BUSSPP 0200 1st Edition Lecture 10Outline of Last Lecture I. Diversification & Corporate Office Outline of Current LectureI. Back to the Course ThesisII. Differentiation as an Investment Current LectureI. Back to the Course ThesisA. Escape/avoidance of perfect (selling) competition 1. Differentiationa. Develop product different from the genericb. Requires risky investment2. Process Enhancement 3. Changing business model B. Basic concept of differentiation1. Gut level: new/modified producta. product: “offering”i. something provided to someone elseb. products – goods/services i. tangible/intangible/some combinationc. modern approach – many types not falling into goods/services 2. More formal approach: Utility a. form utility i. different characteristicsb. place utilityi. conveniencec. Time utilityi. available when you want to shop d. transaction utilityi. is the purchase do-able in the form you wish to do business? 3. Utility: any change in any and all of the above significant enough for a These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.consumer to observe the change and find it important C. Types of differentiation1. Novel – completely different alternative product 2. Modified/tweak –more typical a. product refinement: change in a product that replaces the original i. long run: does not cause product proliferationii. Overlap until the old inventory is used up iii. Secondary market still selling old product b. Product extension: change in a product that is sold alongside the original i. linear/geometric growthii. Long term: causes product proliferationc. sku: stock keeping unit i. dramatically increased by product extentionII. Differentiation as an investmentA. Investment: expenditure of some resource to get another resource (time/people/$) 1. Money in 5 different forms: a. current revenue b. retained earningsc. sale of assetsd. debt e. sale of stock B. Investments are risky 1. Costs before benefitsa. benefits may never occur/may be too little/too late 2. Apply this to differentiation a. if debt, then probably $ constrainedb. how to allocate – R&D (product devel.)/Market Research/Distribution/Promotion/make-but-lease problem C. Criterion for differentiation 1. E(B) ≥ E(C) 2. Adjustments a. time value of money b. cost of capital c. opportunity costs d.
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