Competitive Strategy Porter with Patent Wars Game Samsung Vs Apple

Competitive Strategy -‐ Chapter 2 -‐ Porter

@WissamSaleh

Outline

●Three Generic Strategies : ● Overall Cost Leadership ● Differentiation ● Focus ● Comparison

●Requirements of the Generic Strategies .

●Firms that are “Stuck in the Middle”.

●Relationship between Market share and Profitability.

●Risks of the Generic Strategies . ●The Game , Players, Strategies , Assumptions , Solution .

●Variations of the game .

●Mapping with real market figures .

The Three Generic Strategies

-‐ Cost Leadership

-‐ Differentiation

-‐ Focus

Overall Cost Leadership

● Requires aggressive construction of efficient-‐scale facilities with vigorous

pursuit of cost reductions from experience .

● Low cost firms yield above-‐average returns in its industry despite the presence

of strong competitive forces .

● The low cost position provides a defense against rivalry competitors .

● The factors providing cost leadership often provides substantial barriers to

entry in terms of scale economies or cost advantage .

● A low cost position usually places the firm in a favorable position vs. substitutes

relative to its competitors in the industry .

Overall Cost Leadership

●May require heavy up-‐front costs : state-‐of-‐the are equipment

●May require startup losses for the initial period.

●May require aggressive pricing .

●Can revolutionize the industry .

Differentiation

● Creating something that is perceived industrywide as being unique .

● Can be a design or a brand image, technology, loyalty … etc

● It does not allow the firm to ignore the cost, but it doesn’t constitute a

strategy .

● If achieved , a viable strategy to gain above-‐average returns

● Provides insulation against rivalry because of brand loyalty

●DOES IT ?

Differentiation

● Increases margins .

●Provides entry barrier of uniqueness.

●Better positioned vs. substitutes.

●Tradeoff with cost position that is offset by R&D, patenting,

product design and high quality materials

Focus

●Focusing on a particular buyer group, segment of the product line,

or a geographic market.

●The entire focus strategy is built around serving a particular target

very well .

●May potentially earn above average returns.

● It means either to strike a cost position with a focused target , or a

differentiation with a focused target , or both .

Focus

●The firms might select venerable target group with few substitutes

and serve them.

●Maybe most of the buyers are not interested, but some of them are

.

●Example in the fast food industry.

Comparison

Requirements of Generic Strategies

Strategy Required Skills and Resources Organization Requirements

Cost Leadership

-‐ Substantial Capital Investment -‐ Process Engineering Skills. -‐ Intense Supervision of Labour. -‐ Product Designed to be cost

effective.

-‐ Tight Cost Control -‐ Frequent, Controlled

Reports -‐ Structured

organization Differentiation

-‐ Strong Marketing Abilities. -‐ Product Engineering -‐ Creative Flair. -‐ Corporate Reputation -‐ Long tradition or unique resources.

-‐ Strong Coordination between functions. -‐ Subjective

measurement instead of quantitative .

Focus Combination of the above Combination of the above

Stuck in the Middle

●Extremely poor strategic situation .

●He firm lacks the market share , Capital Investment and resolve to

play the low cost game .

●The firm stuck in the middle is almost guaranteed low profitability

● It either loses high-‐volume customers that require low cost or bids

away its profits.

Stuck in the Middle

●Probably has a blurred culture and conflicting organization

arrangements.

●Must take a strategic decision .

●The choice is based on the firm resources and limitations.

●Firms that flip back and forth between strategies are doomed to

failure .

Relationship between Market Share and Profitability . ●Does not hold in every industry .

●There is no single relationship between profitability and market share

.

Risks of Generic Strategies

●Two fundamental risks :

● Failing to attain or sustain the strategy .

● The value of strategic advantage provided by the strategy to erode

with the industry evolution ( Creative Destruction ) .

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!

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Risks of Generic Strategies

Strategy Risks

Cost Leadership -‐ Technological change the nullifies past investments. -‐ Low cost learning by new comers. -‐ In ability to see required product or marketing change

because of attention placed on cost. -‐ Inflation in costs .

Differentiation -‐ Cost Differential between low cost competitors and the differentiated firm .

-‐ Buyers need for the differentiating factor falls , occurs when buyers become more sophisticated.

-‐ Imitations narrows perceived differentiation .

Focus -‐ Cost differential between broad range competitors and focused firms widens to eliminate the cost advantage of focus on a certain group .

The Game : Patent Wars

●Player 1 : Apple ● Innovated the smartphone industries and the tablet industry, targets premium users with high prices to fund R&D and innovation. !

●Player 2 : Samsung ● A tech giant producing a range of electronics including TV’s, Stereo Systems, nano-‐technology electronics , laptops and computers, phones and tables . !

Vs.

THE PLAYERS


●File a patent lawsuit.

!!●Do not file a patent lawsuit .

!

Vs.

The Strategies


Vs.

The Payoffs

Samsung

Apple

File a Lawsuit Do not File a Lawsuit

File a Lawsuit 26,26 31,24

Do not File a Lawsuit

22,31 28,28

The payoffs are in Billions of US Dollars.


●The game is constructed using the 2011 figures of revenues for Apple phones revenues and Samsung benchmarked to apple’s revenues for the purpose of analysis and justified by the very close figures.

● If both the firms file a lawsuit, they will both lose profits in forms of penalties, expenses on law suits, extra costs on R&D, patenting and licensing.

● If one of the firms files a lawsuit without the other responding , the other firm will lose reputation, market share and profits , however, the losses are not symmetric because apple uses a differentiation strategy and by having a patent lawsuit it will jeopardize its differentiation and its first mover advantage , thus, the losses are more in case of apple .

● If both firms do nothing, their profits will be the benchmarked profits given in the payoff matrix.

Vs.

The Assumptions


●The Nash Equilibrium of the game is for both firms to file lawsuits against each other, in this case, they have no incentive to deviate from the stable outcome.

●The Pareto efficient outcome is for both the firms to do nothing.

Vs.

Game Solution

Samsung

Apple


File a Lawsuit 26,26 ** 31,24


22,31 28,28 *


●For the sake of better understanding the game , a variation in the payoffs could be introduced as the following :

Vs.

Variations

Samsung

Apple


File a Lawsuit 28-‐M , 28-‐Q 31,24


22,31 28,28


While:

●M: The profit loss for apple if they file a lawsuit against Samsung in forms of extra legal fees, extra patenting and licensing costs for future products and other expenses . M incorporates the penalties applied on Samsung in the analysis, but it would be fair to assume that the value of future expenses for five years might offset the gain in the penalties acquired.

●Q: The profit loss for Samsung if they file a lawsuit in the same forms as apple .

Vs.

Variations

Samsung

Apple


File a Lawsuit 28-‐M , 28-‐Q 31,24

Do not File a Lawsuit 22,31 28,28


●

Vs.

Variations


●Thus , apple will file a lawsuit as long as the losses of doing so is less than 6B Dollars.

●Similarly, Samsung will respond back as long as the losses of doing so is less than 4B Dollars .

●Therefore, reflecting the first mover advantage of Apple as it has more room to file a lawsuit against Samsung .

Vs.

Variations


●Apple filed a patent again and the war kept on going , while apple protecting its differentiation and Samsung pushing them to the edge .

●Apple finally gave up and introduced a plastic iPhone, just after that happening , we expect the market shares to get close again .

Vs.

What Actually Happened ?

Samsung Vs. Apple Marketshare

0

10

20

30

40

2010 2011 2012 2013 2014

Samsung Apple Apple ProjectedSamsung Projected

Resources

● http://www.gartner.com/newsroom/id/2665715

● http://www.forbes.com/sites/chuckjones/2013/01/25/samsung-‐increasing-‐its-‐smartphone-‐market-‐share-‐vs-‐apple-‐and-‐the-‐rest-‐of-‐the-‐pack/

● http://blogs.cornell.edu/info2040/2011/10/05/biggest-‐mobile-‐device-‐makers’-‐game-‐theory-‐–-‐samsung-‐vs-‐apple/

● http://www.marketoracle.co.uk/Article36240.html

● Class notes

● Competitive Strategy Textbook .

http://www.gartner.com/newsroom/id/2665715

http://www.forbes.com/sites/chuckjones/2013/01/25/samsung-increasing-its-smartphone-market-share-vs-apple-and-the-rest-of-the-pack/

http://www.marketoracle.co.uk/Article36240.html

http://www.marketoracle.co.uk/Article36240.html

Thank you .

Competitive Strategy Porter with Patent Wars Game Samsung Vs Apple

Economy & Finance

Transcript of Competitive Strategy Porter with Patent Wars Game Samsung Vs Apple