Building Competitive Advantage Generic Business Strategies Chose to
Building Competitive Advantage Generic Business Strategies
Chose to be a Specialist Many businesses believe that in order to maximize profits, they must be all things to all types of customers. However, this approach could have a detrimental impact on business In fact, relegated to a commodity status leaving little room for expansion and growth. “Being a master of everything makes you a master of none. ”
What is a Competitive Advantage? A competitive advantage allows a company to outperform its competitors to create values to customers and achieve superior margins for the company and its shareholders. A competitive advantage must be difficult, if not impossible, to duplicate. If it is easily copied or imitated, it is not considered a competitive advantage.
Why Competitive Advantage A competitive advantage contributes to higher prices, more customers, higher customer loyalty. Establishing such an advantage is one of the most important goals of any company. In today’s world, it is essential to business success, without which companies will find it difficult to survive.
Constructing a Competitive Advantage To construct a competitive advantage, a company must be able to detail the benefit that they provide to their target market in ways that other competitors can not. Solving customer problem difficult but selling the is damn tuff. - Jack Trout is not solution
Constructing a Competitive Advantage Benefit: A company must be clear what benefit(s) their product or service provides. It must offer real value and generate interest. Target Market: A company must establish who is purchasing from the company and how it can cater to their target market. Competitors: It is important for a company to benchmark competitors to determine what NOT TO DO
Generic Strategies for Competitive Advantage
Cost Leadership • In a cost leadership strategy, the objective is to become the lowest-cost producer. This is achieved through large-scale production where companies can exploit economies of scale. • If a company is able to utilize economies of scale and produce products at a cost lower than competitors, the company is then able to establish a selling price that is unable to be replicated by companies. Therefore, a company adopting a cost leadership strategy would be able to reap profits due to its significant cost advantage over its competitors.
What makes Cost Leadership possible ?
Case-1: Walmart- “Everyday Low Prices” Walmart operates approximately 11, 500 stores (4, 756 stores in US) in 27 countries and e. Commerce websites in 10 countries. It employs approximately 2. 2 million associates around the world – 1. 5 million in the U. S. alone. Walmart’s foremost trait is cost efficiency. If a price-war were to break out tomorrow, this retail giant could outlast all its competitors. It can, therefore, maintain the lowest prices and attract those customers who base their buying decision primarily on price. Walmart delivers the most value to their customers by offering rock bottom prices.
Differentiation • In a differentiation strategy, a company’s products or services are differentiated from that of its competitors. This can be done by delivering high-quality products or services to customers or innovating products or services. • If a company is able to differentiate successfully, the company would be able to set a premium price on its products or services.
According to the Harvard Business Review, there are three core value disciplines that differentiate a business from the competition: • Operational excellence - Amazon • Customer intimacy - Apple • Product leadership – 3 M Rather than trying to excel in all three, major industry leaders typically focus their differentiation strategies on one value discipline, while meeting industry standards in the other two.
Case-2: Apple The 2019 Report ranked Apple as second on the overall list and number one among tech companies. The key to Apple’s customer loyalty lies in their creation of intimacy and emotional attachment to the brand. According to David Weinberger, “everything from opening up the box of an i. Phone to holding it in your hand is a sensory pleasure. Apple is a great example of why paying attention to product design and user experience is crucial from the early stages of product development.
What makes Ddifferentiation possible ?
Focus A focus strategy involves offering the niche-customers a product customized to their tastes and requirements. It is directed towards serving the needs of a limited customer group.
Focused Cost Leadership A focused cost leadership strategy requires competing based on price to target a narrow market "Focused Cost Leadership”. A firm that follows this strategy does not necessarily charge the lowest prices in the industry. Instead, it charges low prices relative to other firms that compete within the target market
Focused Differentiation A focused differentiation strategy requires offering unique features that fulfill the demands of a narrow market
Case-3 "To design a desk which may cost $1, 000 is easy for a furniture designer, but to design a functional and good desk which shall cost $50 can only be done by the very best. Expensive solutions to all kinds of problems are often signs of mediocrity. " -Ingvar Kamprad
Stuck in the Middle Porter argued that competitive advantage is derived from one of two strategies: Cost leadership or Differentiation of products or services. Across most industries you can find firms and products that aim for advantage based on either cost or differentiation. The problem, Porter said, was in trying to do both and thus doing neither very well. He seemed to be saying, “find what you are good at and stick to it. Porter wrote, “The firm stuck in the middle is almost guaranteed low profitability
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