Entry Strategies I
Week 4
Entry Strategies I Commitment / Value Chain Reconfiguration
Process of Planning Entry
Attractiveness of new market entry
Choice of market
Choice of entry type
Entry strategy
Commitment (I/II) A credible commitment of the entrant to stay in the market may stop incumbents retaliating Types of commitment High sunk cost investments •
Production capacity
•
R&D
•
Advertising
Exit from other strategic market segments and focus on entry
Commitment (II/II) Example: Market entry of Deutsche BA Deutsche BA
no entry
Lufthansa
entry
retaliation
no retaliation
Deutsche BA Deutsche BA Lufthansa
Commitment: Deutsche BA invests in additional airplanes
exit 0 10
4 4
-3 6
stay -5 6
-4 -4
Value Chain Reconfiguration (I/II)
Innovators enter the market with inferior products which appeal to price-sensitive buyers
Incumbents ignore the threat since mainstream customers don’t want those products
Over time the products improve and take large chunks of the market from incumbents
Market leaders can hardly respond because they find it difficult to replicate entrants’ low-cost business models
Value Chain Reconfiguration (I/II) Example: Bloomberg
Began in 1981 to provide basic financial data to small investment analysts and brokers
Gradually improved its data offerings / analysis and substantially disrupted competitors Dow Jones and Reuters
Competitive Strategy Tobias Kretschmer Professor of Management, LMU Munich
© 2013 LMU Munich
Entry Strategies I Commitment / Value Chain Reconfiguration
Process of Planning Entry
Attractiveness of new market entry
Choice of market
Choice of entry type
Entry strategy
Commitment (I/II) A credible commitment of the entrant to stay in the market may stop incumbents retaliating Types of commitment High sunk cost investments •
Production capacity
•
R&D
•
Advertising
Exit from other strategic market segments and focus on entry
Commitment (II/II) Example: Market entry of Deutsche BA Deutsche BA
no entry
Lufthansa
entry
retaliation
no retaliation
Deutsche BA Deutsche BA Lufthansa
Commitment: Deutsche BA invests in additional airplanes
exit 0 10
4 4
-3 6
stay -5 6
-4 -4
Value Chain Reconfiguration (I/II)
Innovators enter the market with inferior products which appeal to price-sensitive buyers
Incumbents ignore the threat since mainstream customers don’t want those products
Over time the products improve and take large chunks of the market from incumbents
Market leaders can hardly respond because they find it difficult to replicate entrants’ low-cost business models
Value Chain Reconfiguration (I/II) Example: Bloomberg
Began in 1981 to provide basic financial data to small investment analysts and brokers
Gradually improved its data offerings / analysis and substantially disrupted competitors Dow Jones and Reuters
Competitive Strategy Tobias Kretschmer Professor of Management, LMU Munich
© 2013 LMU Munich
