thought of as the components and programmable logic devices (PLDs) required to connect the standard circuit cards. As one industry expert explains, “the real magic is in the glue” [Bentley]. This technology shift away from custom boards towards standard or commodity boards places increasing emphasis on the proprietary designs of how to combine the glue logic components. The design of these application specific PCBs and composite glue chip PCBs can be found in what are known within the industry as Gerber files. Gerber files contain all of the necessary three-dimensional interconnection data required for the manufacture of a PCB.

Electronic products today typically have a shorter life cycle. This coupled with customer demand for fast turnaround increases the pressure to get the product to market quickly. The competitive nature of the market requires manufactures to have the ability to turn around production in a matter of days versus the old standard of weeks. Add to this compressed time-frame the increasing complexity of the electronic products requires even more complex PCBs. To meet the demand for the complex PCBs, manufacturers must integrate more complex processes, advanced materials and high-mix production capabilities.

The trend away from custom board manufacturing towards increased use of standard commodity boards is just the first of many industry trends. The standardization trend gives more power to the customer due to the ability to switch suppliers quickly and without penalty. Industry consolidation has swept the industry forcing out nearly every US medium-sized PCB manufacturer. This move is driven in large part by OEMs that, in an effort to create supply chain efficiencies, are reducing the number of PCB manufacturers they rely upon [10K]. As a result, the market today is left almost exclusively with two types of PCB manufacturers: small “high mix/low yield” and large “low mix/high yield.” PCB manufacturers are increasingly migrating to Asia (especially China) to take advantage the large pool of low-cost labor in order to remain competitive.

The standardization trend has even taken hold in the defense sector. Faced with tightening budgets, the DoD has shifted to commercial-off-the-shelf (COTS) electronics for many applications, while still demanding extensive certification requirements, cutting-edge technology and long product life cycles—a set of contradictory demands that raise the bar even higher for the PCB manufacturers. The budgetary constraints of the DoD place its suppliers at risk of projects being cancelled and leaving expenses unrecoverable. Furthermore, due to national security concerns, suppliers may be unable to find a secondary market to offset these losses.

With a clear understanding of the trends and forces moving through the PCB industry, a critical analysis of TTM’s decision to acquire Meadville can be undertaken. Examining first the strengths of TTM, we see that it has extensive experience in not only the US defense and aerospace industry, but also in the international defense and aerospace industry. These relations give TTM both a reputation as a quality manufacturer of high complexity custom boards and the professional engineering knowledge required for the design and manufacturing. Military and aerospace industries require highly complex and extremely high quality assurance (QA) products because many of these products are strictly for “domestic only” productions. Since TTM is a US-based company with eight US factories, US domestic demand is easily met; however, as previously noted, the US demand for these products was expected to decline even prior to 2010.

The weakness of TTM can be seen as gaps in its strengths. It suffered from a lack of high volume manufacturing, high US manufacturing labor rates, and barriers to growing markets. The solution to TTM’s imbalance of capabilities would require a high capacity, low labor cost, Asian counterpart – and TTM has found that counterpart in a Meadville. If TTM could acquire Meadville, TTM would be able to offer its customer the “one-stop shop” solution that provides high-end boards, rapid prototyping, and high volume production at a competitive per unit cost.

In April 2010, TTM completed the acquisition of Meadville, a Hong Kong based PCB manufacturer. The acquisition nearly doubled the size of company and made TTM the world’s fifth largest PCB manufacturer. The acquisition did more than just increase its size, it made TTM not only a high end and complex industry leader but also a leader in higher quantity standard boards. TTM would now be able to provide both the highest complexity boards for both commercial and military customers, and also the lower reliability and far less costly standardized boards at greatly increased volume rates.

The addition of Meadville did not come without complications. As you recall, TTM is the number one provider of US military PCBs. This makes its relation with “Patriotic [to the CCP] Businessman” Tang Hsiang – a predominate member of the CCP and sole owner of Meadville – complex at the very least. Through the acquisition, Mr. Tang would become the largest single stockholder, and nearly the majority stockholder of TTM. Due to DoD and other international regulations, namely ITAR – International Trafficking in Arms Regulation, TTM would now be under increased scrutiny to maintain security of its propriety knowledge of US military and government Gerber files. These laws also bar Mr. Tang from becoming the majority shareholder of the publicly held company. These security requirements are not only difficult to implement and maintain, but also incur a significant cost on TTM. Breach of the security requirements could not only irreparably damage TTM’s ability to conduct business with the DoD, but also give vital military secrets to a potential US adversary.

Other problems with companies operating in Hong Kong and China include extremely high turnover rates of skilled Chinese employees, limited legal protection of proprietary knowledge, and domestic political interference with foreign companies. All of these problems are leading TTM to investigate non-Chinese overseas manufacturing locations as it continues to try and grow its standard commodity board sector [Iverson].

After analyzing the TTM acquisition of Meadville, evaluation of the decision can now be made – was the acquisition of Meadville the proper strategic decision? Conceding the difficulty of the decision to work with a Hong Kong company with ties to Chinese Communist Party and difficulties of Chinese business laws and requirements, we conclude that the “grow or die” nature of the industry, particularly for companies operating in the US, gave TTM few other options. If TTM did not acquire Meadville, a company of nearly comparable size, another PCB manufacturer certainly would have. The fit was right; the acquisition gave TTM an Asian counterpart, increased capacity for standard / high volume PCBs, and shorter turnaround times, but also allowed the Asian factories to gain knowhow in the production of high complexity / high quality boards that TTM’s US division had as a competitive advantage over many other industry leaders.

References:
1. “TTM Technologies 10-K Stockholders Report, 2010”. Web. 22 Sept 2011. http://www.ttmtech.com/investors/documents/10-K/2010-10k.pdf
2. Bentley, Stan – PCB/OME Consultant, Telephone and email interview. 22-30 Sept. 2011
3. Iverson, Ronald, Telephone interview. 30 Sept 2011, TTM board of directors.

Heading into 2012, Costco is well positioned not only to weather the storm of further economic downturns but also to consolidate its lead over other discount wholesalers like Wal-Mart and BJ’s Wholesale Club. Its intentionally low margin and exceptionally high inventory turnover, along with growing overseas sales and relatively low debt, are some of the main factors that point to Costco’s potential for continuing success. The new year will also bring new challenges that the company must manage with careful strategy: increasing costs of products and labor; co-founder and CEO Jim Sinegal’s imminent retirement; and growing pressure to decide how and how quickly to expand both domestically and internationally. With its strengths and upcoming challenges in mind, we discuss a few of the key strategic decisions Costco must make, and explore how these choices might affect both its original business model and the changing retail industry in a volatile global economy.

Competitive Pricing Strategy – Can it still work for Costco?

To gain an understanding of one of Costco’s primary strategic advantages, pricing, a brief look back into its evolution into a major warehouse retailer is required. In 1954 current CEO Jim Sinegal began working for Fed-Mart, a discount department store originally open to only government employees who paid membership fees of $2 per family. Fed-Mart’s founder, Sol Price, is credited with inventing the warehouse strategy of discount pricing, high volume stores, and stocking a limited number of products to sell in bulk quantities [Cascio]. With this strategic framework Price created a blue ocean of retailing, one in which Costco still swims today. As detailed by Kim and Mauborgne, a blue ocean strategy relies on creating value for customers that captures new demand, makes competition irrelevant and creates a previously uncontested market space [Kim]. Price capitalized on all of these elements, and with Sinegal as his vice-president of merchandising, grew the first warehouse chain to 45 stores that generated approximately $300 million in annual revenue [Cascio]. Fed-Mart eventually went out of business, but Price started a new warehouse company, Price Club, which charged a $25 annual membership, and Sinegal went his own way to found Costco. Price club essentially maintained Fed-Mart’s retail philosophy, and eventually merged with Sinegal’s Costco in 1993, becoming PriceCostco and then solely Costco Wholesale Corporation in 1997.

Costco’s pricing strategy, in particular, is unlike that of any other merchandise retailer. It has established a cap on its profit margin of 14 percent for all goods except its in-house Kirkland brand items which earn 15 percent [Cascio]. By comparison, supermarkets typically maintain 25 percent profit margins and department stores mark up as much as 50 percent, making Costco a true customer value creator [Greenhouse]. The high volume and limited product selection philosophy Price and Sinegal pioneered allows the warehouse giant to be so religious about keeping the margins low. Costco carries approximately 4,000 stock keeping units (SKU’s), which is just 4 percent of the number of items typically carried by Wal-Mart. A limited selection paired with low prices results in both lower relative cost to serve each customer and high sales volume, which in turn gives Costco incredible bargaining power with suppliers and an incredibly high inventory turnover rate. At 12.7 times, it easily beats the industry average of 8.4, and means that Costco has often sold its merchandise before it has even been paid for [Hoover].

Complimenting Costco’s high volume approach is the ability to store the majority of items within its pre-existing large retail space, limiting the need for large depot centers and decreasing transportation expenses. This inventory storage approach is in stark contrast to its rival competitor, Wal-Mart owned Sam’s Club, which relies heavily on its distribution centers and private fleet of trucks for store delivery. Costco has also been quite creative with the invention of its own coupon booklet, offering further discounts on various consumer products.

Fundamentally, Costco utilizes its pricing strategy as a significant competitive advantage internally and externally. Its willingness to forego increased short term profit in favor of long term market share and customer loyalty has served it well to date and has succeeded in limiting threats from industry competitors and substitutes. As CEO Sinegal once stated, “We want to build a company that will still be here 50 and 60 years from now” [Greenhouse]. But future headwinds may test the limits of its lower profit margins: increased costs merchandise, labor and healthcare, along with stagnating demand in key markets like the US and UK are all likely to test Costco’s strategic resolve in 2012. But all retailers are experiencing similar issues, and boosting margin rates in a time of economic hardship seems like a surefire way to lose hard earned customer loyalty. Instead, Costco should continue to focus not only on finding new ways to control costs, but also on seeking smart growth that is earned in line with the company’s historically successful strategic model, whether that be found at home or abroad.

Continuing on the path of Smart Growth …. Avoiding the International “Growth Trap”

While Costco is situated fairly well to benefit from more domestic consumers flocking to buy from discount retailers, it has already done well internationally and is hearing an increasingly siren song to expand into growth markets. Between 2005 and 2010, the revenue brought in by Costco’s Canadian stores doubled, increasing from 13 to 15 percent of the company’s total revenue. Though Canada’s population, at 35 million, is just over 12 percent of America’s, Costco’s Canadian stores provide the company with 20 percent of the revenues of domestic ones [Bleeker]. This may be due to the fact that Costco has the most store locations per capita in Canada than its other markets.

More recently, Costco has been aggressive in its Australian growth as the average sales per Australian store has outpaced that of an average domestic store [International]. As domestic growth barely breaks the double digits, the triple digit growth seen in some of its overseas markets
will certainly entice Costco to continue expansion in foreign markets. Though this all paints a pretty picture, global growth will present Costco’s original business model with serious challenges that should be considered when analyzing new markets and assessing the rate at which the company should expand. For example, India and China, each with growing middle classes and increasingly accommodating regulatory structures, are both huge consumer markets that on the surface appear to be heaven sent for Costco. A closer look, however, reveals possible inconsistencies between consumers in these markets and the original Costco business model: many Asian consumers prefer to buy small amounts on a more frequent basis than to buy in bulk, which is a key pricing and marketing
strategy for Costco. With lack of home storage space, smaller cars and greater reliance on public transport, most potential customers in these countries are currently ill adapted to derive much value from the Costco offering. In addition, overseas consumers often prefer global brands to private ones such as Costco’s Kirkland Signature (which brings higher profit margins and accounts for 15 percent of items and 20 percent of sales) [Costco Wholesale, 28]. This is not to say that Costco cannot enter India and China; indeed, with such frenetic change being experienced in each, consumers may well get used to and even demand Costco’s western way within short space of time, but in that time Costco must stick to its strategic guns and continue to do what it does best—provide bulk goods at low prices. Being a first mover into these markets may position Costco well for shifts in the cultural fabric that eventually produce loyal, dues-paying members willing to drive miles to stock up on Kirkland products.

Growth Decisions at Home

At the same time as having to make strategic adjustments to operate in overseas markets, Costco must be careful to not give up what makes it so special in its home market. With regards to future growth plans, it is crucial that Costco ask itself the cost of any effort designed to promote growth, to avoid getting stuck in a growth trap. According to Michael Porter, a successful strategy is one in which a company make a series of trade-offs about which activities it will not pursue [Porter]. These trade-offs are what make a company unique, and what lead to the particular set of abilities that company possesses, which in turn enable it to create value for its target customers, and reap the profits to be earned from this loyal base.  Costco is a company that has had a very clear strategy but like all companies is susceptible to the blinding dazzle of the growth that is so important to Wall Street. Unfortunately, managers adopting this imperative begin to see trade-offs as constraints to growth, and seek to branch out the company’s undertakings to capture additional revenues from non-strategically-defined activities that do not fit with its core. While this may work in the short term, the company will lose that core which brings value to its customers, and be caught in an endless cycle of chasing profits through non-core activities that actually dilute the brand and cause more damage—a growth trap. 

Such may be the case with one of Costco’s recent ideas, to expand domestically into anchor store spaces in suburban malls. After years of battering for the commercial real estate market, it may seem like a great bargain for Costco to both pick up space on the cheap and have it be nearer to customers than its typical big-box, out-of-the-way warehouses, but it is crucial to ask what this does to Costco’s strategy. The beauty of large stores that take some driving to get to is that they encourage customers to buy in large quantities, in order to avoid making too many trips. Almost everything about the stores reinforces this idea, like the oversized carts, in-store food and on-site gas pumps, and Costco is poised to benefit through reduced costs to serve each of these high-spending but infrequent shoppers.Many of these benefits would be lost with smaller store formats or greater density of locations, so Costco should more carefully enhance its truly strategic offerings rather than simply accepting an ill-fitting concept just because it may be cheap. One way it may achieve a strategic deepening is by moving up the value chain somewhat. Costco has begun to differentiate itself among wholesalers as an upmarket alternative, where those who can afford higher-priced memberships and $200-a-time shopping trips choose to go. Additionally, the company has carefully honed the art of bargaining with suppliers for top-shelf goods at bargain prices during periods, for example, of product overruns. Continuing to offer bulk buying of increasingly valuable goods will help, as will a focus on other profitable lines of the business, like member services such as insurance offerings and the higher-margin Kirkland branded goods, which should be developed into still-reasonably priced but ever-more premium brand. Further development of its successful internet
business, which grew 12 percent in fiscal year 2011, may also be a good fit for Costco’s capabilities, as it requires a low employee to customer ratio, minimal product diversity and a no-frills warehousing model.

There are many options open to Costco as Craig Jelinek takes over the reins from co-founder Jim Sinegal. While
incremental improvements and swift responses to changing market conditions are a must, maintaining an unwavering focus on Costco’s core strengths will be crucial to long term, beneficial growth. Overseas opportunities, changing home market dynamics, and cost challenges should be approached with the same patient, long term resolve Costco has exhibited since its beginnings. Creating a solid strategy of targeted growth and building customer loyalty through low pricing helped Costco become the biggest of the big warehouse retailers; its new CEO must not pursue quick growth at the expense of these strategic foundations if we are to see Sinegal’s goal of a Costco still strong after 50 or 60 years.

References

Bleeker, Eric. “Will International Growth Drive Costco Forward?” The Motley Fool, July 1, 2011. Accessed on the Web December 2011. http://www.fool.com/investing/general/2011/07/01/will-international-growth-drive-costco-forward.aspx

Brohan, Mark. “Web Sales Grow 12% or Costco in 2011” Internet Retailer, October 5, 2011. Accessed on web December 2011 at http://www.internetretailer.com/2011/10/05/web-sales-rise-12-costco-fiscal-2012.

Cascio, Wayne, “Decency means more than “Always Low Prices”: A comparison of Costco and WalMart’s Sam’s Club. Academy of Management Perspectives, Accessed on the internet, December 2011 :http://www.ou.edu/russell/UGcomp/Cascio.pdf

Coriolis Research, “Understanding Costco” June 2004. Accessed on the web December 2011 at: http://www.coriolisresearch.com/pdfs/coriolis_understanding_Costco.pdf

Costco Wholesale Corporation.” (n.d.): Datamonitor/Life Science Analytics Company Profiles. Web. 17 Dec. 2011.

Greenhouse, Stephen. “How Costco became the Anti-Walmart” NY Times article access on the internet December, 2011 http://www.nytimes.com/2005/07/17/business/yourmoney/17costco.html?pagewanted=all

Hoover’s Report for Costco – supplied by Jay Ball on November 16, 2011 from http://subscriber.hoovers.com.ezproxy.t-bird.edu/H/home/index.html

International Supermarket News (Blog). “Costco Wheels out Aggressive Expansion Plans” March 3, 2011. Accessed on the web December 2011 at http://www.internationalsupermarketnews.com/news/775

Kim, Chan and Renée Mauborgne, “Blue Ocean Strategy” Harvard Business Review, October 2004

Porter, Michael. “What is Strategy” Harvard Business Review, Nov.-Dec. 1996

Retailing Industry Profile: Global.” Retailing Industry Profile: Global (2011): 1. Business Source Complete. Web. 17 Dec. 2011.

Skidmore, Sarah, “Costco profit up slightly; struggles with cost” Bloomberg Business Week, December 8, 2011. Access on-line at http://www.businessweek.com/ap/financialnews/D9RGKG8O0.htm

Talley, Karen and Paul Ziobro. “Corporate News: Costco Profit Edges Higher. ” Wall Street Journal 9 Dec. 2011, Eastern edition: ABI/INFORM Global, ProQuest. Web. 17 Dec. 2011.

Team, Trefis “Costco scours for cheap mall space but stock is still too plump”, Forbes Magazine, September 8, 2010. Accessed on the internet December 2011. http://www.forbes.com/sites/greatspeculations/2010/09/08/costco-scours-for-cheap-mall-space-but-stock-is-still-too-plump/

Zack’s Equity Research (Analyst Blog) “Costco Battles a Tough Economy: December 12, 2011. Accessed on the web at http://www.zacks.com/stock/news/66153/Costco+Battles+a+Tough+Economy

Is Chipotle’s strategy enough to drive an Asian invasion of the fast-casual space? Or was Steve Ells’ success simply a flash in the pan?

By Manya Andrews Dotson, Wes Herche, Brie Lam, William Randle, and Jonathan Walters.

Abstract: Can a cut and paste application of the Chipotle strategy lead to another runaway restaurant success in an industry rife with pressures on profitability?  Was it the business model that fueled Chipotle’s meteoric rise? Or was it that CEO Steve Ells took a food we already knew and loved, the burrito, and made it taste even better? Or, are the two inseparable? Will replicating Chipotle’s strategy yield another blue ocean success story?

The foodie blogs are abuzz . . . a new naked light bulb has been lit in a stainless steel restaurant in Washington DC’s Dupont Circle. Firmly planted in a neighborhood where restaurants such as Panera Bread, Cosi and Starbucks dot the grid, it fights for purchase in a bloody — if tasty — battle for the upscale business lunch crowd fed up with traditional fa(s)t food (though, there’s some of that around there too). It boasts artisanal tofu, farm fresh ingredients, and free-range meats charred to medium-rare perfection right under the customer’s nose. It would be hard to believe that an Asian restaurant this good could be using the same playbook as the blazing burrito chain, Chipotle.

ShopHouse Southeast Asian Kitchen is Chipotle founder Steve Ells’ fresh attempt to democratize sophisticated food, and his strategy is to cut and paste the ensemble of business ingredients that he believes are behind Chipotle’s success.  Although the sector is quickly growing, with 9.3% sales growth last year at fast-food and fast-casual Asian chains, the Asian fast-casual space already has firmly entrenched incumbents. Can ShopHouse Kitchen be to Asian fast-casual what Chipotle is to Fresh Mex, even without the first mover advantage?  Is Ells’ restaurant recipe unique and potent enough to cook up another stunning success?

The Rise of the Fast Casual Industry

Fresh out of culinary school, Steve Ells opened the first Chipotle Mexican Grill in Denver, Colorado in 1993 with the simple intention of generating some cash to start a fine dining restaurant (Brand).  Ells suspected that customers wanted fresh and tasty food, but little did he know that Chipotle would lead a new category of restaurants known as “fast-casual”— establishments that focus on simple but high quality food and décor, but without the table service and long waits that come with sit-down restaurants.  At the time, it was a redefinition of the restaurant industry—a Blue Ocean strategy that made new rules for restaurateurs, and broke open a wide untapped market.

Not only would the fast-casual industry boom, it would become large enough to spawn sub-categories such as “Fresh Mex” where Chipotle holds the dominant position.  Pinpointing an exact commencement for the fast-casual restaurant movement is difficult but many of the restaurants that currently make up the category began in the early 1990s, and really started gaining momentum in the last five to ten years.  Even as the United States and many other Western nations are experiencing a sharp economic downturn, the fast-casual industry has maintained steady growth even through 2007 global recession (Hensley).  With typical Western consumers becoming ever more aware of (and discerning about) the sourcing of their food choices and the growing pressure on personal budgets, the fast-casual industry, Chipotle Mexican Grill in particular, has been perfectly positioned to meet this new demand.

A Porter-led Portrait of the Industry

A quick glance at the industry using Michael Porter’s famous Five Forces analysis framework, reveals that all of the pressures on profitability are high in the fast-casual space.

Competition amongst rivals is already high, and increasing, as fast food chains attempt to give themselves makeovers to take advantage of the trend. Substitution power is high in the fast-casual industry  as fast food options, sit down restaurants, and food delivery services are abound. Threats from new entrants is very high, as space in existing retail areas is plentiful, and with many fast-casual chains offering franchise opportunities, start-up costs can be low.  There are few trade secrets in an industry that generally allows customers to view the kitchen while their food is being prepared.

With rivals and substitutes available on every corner as well as virtually no switching costs in the growing fast-fresh movement, buyer power is also high. If the popularity of food television channels and the proliferation of “celebrity chefs” are any indicator, the modern consumer palette continues to grow more sophisticated. Looking for healthier options that are still convenient is increasingly a priority.  Industry players could neutralize this power to some degree by creating loyalty programs and carefully locating stores in geostatistical sweet spots characterized by a high density of white-collar businesses and low density of existing fast-casual options.

Though the fast-casual industry is rapidly growing, stacking up the major competitive forces paints a stark picture of a tough industry in the long term. Is there really space for an Asian permutation of Chipotle?   Is there enough ethically produced meat to supply two chains?

Within the fast-casual category, restaurants focusing on organic ingredients have onerous buying requirements. Supplier power is medium- to- high, as fewer suppliers are able to meet the requirements and prices remain higher.  Additionally, increasing global population, particularly the rise of consumer consumption in India and China, are putting further upward demand pressure on food prices.  Restaurants using organic food may be forced to compromise their quality standards (or pay more) when demand outstrips supply.

In The Kitchen: The Inner Workings of Chipotle

In the fast-casual category, different ethnic and thematic categories with fast, fresh and healthy food compete to satiate customer hunger.  Even within, the Fresh Mex sub-category competition is fierce; however, Chipotle and its 1,100 restaurants lead the pack beating out the closest rival Qdoba with 800 restaurants (The QSR 50).  Competitors such as Baja Fresh, Barberitos, Illegal Pete’s, Freebirds, and others also vie for potential Chipotle customers.  What a company chooses not to do is often what differentiates a company within an industry and Chipotle makes some tough trade-offs to define their strategy and brand.

The most salient aspect of Chipotle’s culture is the commitment to sustainability which is reflected across all of its operations; from selecting organic ingredients to using environmentally responsible materials for stores. This encompassing commitment is valuable, creates good PR and marketing opportunities, and is a defining differentiator for brand positioning. While each of these “green” activities are more commonplace individually, the overall commitment to aligning all activities with this vision is certainly rare, and would be costly to comprehensively imitate at large scale.

Chipotle has made a commitment to sourcing “clean food,” and outlined this in its mission statement titled: “Food with Integrity” (Chipotle).  All of the meat purchased by Chipotle is raised free-range without antibiotics or hormones. Chipotle uses organic vegetables while attempting to purchase locally grown produce where possible.  The uniqueness and extent of the organic angle significantly differentiates Chipotle from its competitors as seen in New York City where only 19 restaurants serve up free range beef to a city of over 8 million people (Grass Fed Beef).  Free-range meat sourcing is a challenging activity for rivals to replicate.

In traditional fast-service, high volume restaurants, food preparation is centralized off-site, trucked to restaurant freezers with precise supply chain management processes, and dumped into the hands of minimum wage microwave operators. The lack of can openers, microwaves and freezers in Chipotle stores reflect the commitment to serving fresh food made seconds before it is consumed. Ells credits the food preparation techniques as the reason for the restaurants popularity.  Creating teams of “chefs” out of low-wage cooks is an activity that is rare, not easily replicated, and yet a perfect fit with the overarching vision of quality food.   Many Chipotle restaurants also sell alcohol as fresh Margaritas and cold Mexican beer can complete the Fresh Mex experience.  Alcohol differentiates Chipotle from substitute products such as traditional fast food (Taco Bell, McDonald’s, Arby’s, etc) and other fast-casual offerings (Starbucks, Panera Bread, etc).

Chipotle helped create and define the fast-casual restaurant category, but unfortunately the incumbency advantage may not be enough to ward off new entrants in a context where there are few barriers, and individual activities are well known and widely touted. Luckily for the industry overall demand for “cleaner,” “greener,” “healthier” and more sophisticated options in quick service food seems to be on a steady rise.  This trend definitely plays to the favor of Chipotle’s strategic position.

But Chipotle’s simplicity might ultimately be its downfall — with a formula so tight it leaves little room for innovation, one wonders how long our so-called sophisticated palates will crave the simple burrito. How can Ells ensure that his restaurant concepts stay as fresh as the ingredients he so carefully sources? It’s a problem that Ells has been noodling for some time.

A recent Fortune interview with the man himself, reveals what Ells thinks is the secret of Chipotle’s success: sophisticated cuisine, operational  competence and social responsibility. “Chipotle succeeds not because of the burritos… It works because of our system: fresh, local, sustainable ingredients, cooked with classic methods in an open kitchen where the customer can see everything, and served in a pleasing environment.”  So rather than trying to evolve Chipotle, Ells is diversifying his restaurant portfolio — and adding East Asian cuisine to the mix. (Kaplan)

ShopHouse East Asian Kitchen – A Different Bowl of Rice

Supporters of Ells’ new strategy emphasize that only 1.7% of sales in the top 500 U.S. restaurant chains are from Asian chains, with the category representing a relatively untapped haven in the mature fast-food industry.  This gap has not gone unnoticed.  According to food industry consultant Technomic, Asian items on menu offerings at the top 250 restaurant chains were up 19% in the latter half of 2010 against the same period a year earlier.  Consumers who considered themselves likely to order a Chinese-style beef dish while dining out rose from 30% to 46% between 2008 and 2010 (Market Intelligence Report: Asian).

Detractors, however, argue that Chipotle’s success was based on first-mover advantage, and that ShopHouse can’t close the gap with a small number of powerful incumbents deeply entrenched.  But while other companies copied the tone and idea of fast-casual, none have adopted wholesale the combination of activities that Porter would argue undergird Chipotle’s success. Until now . . .

The first thing Ells has done with ShopHouse is to simplify — but not dumb down — East Asian cuisine; breaking the menu into a system of infinitely combinable parts (http://shophousekitchen.com). Unlike direct competitors Pei Wei and Panda Express, which both offer traditional Americanized Asian cuisine in all of its sweet-crunchy-greasy and caramelized glory,  Ells brought classically trained chefs James Beard, rising star chef Nate Appleman, and Kyle Connaughton to develop the menu (Shunk). It’s telling that at ShopHouse there’s not an eggroll in sight.

The process — as at Chipotle or Cosi — takes the customer right to the assembly line found in any fine kitchen, allowing them to call the shots at each step.  The customer initially chooses a starch (bread, noodles, rice), adds freshly charred grass-fed meats, line-prepared locally grown vegetables, proprietary sauces, crunchy relishes and pickles, and unique toppings (e.g. dried rice) . . . snags a culturally appropriate alcoholic beverage (Beer Lao anyone?), and bon appetite.  A delicious (and suprisingly complex) meal with integrity is the result.

While restaurateurs, analysts and foodies debate the reasons behind the success of Chipotle, and seek to predict the profitability of its future, ShopHouse’s doors are open in Dupont.  From the look of the lunch-hour lines, Ells will effectively diversify his product portfolio, boost overall business sustainability, increase economies of scale, and set up an insurance policy in case his beloved burrito is ever finito.  And we’ll look forward — with mouths watering — to the future forays of this foodie and his recipe for success.

* A look at a Blue Ocean Strategy Canvas comparing ShopHouse and its main competitors quickly reveals that the value curve here — identical to Chipotle’s — is once again, a blue ocean.

Link to Works Cited