Strategic Management
Assignment Structure
Section 1: Strategic Management Vignettes
On the following pages, you will find two vignettes describing hypothetical situations. After reading the vignettes, choose one of the two vignettes, and answer the questions that are posed. Make sure that you use three course concepts in your analysis. Each application of a course concept and its correct and insightful discussion in the context of the vignette is worth 15 points.
Vignette #1
You were just invited to sit in on a high-level management meeting taking place in the company that you work for, which is one of the leading providers of standardized test preparation materials and classes. In the meeting, the Vice President of Strategic Development pitched the executive management committee on a business opportunity – the development of an educational video games business segment. After the meeting, your boss turns to you and asks: “What do you think? Should we do this?”
Instructions: Write a memo below where you answer your boss’ question. Below I have provided some potentially useful concepts from. Pick three of the concepts and leverage them in your response to your boss. Make sure that you: i) explain the concept to your boss in words that they can understand (they haven’t taken!) and describe how/why it may be relevant in this situation and ii) provide examples of what additional information you would like to know related to that concept to shed light on the strategic decision.
| Efficient vs. inefficient diversification | Synergies | Strategic considerations in diversification |
| Basic financial test (“better-off test”) | Demand-side economies of scope | Resource redeployment |
| Costs of diversification | Supply-side economies of scope | Differentiation |
Vignette #2
After graduating from Georgetown, you founded a small but innovative company producing lightweight, high-performance bicycles which are currently manufactured in Mexico, your home country. Demand for your product has been growing quickly and you are currently in the midst of planning the building of a second manufacturing plant, this time outside of Mexico. Your VPs have asked you for a shortlist of five locations that they should scout out.
Instructions: Write a memo below, where you outline your thinking on this strategic decision. Specifically, describe what thought process you would follow to come up with a shortlist of potential locations for your second manufacturing plant. Below I have provided some potentially useful concepts from. Pick three of the concepts and leverage them in your response. Make sure that you: i) explain the concept to your VPs and describe how/why it may be relevant in this situation (your VPs haven’t taken!) and ii) provide examples of what additional information you would like to know related to that concept to shed light on the strategic decision.
| Transport cost / tradability of product/activity | Demand conditions | Risk concentration |
| Scale vs. transport cost tradeoff | Context for strategy and rivalry | Coordination costs |
| Government incentives | Related and supporting industries | Factor conditions |
Choose one of the two vignettes and write your memo. Paste your memo on the page that follows.
Section 2: Article Analysis – Chewy, Inc.
The article in the end of this document is based on a late-2019 interview with the founder and former CEO of Chewy, Inc., which is the largest pure-play online retailer of pet food and pet-related products in the United States. After reading the article, answer the questions below. Use only the space necessary. Q2-1 is worth 10 points; Q2-2 is worth 20 points; Q2-3 is worth 10 points; Q2-4 is worth 15 points. The maximum total score for Section 2 is 55 points.
Question 2-1 (10 points)
Considering information from the article and the two-by-two matrix describing business strategies that we saw in class, how would you describe Chewy’s business strategy / positioning?
Question 2-2 (20 points)
Assume that the value sticks shown on the right accurately represent the average customer WTP and the average total cost for a 24-lb bag of American Journey Chicken & Sweet Potato Dog Food sold by Chewy and by Amazon. Leveraging information from the article, provide two reasons why customers’ WTP for the same bag of dog food might differ across the two companies. Provide two reasons why costs might differ.
Question 2-3 (10 points)
I randomly selected five products sold on Chewy.com and compared their prices to the prices of identical products sold on Amazon.com. In each case, I found the prices to be the same, down to the penny. Assuming that the value sticks shown in Question 2-2 are accurate, what is Chewy trying to achieve through this pricing strategy? What is the downside of this strategy?
Question 2-4 (15 points)
The article describes how initial investors that Ryan Cohen approached pushed back on his idea because “of this one company” — the e-commerce giant, Amazon. Briefly explain, what are the three theoretical conditions that make it likely that, if they hold, a market will become dominated by one firm – i.e., that a “winner take all” dynamic will emerge? Is the online pet food retail market, where platforms like Chewy connect buyers of pet food with pet food manufactures/brands, likely to become a “winner take all” market? Why?
The cofounder of Chewy explains how he created a $10.2 billion empire selling pet food to millennials who treat their animals like their firstborn child
Mary Hanbury
Nov 30, 2019, 10:45 AM
Business Insider
Ryan Cohen was just weeks away from launching an online jewelry business when he was out shopping in his neighborhood pet store and a new idea dawned on him: What if he could set up an online platform that replicated the experience of shopping in a pet store like this, without the inconvenience of having to actually go there?
As the owner of a toy poodle, Tylee, Cohen was well aware of how fragmented the market was at that point and how underpenetrated it was online. He saw an opportunity to fix it. “I thought if I could deliver the same kind of personalized experience as the neighborhood pet store, but do it online and deliver a really convenient value proposition, that we could build a really big business,” 34-year-old Cohen told Business Insider in a recent phone conversation, recalling his thoughts in 2011.
Within a few months, Cohen and his cofounder, Michael Day, had pivoted from jewelry and were selling pet food online under the name of Mr. Chewy, which later became Chewy.com. In the 10 years that followed, the duo defied their critics and built up a $10.2 billion company that is now publicly listed. In 2017, they sold the company to PetSmart for $3.35 billion, which was the largest e-commerce acquisition in history at the time, and Cohen stepped down from his role as CEO in 2018.
He told Business Insider that the key to the company’s success was providing an online service that Amazon wasn’t, and understanding the emotional connection that pet owners have with their animals. “I think I was uniquely qualified to really understand that emotional bond,” he said. “I grew up having pets and my pet was always there for me unconditionally. I just knew how strong it was and how fanatical pet owners are.”
When Cohen set out to raise capital in 2011 at the age of 25, investors initially balked at his pitch. “We literally got turned down from over 100 people because of this one company,” he said. That one company would be Amazon, the e-commerce giant that was flexing its muscles across the retail sector at the time and building up a giant customer base, which was drawing business away from other retailers. Amazon had been in the business of selling pet food since the late 1990s but at that time, the market for pet food was still largely offline, Cohen said, adding: “It didn’t feel like Amazon was super disruptive in the category.”
Still, Amazon was already showing its weight elsewhere. In the same year that Chewy launched, the US’ second-largest bookstore, Borders, filed for bankruptcy, and Amazon’s rise was widely cited as being one of the key contributors to its demise.
Cohen’s rebuttal to potential investors was that Chewy was offering a shopping experience that Amazon wasn’t: around-the-clock customer service where shoppers could speak to agents who were well-versed in the products that it was selling. “You can call us if you want to know what the best grain-free foods are, what the best weight loss foods are, or if your dog has some kind of allergy or sensitive skin issue. Call us 24/7 and someone picks up the phone within a few seconds, and we know every product that we sell really well,” he said. Cohen added: “That was really important to me because my pet was a family member, and I had a lot of questions. Pets can’t speak, so you need to speak to someone who is an expert.”
Meanwhile, Amazon customers lean on reviews from other customers to find out more about the products being sold on the site. While this could, in theory, be a good way to gauge whether these products are suitable for you, Amazon has notoriously grappled with issues of fake reviews for years.
“They are the everything store,” Cohen said. “It feels like when you’re shopping with them, you’re shopping at an online flea market.” He added: “It is the poster child for automation, it’s a faceless machine, and I think that there is still a place in retail for providing a personalized experience.” The personal treatment at Chewy extends beyond the 24/7 hotline to include other perks such as handwritten notes when you make your first purchase, holiday cards, or flowers when your pet passes away. The focus isn’t on making one-off transactions but on turning customers into lifelong clients, Cohen said. The idea is to “wow” the customer and to provide a “delightful experience where they would never dream of shopping elsewhere.”
But offering this kind of customer service at scale is both challenging and costly. Cohen said that it hasn’t always been smooth sailing but maintained that services such as its 24/7 hotline should remain a top priority because it’s what sets Chewy apart from other online stores.” We can only be successful if we continue to be customer-obsessed,” he said. Marketing to first-time customers is also an expensive business for the company. While Cohen would not comment on these numbers, industry publication Pet Business reported that Chewy.com spent $68 in marketing and advertising spend on each new customer in 2017. By 2019, this leapt up to around $148 per person.
Chewy has also benefited from being in the right place at the right time. Spending data shows that owners have been gradually spending more on their pet food and taking more interest in the nutritional quality of what they feed their pets.
Bob Vetere, president and CEO of the American Pet Products Association (APPA), said in a recent report that this rise in spending is connected to the fact that pets are being seen as more “irreplaceable members” of the family.
“We know this generation [of millennials] is willing to pay more for quality products and services to improve the health and well-being of their pets. Today more than ever, pet owners view their pets as irreplaceable members of their families and lives, and it’s thanks to this that we continue to see such incredible growth within the pet care community,” he said.
