Chapter 7

Question 1

What is the expected growth for high technology industries

Answer 1

25%

Question 2

What are technical standards

Answer 2

Specifications that producers adhere to when making the product or component can be a competitive advantage

Question 3

What are format wars

Answer 3

Battles to control source of differentiation because this differentiation can create for the customer

Question 4

What is dominant design

Answer 4

Refers to a common set of features or design characteristics

Question 5

What do standards bring

Answer 5

Economic benefits

Question 6

What are the economic benefits from standards

Answer 6

6. 1. Guarantee compatibility between products and complements
   2. Help reduce confusion in the minds of consumers
   3. Help reduce production costs
   4. Help reduce the risks associated with supplying complementary products and increase their supply

Question 7

What are 3 ways standards emerge in an industry

Answer 7

1. Companies might lobby the government to mandate an industry standard
2. Technical standards are often set by company cooperation
3. Government set standards they fall into the public domain meaning that any company can freely incorporate them into their products

Question 8

What is a public domain

Answer 8

Government or association set standards of knowledge or technology that any company can freely incorporate its product

Question 9

What are network effects

Answer 9

Network of complementary products as a determinant of the demand for an industry’s product

Question 10

How are network effects divided

Answer 10

1. Direct (same side) network effects
2. Indirect network effects (based on the availability of complementary goods)

Question 11

What happens when network effects arise in an industry

Answer 11

The size of the network of complementary products is a primary determinant of demand for an industry product

Question 12

What are the key strategies and tactics to win a format war

Answer 12

1. Ensure a supply of complements
2. Leverage killer application
3. Aggressive pricing and marketing
4. Cooperate with competitors
5. License the format
6. Have positive feedback loops

Question 13

What can companies do to get supply of complements

Answer 13

1. Diversify into the production of complements and seed the market with sufficient supply to help jump start demand
2. May create incentives or make it easy for independent companies to product complements

Question 14

What are killer applications

Answer 14

Uses of new technology or product that are compelling that they persuade customers to adopt a new format or technology in droves thru killing demand for competing formats

Question 15

What are considerations for exploiting positive feedback cycles

Answer 15

1. Switching costs
2. Accelerate growth on both sides of the feedback loop

Question 16

What is a razo and blade strategy

Answer 16

Pricing the product low to stimulate demand and increase the installed base and try to make high profits on the sale of the complements which are priced relatively high

Question 17

What is aggressive upfront marketing

Answer 17

Critical in jump starting demand to get an early lead in an installed base

Question 18

What are point of sales promotion

Answer 18

Attract potential early adopters who bear the switching costs and start a positive feedback loop

Question 19

What are the results for companies to cooperate with their competitors

Answer 19

1. Develop technology
2. There will be a strong alliance
3. Can effectively eliminate the competition

Question 20

What does licensing format mean

Answer 20

Other companies can product products based on licenses to gain from licensing fees and enlarge supply of the product which can stimulate demand help accelerate market adoption

Question 21

What is the correct strategy to pursue licensing the format

Answer 21

1. Companies must consider all different strategies and tactics
2. Companies must keep the goal of rapidly increasing based on its standard

Question 22

What are the advantages of helping jump start demand

Answer 22

Can induce consumers to bear the switching costs with adopting its technology and leverage positive feedback process

Question 23

What are the costs of high technology industries

Answer 23

Fixed costs are high but producing one extra unit of products are low

Question 24

What is the law of diminishing returns

Answer 24

Producing more of a good will lead to an increase in marginal costs

Question 25

Does law of diminishing returns apply in high tech settings

Answer 25

Not really

Question 26

What can high tech company emphasize

Answer 26

Low cost structure that drive down prices to increase volume

Question 27

What happens when marginal costs are lower and fixed costs are high

Answer 27

1. Profitability may increase 2. Tech companies should emphasize the low cost structure to drive down prices to increase volume

Question 28

Who is the first mover

Answer 28

The firm that pioneers a particular product category or feature by being first to offer it to the market

Question 29

What is the first mover in a high technological industry

Answer 29

In a monopoly position and If the new product satisfies unmet consumer needs and demand is high, the first mover can capture revenues and profits, causing stronger barriers of imitation

Question 30

What are the five primary sources of first mover advantage

Answer 30

1. Opportunity to exploit network effects and positive feedback loops locking consumers into its technology 2. Able to establish significant brand loyalty 3. Increase sales volume ahead of rivals 4. Create switching costs for customers 5. Accumulate valuable knowledge related to customer needs, distribution channels, product and process technology

Question 31

What are the first mover disadvatanges

Answer 31

1. Bearing significant pioneer costs 2. Mistakes are made bc of uncertainties in the market 3. Runs the risk of building wrong resources and capabilities because they are too customer focused which is not going to be reflective of the mass market 4. May invest in inferior or obsolete technology

Question 32

What are the first mover strategies

Answer 32

1. Develop and market innovation 2. Develop and market innovation jointly with other companies through strategic alliance or joint venture 3. License the innovation to other companies and allow them to develop the market

Question 33

What are the strategies of exploiting first mover advantages

Answer 33

1. Look at the complementary assets to exploit its innovation and capture first mover advantages 2. Look at the height of barriers to imitation 3. Look at the capable competitors that can imitate the innovation

Question 34

What are complementary assets

Answer 34

1. Competitive production and distribution capabilities that can handle customer demand, maintaining high product and service quality 2. Marketing know how

Question 35

What are the drawbacks of complementary assets

Answer 35

1. Expensive 2. Need large capital

Question 36

What are the advantages of high imitation barriers

Answer 36

Gives an innovator time to establish a competitive advantage and build more barriers to entry in a newly created market

Question 37

What are the disadvantages of high imitation barriers

Answer 37

Patents are easy to invent around

Question 38

What are competitors capable of doing to imitate innovation

Answer 38

1. R&D Skills 2. Access to complementary assets (marketing, sales, manufacturing capabilities)

Question 39

What are technological paradigm shift occurs with new technology

Answer 39

1. Revolutionize structure of the industry 2. Dramatically alter the nature of competition 3. Require companies to adopt new strategies to survive

Question 40

What are three innovation strategies

Answer 40

1. Complementary assets 2. Height of barriers to imitation 3. Capability of competitors

Question 41

When is marketing a competitive strategy makes most sense

Answer 41

1. Innovator has the complementary assets to develop innovation 2. Barriers to imitating a new innovation is high 3. Capability competitors is limited

Question 42

When does joint venture makes most sense

Answer 42

1. The innovator lacks complementary assets 2. Barriers to imitation is high 3. Several capable competitors

Question 43

When does licensing make most sense

Answer 43

1. Innovating company lacks the complementary assets 2. Barriers to imitation are low 3. Many capable competitors

Question 44

What is technological paradigm shifts

Answer 44

Shift in new technologies that revolutionize the structure of the industry, dramatically alter the nature of competition and require companies to adopt new strategies to survive

Question 45

What are the natural limits to technology

Answer 45

Rate of performance of technology starts to decline and reach its limit, so there's no more advances possible

Question 46

What does the technology limit result to

Answer 46

Researchers look to alternative technologies to replaced the establish technology

Question 47

What is a disruptive technology

Answer 47

technology that revolutionizes industry structure and competition causing a decline of established companies

Question 48

What are the strategic implications for established companies

Answer 48

1. Have access to the knowledge about how disruptive technologies can revolutionize markets 2. Established companies should invest in newly emerging technologies that become disruptive technologies 3. Recognize that it is better to develop disruptive technologies than to cannibalize sales base