RSM 392: Strategic Management

Session 6: Differentiation

Professor Hyeun Lee

RSM392 Strategic Management | Session 6 1

Agenda
• Case discussion
• Traditional circus in 1980
• Cirque du Soleil
• Creating new market categories
• Q&A for Midterm exam
• Will open quizzes and strategic analysis assignment (discussions) for session 8 on
the midterm day

RSM392 Strategic Management | Session 6 2

The traditional circus in 1980
• Ringling brothers kept the three-ring format
• Ticket sales dropped dramatically after dropping
elephant acts in 2016.
• In 2017, it closed after 146 years
• However, announced a comeback in 2022 –
without animal acts

https://www.usatoday.com/story/news/nation/2017/01/14/ringling-bros-circus-close-after-146-years/96606820/

The return of "The Greatest Show on Earth" - CBS News

RSM392 Strategic Management | Session 6 3
Strengths and Weaknesses
• As a consumer, how would you evaluate strengths and weaknesses of
the traditional circus?

• Strengths

• Weaknesses

RSM392 Strategic Management | Session 6 4

Strengths and Weaknesses
• Strengths
• Very recognizable
• Very strong identity
• Travel by train, so can reach smaller/forgotten communities
• Perhaps easier marketing

• Weaknesses
• Reliance on concessions; potentially distracting
• Lack of innovation/novelty
• Seasonality

RSM392 Strategic Management | Session 6 5

The traditional circus in 1980 – 5 forces
• Threat of new entrants

RSM392 Strategic Management | Session 6 6

The traditional circus in 1980
• Threat of new entrants (low)
• Logistics
• Big investments
• Especially for larger/national circuses
• But smaller circuses, face fewer barriers
• Getting a recognized act is difficult
• Lots of preparation required

RSM392 Strategic Management | Session 6 7

The traditional circus in 1980
• Rivalry

RSM392 Strategic Management | Session 6 8

The traditional circus in 1980
• Rivalry
• Larger ones have fewer competitors
• Similar acts, low differentiation
• Industry growth is quite slow
• High barriers to exit

RSM392 Strategic Management | Session 6 9

The traditional circus in 1980
• Buyer power

RSM392 Strategic Management | Session 6 10

The traditional circus in 1980
• Buyer power (high)
• Low switching costs
• Lots of shows / choices
• Lots of alternatives

RSM392 Strategic Management | Session 6 11

The traditional circus in 1980
• Substitutes

• Power of suppliers

RSM392 Strategic Management | Session 6 12

The traditional circus in 1980
• Substitutes (high)
• TV, sports, other forms of entertainment

• Power of suppliers (high)

• Animals –short supply

RSM392 Strategic Management | Session 6 13

Cirque du Soleil – from 1984
• https://www.youtube.com/watch?v=5QB3fLE_O9k

RSM392 Strategic Management | Session 6 14

What key elements did CdS preserve?

RSM392 Strategic Management | Session 6 15

What key elements did CdS preserve?
• Acrobatics / acts – similar skillsets required for performers
• Sense of excitement / wonder
• Many different acts
• Travel and tour
• Clowns / humor

RSM392 Strategic Management | Session 6 16

What elements did it eliminate?

RSM392 Strategic Management | Session 6 17

What elements did it eliminate?
• No more animals
• No concession sales during the show
• No more three rings – change in format
• No more heavy reliance on highlighted acts
• No discounts for kids

How do these changes help with dealing with 5 forces?

RSM392 Strategic Management | Session 6 18

What new elements did it introduce?

RSM392 Strategic Management | Session 6 19

What new elements did it introduce?
• Introduced a focus on adults
• Original score and unique theme
• Elevated the experience
• Invested in their brand and locations
• Sponsors for shows and VIP tents
• Value artistry (dance, opera, original music, concert)
• International

RSM392 Strategic Management | Session 6 20

What strategy is CdS pursuing?

RSM392 Strategic Management | Session 6 21

How does CdS earn above average profits?
• Differentiation -> by increasing consumer WTP
• Investing in brand, unique product – original score
• Sponsorships; Segment clients into VIP
• Partnerships with other companies (enter new industries)
• Innovative (change the theme)
• Emphasis on quality
• Focus on adults
• But, also lowered costs (no animals, eliminated expensive acts)

RSM392 Strategic Management | Session 6 22

Case summary (1)
• The traditional circus industry in the early 1980s offered few
prospects for firms to make profits.
• High barriers to entry (capital, skills, star performers), yet…
• Rivalry was high, with a fierce monopoly at the national level.
• Strong bargaining power from suppliers (e.g. subcontractors for big
name acts).
• Strong buyer power.
• Strong substitute threat from other live entertainment, sports, etc.

RSM392 Strategic Management | Session 6 23

Case summary (2)
• Cirque du Soleil (CdS) reinvented the circus:
1.They kept important elements of the traditional circus (“magic,” mystery,
humor, and danger involved)
2.They dropped many others (animal shows, star performers, aisle concessions).
3.They brought in new elements from other industries (artistry, refinement,
culture, multiple productions)

RSM392 Strategic Management | Session 6 24

Case summary (3)
• Their strategy enabled them to both differentiate and lower costs.
• They shifted buyer group away from children to include adults, offered a
unique product, while lowering costs.
• They were able to do this because they redefined the product beyond
the traditional notion of what going to the circus used to mean.
• As a result, CdS has grown rapidly and generated large profits.

RSM392 Strategic Management | Session 6 25

Update on CdS
• CdS continued to grow rapidly.
• By 2013 it was reporting revenues of $1 billion.
• With rapid expansion, the company has become increasingly difficult
to manage and shows increasingly expensive.
• It was acquired by a US private equity firm in 2015.
• Covid-19 has been bad news. 44 shows have been shut down. 95% of
its workforce has been laid off
• But reopened in 2021
https://www.nytimes.com/2020/05/17/world/canada/cirque-du-soleil-coronavirus-debt.html

RSM392 Strategic Management | Session 6 26

Creating new market space

RSM392 Strategic Management | Session 6 27

Creating new market space
• Markets are structured and shaped by various categories.
• These systems of categories organize the economic world we live in.
• Categories separate industries
• Categories separate products based on quality (e.g. luxury vs. casual),
audience (e.g. types of newspapers), or various features (e.g. cars, wine)
• Most of these category systems are relatively arbitrary.
• Some liquor stores categorize wines by grape variety, others by origin.
• Is AirBnb in the tech industry or the hospitality industry? It’s not obvious.

RSM392 Strategic Management | Session 6 28

Creating new market space: challenging conventions

• When categories become taken for granted and not critically

examined, this creates opportunities to create new market space.
• New market space can be created by challenging these conventions.

• Instead of competing within accepted boundaries, managers can look

across them and redefine how competition takes place.
• CdS reinvented the circus by keeping some elements of the traditional circus
and bringing in inspirations from other industries

RSM392 Strategic Management | Session 6 29

Looking across industry categories
• Identify substitutes
• Loblaw offering prepared foods and fast-food options to compete with
restaurants

• Identify products that are complements – “what happens before, during,

and after the product is used?”
• IKEA and babysitting services
• Any other examples?

RSM392 Strategic Management | Session 6 30

Looking across product categories within an
industry
• Crossing price/performance categories
• Case of Polo Ralph Lauren : haute-couture/designer clothing vs. basic/classic
clothing
• Case of Lexus by Toyota : premium quality at a lower price
• Any other examples?

RSM392 Strategic Management | Session 6 31

Looking across different sources of appeal to
buyers
• Competing based on function versus feelings, and crossing the two
• Starbucks raising the emotional appeal of coffee
• Body shop getting rid of packaging and focus on product (focus on function)
• Packaging being an emotional element in the cosmetics industry
• Any other examples?

RSM392 Strategic Management | Session 6 32

 Midterm

RSM392 Strategic Management | Session 6 33

 Midterm details
• In person, online exam – access via “assignments” on Quercus
• Sample midterm uploaded
• No messaging or emailing during exam. Please have your materials stored
locally or printed out (so that you don’t have to log in, open up google
drive/dropbox during the exam).
• Internet on the laptop only to be used when opening/submitting the
answer on quercus.
• Make sure you understand key concepts from
• Required cases and readings, slides – focus on concepts
• Not about memorization; all about the application

RSM392 Strategic Management | Session 6 34

How to answer (1)
• Use only information from the case – no prior knowledge required

• Answer all questions

• Avoid spending too much time on one question

• Clarity and coherence

• I care less about grammar/ typos
• Writing with a thesis statement; avoid bullet points
• Make sure you are explicit about all the steps/assumptions of the argument

RSM392 Strategic Management | Session 6 35

How to answer (2)
• Link the concepts we learned with the details in the exam case
• Meaning, your answers should neither be a generic observation of the exam
case, nor a simple restatement of bullet points from class notes.
• Answers should be clearly based on strategic management
perspectives/concepts we learned in class, but connected to exam
case/questions
• Read the questions carefully, make sure you addressed all the
requirements
• Using the type of theory or concepts mentioned in the question
• Laying out (even briefly) key concepts on which you build your arguments

RSM392 Strategic Management | Session 6 36

Thank you & Questions

RSM392 Strategic Management | Session 6 37