Institute of Management

Technology
Nagpur

PGDM (2013-15) Term IV
STRATEGY FORMULATION
Project Assignment Report
Submitted to Course Instructor
Dr. Vikramaditya Ekkirala
On August 28, 2014
By Team No. 6, Section D
Members
Shashank Gupta 2013266 Salil Sharma 2013254
S Nandakumar 2013249 Sahil Modh 2013252
Saksham Arora 2013253 Sargam Sharma 2013259
Saurabh Nandy 2013262 Sayan Mukherjee 2013263
Sheetal Shrivastava 2013267

Q. Advice a chain of movie theatres on a differentiation strategy to restore its flagging profitability.
A. In this competitive world if a firm provides something unique that is valuable to buyers beyond
simply offering a low price is termed as Differentiation, while the advantage of this differentiation
occurs when the firm is able to obtain a price premium in the market that exceeds the cost of providing
the differentiation. There can be two dimensions on which we can analyse the differentiation
opportunities.
Tangible Differentiation
Intangible Differentiation
Tangible Differentiation
This type of differentiation is observed with the observable characteristics of a product or service that
are relevant to customers preferences and choice processes which includes (size, colour, weight,
design, material and technology). It also includes the performance of the product or service in terms
of reliability, consistency, taste, speed, durability and safety.
Intangible Differentiation
Differentiation perceived by the customer is different from the tangible aspects of the offerings. There
are few products where customer choice is determined solely by observable product features or
objective performance criteria. There are social, emotional, psychological and aesthetic
considerations are present in choices over all products and services. Status, Individuality, exclusivity
and security are few powerful motivational factors are few motivational forces which are desired from
most consumer goods.
The movie theatre could use differentiation strategy in both tangible and intangible offerings. Tangible
differentiation is concerned with the observable characteristics of the service that these theatres
provide. Intangible differentiation arise because the value that customers perceive in a service does
not depend exclusively on the tangible aspects of the offering. What movie theatres need is Image
Differentiation because the quality and performance is difficult to ascertain prior purchase of the
movie tickets.
The service value chain for the movie theatres could be designed as follow







Differentiation could arise from either of the demand side (customers) or the supply side
(competition). Demand side analysis identifies customers demand for differentiation and their
willingness to pay for it. Creating differentiation advantage also depends on a firms ability to offer
differentiation. This could be analysed using the value chain from the above.
The innovations that the movie theatre could do to restore its flagging profitability are listed below:
Booking of tickets could be done using website or mobile app.
In the process of booking tickets,
customers could be able to select
the seats according to their
preferences.
Along with choosing the desired
seats, customers would also be
able to select the eateries they
want to have during the movie.
When the customer would reach
the theatre, he would be
provided with an access key card
for the tablet that would be
attached to their seats.
Purchased
Supplies
Customer selects
and pays for
movie of choice
Customer selects
available seat
theatre
Customer
purchases food at
concession stands
Customer
watches movie
Customer and
market service
Product Development / R&D / Technology Support
Human Resources
General Administration
Value Chain Analysis of a Movie Theatre
The customers would be enrolled for a company offered cash card that could be used for
booking movie tickets, ordering food and drinks and also eligible for free car park (supposing
the theatre is inside a mall).
As the customer enters the theatre, he would be guided towards his/her seat by an
attendant.
The seat would be having a surround sound speaker that would give a more realistic
experience to a customer.
Once the customer is seated, he could use his card to unlock the tab attached that could be
used for various purposes like ordering food, movie start and end time and upcoming movie
trailers and schedule.
The food details like ingredients, nutritional content, and reviews of other customers would
also be available for the customers before they order. Time taken for food delivery would be
available for customers reference.
The movies screened in these theatres would exclude any intermission time as there is
provision for ordering food from the seat itself.
These tabs would also be
displaying advertisements from
mall shops/ local/ national
advertisers. This would help the
company generate additional
revenue from digital advertising.
Twenty minutes before the
movie starts would be dedicated
for adverts of movies,
companies, brands, products,
services, etc. First advert would
always be dedicated for a social
cause.
After the show has ended, the customer would receive an SMS that would thank the
customer and inform him/her about the balance of his/her cash card and the points that
would be available for redemption.
These measures would enable the theatre to charge a premium price for the tickets and thus
increase their profitability.








Q. Wal-Mart (like Carrefour, Ahold and Metro) competes in several countries of the world, yet most
shoppers choose between retailers within a radius of a few miles. For the purpose of analysing
profitability and competitive strategy, should Wal-Mart consider the discount retailing to be global,
national or local?
A. No industry could be defined in boundaries.
Yes, Walmart has to consider the caustic
competition they face from retailers which are
available in a radius of few miles within local
market. These discount retailers which are also
known as individual stores, available in short miles gives competition to Walmart and other big firms.
For the purpose of forecasting company profitability and making best of strategy like introducing new
format stores etc., the discount retailing industry should consider retailing at national level. The
competition at national level is somehow consistent- the entry-exit condition, competitors, supplier
power etc., do not differ nationally. Globally the discount retailing industry is shoddy because different
national markets are distinct from each other and low demand and supply side substitution among
each other.



















Q. A number of industries have experienced rapidly increasing global concentration in recent years:
commercial aircraft (led by Boeing and Airbus), steel (led by Mittal steel), beer (led by SAB-Miller,
Anheuser-Busch-Inbev, and Heineken), commercial banking (led by Citigroup, HSBC, Bank of
America, Royal Bank of Scotland, and Banco Santander), defence equipment (led by Lockheed
Martin, Northrop Grumman and EADS) and delivery services (led by UPS, FedEx, and Deutsche
Post/DHL). For each industry, are economies of scale the major reason for increasing concentration?
If so, identify the sources of economies of scale. If not, how can increase in global concentration be
explained?
A. As we know the economies of scale is quite an important factor when it comes to the industries
that are capital, research and/or advertisement intensive or driven. Thus we can safely say that it
depends upon the type of industry one is dealing in, to determine whether Economies of Scale is a
reason for an organizations global concentration or not.
Of all the examples given in the question, commercial aircraft, steel, defence equipment are few of
those industries that are largely capital, research intensive or driven. Therefore it makes sense for
them to have economies of scale as and when it comes to their operations. Imagine a steel plant
established at a cost of Rs. 5000 Crore in India and not producing more than a limited amount of say
10000 tons or 100, 000 tons per annum. So when a mega project is undertaken by some player in the
steel industry they make it a point to improve their capacity and operational efficiency. The same
argument holds good for players in Aircraft and Defence Equipment sector as the concept based
research that they undertake costs them Billions of dollars to break even which they have to sell large
volumes.
The following can be the sources of economies of scale:
1. Large volume of production.
2. Improved Operational Efficiency.
3. Optimum Utilization of Resources.
4. Intelligent use of by products and waste materials.
5. Improved Efficiency of Assembly Line.
The other industries mentioned in the questions are not exactly capital, research or advertisement
intensive/driven. Namely the Commercial Banking or Beer industry is more about capitalizing upon a
nations growing Purchase Power Parity or disposable income, their growing power to invest and
interest to earn returns, their affluence, emergence of an economy and leveraging upon a brands
presence. We feel so as Commercial Banking is more about the skill and expertise in managing a
customers investments and account while in the Beer industry the production can be outsourced to
a local distillery. However, there is a rationale that the cost incurred by Commercial Banks in creating
the IT infrastructure to manage their business and operations better would lend them a reason to go
for economies of scale and create more customers. Beer industry at the same time would like to
manufacture more than one lot of beer bottles from one distillery however capital is not a factor as
most of the players outsource their production to local agencies and advertisement of alcoholic
beverages isnt allowed in many nations around the world. So we can conclude that there is not a hard
and fast rule that economies of scale is the reason for an organizations global concentration, though
it can sure be said that for those particularly in the manufacturing industry after a point in time it
comes in as one important factor.

Q. From the evidence presented in the following table, what conclusions can you draw regarding the
factors that determine whether leaders or followers win out in the markets for new products?
A. The factors that determine whether leaders are followers win out in the markets for new products
are as follow
The extent to which innovation can be protected by property rights or lead time advantages:
If an innovation is appropriable through patent, there is advantage in being an early mover
.This is especially the case where patent protection is important, as in field like
pharmaceuticals.
The importance of complementary resources: The more important complementary resources
are in exploiting an innovation, the greater the cost and risk in pioneering, for e.g. failure of
General Motors with a fuel-cell car or battery driven car of Clive Sinclair. The problem for the
pioneer is that development cost are huge because of the need to orchestrate multiple
technology and establish self-sufficiency across a range of business functions. Followers are
also favoured by the fact that, as an industry develops, speciality firms emerge as suppliers of
complimentary resources.
The potential to set up a standard: The greater the importance of technical standards, the
greater the advantages of being an early mover in order to influence those standards and gain
the market momentum needed to
establish leadership. Once a standard has
been set, displacing it becomes
exceptionally difficult, for e.g. IBM had
little success with its OS/2 operating
system against the entrenched position
of Microsoft Windows.
Resource and capability that the firm has at its disposal: Different companies have different
strategic windows periods in time when their resources and capabilities are aligned with the
opportunities available in the market. A small, technology based firm may have no choice but
to pioneer innovation: its opportunity is to grab first movers advantage and then develop the
necessary complementary resources before powerful rivals appear. For the large, established
firm with financial resources and strong production, marketing, and brands to protect, while
to exploit its complementary resources effectively typically requires a more developed
market.









Q. IKEA furnishings, Honda cars, Amazon, and Starbucks have achieved differentiation while
maintaining a broad market appeal. How do companies achieve differentiation of their products
without limiting their appeal to certain market segments? If GAP Inc. wishes to develop differentiation
advantage while still appealing to customers across a broad demographic and socio-economic range,
what advice would you offer it?
A. In the simplest of words, differentiation is all about the ways in which a firm offers uniqueness to
its customers. This uniqueness can be anything from quality (BMW), status (American Express),
consistency (McDonalds) or innovation (Apple).
In an increasingly globalized market where companies try to pursue all available avenues of possible
investment through market segmentation wherein a firm competes in terms of customer groups,
localities and product types, differentiation is what acts as an USP to the firm and sets it apart.
Thus it becomes paramount for a company to decide the parameters on the basis on which it should
be judged upon within a particular segment. The best example would be of BMW, which has an appeal
in its entire market segment because of its uniqueness in providing top notch performance,
engineering and style.
Gap Inc.
It operates six of the most recognized apparel brands in the
world: Gap, Banana Republic, Old Navy, Piperlime, Athleta and
Intermix.
Gap should focus on establishing differences in the price and
design of each of these brands. It has faced problems in the
past wherein the companys stores try to steal business from
each other. Something that costs $38 at Gap sells for $20 at Old Navy
It should make an effort to better understand its customer bases for each company, and recognize the
strengths of its brand accordingly.
Other efforts should include increasing the appeal of Old Navy's offerings, more fashion offerings at
Gap stores by having a significant edge in branding and design through investments in top designer
acquisitions.
Importance should also be given revitalizing its image through branding and must involve an effort to
update store atmosphere. Store atmosphere, created by the layout and environment, is essential for
success in the retail business and help in firm differentiation.







Q. Consider the changes that have occurred in a comparatively new industry (e.g. wireless
communications, video game consoles, medical diagnostic imaging, PDAs, on-line auctions, bottled
water, courier delivery services). To what extent has the evolution of the industry followed the
pattern predicted by the industry life cycle model? At what stage of development is the industry
today? How is the industry likely to evolve in the future?
A. The industry life comprises of four phases: Introduction, Growth, Maturity, and Decline. The only
difference between Industry life cycle and Product life cycle is that the latter is of short duration while
the industry life cycle is for a longer duration. The Industry evolution is determined by two factors:
Demand Growth
Creation and diffusion of knowledge
Demand Growth
The change in the industries growth rate over time is used to define the life cycle and the stages. In
the Introduction stage (the market penetration is low and the sales are low because the industries
product are little known and there are few customers). The Growth stage (has deep market
penetration as there is technical improvements and increased efficiency open up the mass market).
Maturity stage (the market is saturated and demand is wholly for replacement). Decline stage (there
are new industries that are technologically superior and produce superior products).
Creation and Diffusion of knowledge
This driver is also used to drive the Industry life cycle, there is new knowledge in the form of product
innovation that is responsible for an industries birth and creation and knowledge diffusion exerts a
major influence on industry evolution. Introduction stage (In this phase there is no dominant
technology, and rival technologies compete for attention. The outcome of competition between rival
designs and technologies is usually converges by the industry around a dominant design. The
prominent design gets accepted by the industry as a whole). Growth stage (In this phase the industry
joins together around a leading design, and there is shift from radical to incremental product
innovation. The products have greater standardization which reduces risk to customers and
encourages firm to invest in production capacity. There is shift toward process innovation as firm seeks
to reduce cost and increase product reliability).
Industry Structure and Organizational Demographics
As the phases in life cycle changes there is change in the number of firms in the industry. Introduction
Stage (The number of firms in an industry increases rapidly in the early stages, as the industry gains
legitimacy the rate of new firms founding increases. Maturity (The number of firms in this phase
begins to fall).
Nature and Intensity of Competition
Introduction Stage (In this phase of life cycle there is competition between the companies for
technological leadership and competition focuses on technology and design, the return on capital is
low as there is heavy investments in innovation). Growth Stage (This phase is more conducive to
profitability as market demand outstrips industry capacity. Maturity Stage (Increased product
standardization and excess capacity stimulates price competition, the intensity of this competition
depends on the capacity/demand balance and the extent of international competition. Decline Stage
(This phase is associated with strong price competition often leading into destructive price wars and
dismal profit performance.
To answer this question, we have taken the
example of the courier delivery services.
The courier service industry is adapting to
the technology changes very rapidly.
Earlier the delivery of products within a
country used to take 1-2 days between
major cities and 3-4 days between any of
the cities. As technology has progressed
and new methods of delivery have been discovered, the delivery time has been reduced to 1-2 day for
delivery to any major city of the world and 3-4 days to any city of the world. With things changing at
such a rapid pace, there are some major changes that the courier delivery industry could see in near
future.
The nearest and the most obvious change that the companies are planning to adopt is the delivery of
products using drones. These drones could fly non-stop for 3 months and carry light weight products
to any of the remotest place on earth. This use of drones can also give birth to a new type of courier
delivery Anything delivered, anywhere (Yahoo Finance, 2014).
The next thing that we could see in the courier delivery could be the estimation of the delivery timings.
Currently, deliveries are made in the time slot of 4 hours, say 10am to 2pm. This margin of four hours
could be brought down to 1 hour or even to 30 minutes. Better forecasting, notifying the customer
about the location, delays, etc., and name of the delivery person and his phone number could be
shared with the customer. Also, rearranging the missed delivery could be done using the companys
website or mobile app. If a customer is out of town, the parcels could be dropped off at a drop box or
dropping facility from where the customers could collect when they return.

References
Grant, R. (2014). Competitive Advantage in Mature Industries. In: - Contemporary Strategy Analysis.
7th ed. Delhi: Wiley. p328-344.
Grant, R. (2014). Cost Advantage. In: - Contemporary Strategy Analysis. 7th ed. Delhi: Wiley. p227-
244.
Grant, R. (2014). Differentiation Advantage. In: - Contemporary Strategy Analysis. 7th ed. Delhi: Wiley.
p245-266.
Grant, R. (2014). Industry Evolution and Strategic Change. In: - Contemporary Strategy Analysis. 7th
ed. Delhi: Wiley. p269-294.
Grant, R. (2014). Technology-based Industries and the Management of Innovation. In: - Contemporary
Strategy Analysis. 7th ed. Delhi: Wiley. p295-327.
Yahoo Finance. (2014). 7 hot start-up ideas that could make you a millionaire. Available:
https://uk.finance.yahoo.com/news/7-hot-start-ideas-could-060026454.html. Last accessed August
27, 2014.