sustainable competitive advantage addnl
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SUSTAINABLE COMPETITIVE ADVANTAGE
Marketing Management…. Dr. V.S. Ramaswamy (Page. 219)Strategic Marketing …. A. NAG
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Previous year’s University Question Paper
1. What is the process of creating a competitive advantage in marketing a
health drink. Explain giving a suitable example…… 2011
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What is competitive advantage ?
How is it important ? How does it help the firm ?
What are its distinctive attributes ?
How is it distinct from strength ?
What is the test of competitive advantage ?
How is it related to strategy ?
What are its sources ?
In what form does it finally manifest and benefit the firm ?
How do firms diagnose/appraise their competitive advantage
How do they build them ?
Nature and Significance of Competitive Advantage
CONCEPT QUESTIONS
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What is competitive advantage ? What are its distinctive
attributes ?
1. “ Competi t ive advantage is essent ia l ly a posit ion of super ior i ty on the
par t of a f i rm in re lation to i ts com pet itors in any of the mul t i tude of
func t ions , act ivi t ies performed by the f irm . It means th at the f i rm can gain
advantage in several ways ”
Superiority means
… Superior to compet it ion in produc t ion
… Super ior in R & D
… Super ior in market ing
And hence they will have a competitive advantage in the respectivefunction.
Superiority also means that the firm performs a given function/activity
differently—distinct from the way others perform it
The superiority will obviously cover dimensions like resources,capabilities and technologies
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1. “The second aspect is that the superiority/distinction has to be
relevant.”
It simply means that the superiority/distinction has to be of value to thecustomer and perceived by him as such
Without this requirement being fulfilled,, no competitive advantage
accrues to the firm, from the superiority/distinction
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Illustrations of Competitive Advantage
Company
Source of CA
Toshiba
… Variety and flexibility in production. Flexible Manufacturing System
(FMS).
… It manufactures different products/varieties of the given product in
the same assembly line
Capability
This is a major Compet it ive Advantage fo r TOSHIBA
… Assembles 9 different word processors on the same assembly line
… 20 varieties of lap top computers on the adjacent line
… It is able to switch from one product/variety to another instantly and atLow cost
… Toshiba scores over the competitors through variety, speed and
quicker response to market demand making profits even with short
volume runs
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Illustrations of Competitive Advantage
Company
Source of CA
Sony
… Enjoys the advantage of low cost , in personal stereo players
… The cost advantage comes through the offer of a globally standardized
product
Capability
It has built a Competitive advantage through this edge
… Sony’s Walkman is a good example
… It ruled the music world until the 1990’s
… It has been a globalized product, offered all over the world, ignoringdifferentiation
… The high quality and low cost attracts customers the world over
… Sony is able to combine economy and high quality, by simultaneously
achieving high volume and standardization at high quality level
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Illustrations of Competitive Advantage
Company
Source of CA
Caterpillar
… Caterpillar has built a competitive advantage in its business of earth
moving equipments through after sales service
Capability
It has built a Competitive advantage through this edge
… Caterpillar assures that it will attend to any service requirement andspare part needs in any part of the world, within 48 hours
… This is a far superior offer than any of its competitors
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Illustrations of Competitive Advantage
Company
Source of CA
Intel
… Ability to make available enhanced capacity microprocessors
Capability
Through this it has it built a powerful Competi t ive advantage
… It consistently increases the value of its microprocessor chips bypacking into it more computing power at reduced costs
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…Scoring over competition…Defending against competition
…Pursuing opportunities
...Deflecting threats and vulnerability
Which hinge on solid
sustainable Competitive
advantage
Strategic initiatives for
A successful strategy is
always woven around the
competitive advantage of a
firm
SUSTAINABLE
COMPETITIVE
ADVANTAGE IS THEBACK-UP FOR STRATEGY
Competitive advantage
enlarges or delimits the
strategic choices availableto a firm
How is it important ? How does it help the firm ? How is it
related to strategy ?
Competitive advantage is closely linked to strategy. Quite naturally a firm
will have to the nurture and strengthen its competitive advantage at its
disposal while formulating its strategies
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How is Compet it ive Advantage it distinct from strength ?
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What are the sources of Competitive Advantage ?
In Marketing
… Market standing
… Customer satisfaction level
… Advertising effectiveness …. Product mix and product lines
In Finance
… Assets… Liquidity
… Profitability
…. Costs
In Manufacturing/
operations
… Size or capacity of production
… Cost of production
… Flexibility
…. Product mix and product lines
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In R & D
… Resource allocation to R &
… Quality & expertise in R & D personnel
… Speed of R & D
…. Engineering capability for pursuing
R & D suggestions
In HumanResources
… Quality, knowledge, expertise and
experience of personnel… Morale & motivation of personnel
… Labour costs
In Corporate
factors & overall
resources
… Corporate image
… Quality of management in general
… Organizational culture
…. Use of IT
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How do firms diagnose/appraise their competitive advantage
Identify the
competitiveadvantage
factors in the
firm
1
--- Factors in which it is particularly is strong
--- Check out which of these factors, it is
stronger than its competitors
--- Firms derive their competitive advantage
from these factors arrive Check out which of
these factors
EXAMPLE
--- HUL is particularly strong in marketing… It has a large distribution
network
--- It has a large distribution network that reaches out even to the
remotest rural areas in India ---- It is a competency which many of its competitors in soaps-detergents
shampoo business cannot match
--- Modi Xerox too is quite strong in the marketing area, but within
marketing, after sales service has been its forte, supported by the claim
“Service within 24 hours”
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2S-W Analysis
and Competitive
Advantage
Analysis
--- In Competitive advantage exercise, the
process of S-W analysis has to be carried outwith reference to competition and external
environment of the firm
--- Since Competitive Advantage is always
relative to competition and industry
In other words, analysis of the firm’s competition and the overall industry
structure are vital steps in arriving at the competitive advantage of the
firm
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Internal appraisal
and industryanalysis
--- A firm can assess the position regarding its
competitive advantage only after analysing
industry and competition . It has to compare
its strengths and weaknesses with those of its
competitors.
3 -e.g. Competitive advantage factors of a firm
--- Market share
--- Customer service--- Brand power
The firm has to know its position in these
factors relative to competition in order to
assess to what extent the firm possesses acompetitive advantage in these factors
This is how analysis of industry and competition become relevant along
with the internal; appraisal , in sizing up a firm’s competitive advantage
f C ?
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How do firms build Competitive Advantage ?
As part of Strategy
Strategy uses and creates competitive advantage
Firms use different routes for building competitive advantage
Benchmarking as a useful tool
Value chain analysis as another tool
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As part of Strategy
---- Building competitive advantage is a function of strategy
… Corporate strategy
… competitive/marketing strategy
In their corporate and competitive strategy, firms incorporate
the moves that would result in the creation of the desired
competitive advantage
St t d t titi d t
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Strategy uses and creates competitive advantage
While competitiveness is needed for strategy to work, it is
strategy that creates competitive advantage
Strategic decisions and actions cumulatively lead to
competitive advantage building
e.g.
Corporate level strategic decisions on acquisitions, mergers,
alliances fresh investments, technology up gradation, etc.are all steps that would result in competitive advantage
building
Fi diff t t f b ildi C titi Ad t
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Firms use different routes for building Competitive Advantage
---- Innovation in any function
---- Strategic alliances
---- Benchmarking
---- Integration
---- De-integration/outsourcing
---- R & D
---- Supply chain expertise
---- Strength in marketing channels
---- Mergers & acquisitions
---- Creation of entry barriers
---- Product differentiation
---- Brand dominance
---- Using core competence as anchor for competitive advantage
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BENCHMARKING
Benchmarking as a useful tool
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Benchmarking : “is the process of continuously comparingand measuring an organization with business leaders
anywhere in the world to gain information which will help the
organization to take action and improve performance” … The
American Productivity and Quality Centre s Benchmarking
Management Guide
A reference point for the measurement of quality or
excellence
Simply put “Benchmarking is the search for the industry best
practices that lead to superior performance
Benchmarking as a useful tool
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BENCHMARKING
Measurement of
relative performance
Along three
components
PRODUCTS & SERVICES
BUSINESS PROCESSES
& PROCEDURES
PEOPLE
Kinds of Benchmarking
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Kinds of Benchmarking
Internal
Benchmarking
Using comparisons with successful practices within
the organizations
Competitive
Benchmarking
Using comparisons with successful practicing firms
with which one is competing directly
Using comparisons with firms in any industry which
have developed particularly effective process
and/or procedures for given functions, for example,
order processing, inventory control
Functional
Benchmarking
Generic
Benchmarking
Using comparisons with firms in any industry to try
and understand how they have achieved superior
performance
Benefits of Benchmarking
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Benefits of Benchmarking
--- Improved understanding of internal systems and best
practices
--- Establishment of key success factors and true measures
of productivity
--- New ideas leading either to continuous improvement or
breakthrough change
--- Improvement in understanding and meeting the needs of
customers
--- A view of external conditions leading to the establishment
of more relevant goals
--- Becoming aware and emulating industry bets practices
Benchmarking Illustration “Taurus Car Project”
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Benchmarking … Illustration …. “Taurus Car Project”
Company Ford Motor
Situation
Competition from Japanese passenger car
firms
Company was going downhill in car sales in
the first half of 1980
Reason
Ford’sTurnaround
Second half of 1980s, Ford was back on itstrack and winning ways thanks to one single
model car “Taurus” which contributed to the
turnaround
How ithappened
The team in charge of “Taurus” was directed
to pinpoint all the features of the “best inclass”
The team used Benchmarking and gathered
he best features of all top selling cars.
The team developed data on 400 features
Benchmarking had done the trick
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VALUE CHAIN ANALYSIS
Marketing Management…. V.S. Ramaswamy (Pg.188)
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MICHAEL PORTER’S VALUE CHAIN MODEL
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Support
Activities
Inbound
Logistics Operations
Outbound
Logistics
Marketing &
Sales Service
Primary Activities
Basis of value chain
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Basis of value chain
Every firm is
a collection of
activities
PRIMARY
ACTIVITIES
Inbound logistics
(Bringing material into the business)
Operations
(Product design, manufacturing etc)
Outbound logistics
(Sending the products out)
Marketing & sales
Service
SUPPORT
ACTIVITIES
Firm’s infrastructure
Human resources
Technology development
Procurement
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ALL
PRIMARY
ACTIVITIES
THE FOUR
SUPPORT
ACTIVITIES
Occur throughThese together
generate a vast matrix
of value creating
activities in the firm
These along with their
interactive effects,
constitute the valuechain of the company
Which depends on:
--- How each department of the firm
performs its value crating activities
--- How well the activities at the variousdepartment levels are coordinated
… Business process is basically a value-creating and value delivery
process.
… Buyers patronise the firm that offers the highest delivered value
… The name of the game is to locate activities in which value can be
created and create maximum possible value in each of them
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MICHAEL PORTER’S
COMPETITIVE STRATEGY MODEL
Marketing Management…. V.S. Ramaswamy (Pg.188)
COMPETITION
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COMPETITION
WHAT ARE THE DIFFERENT
MARKETING OPTIONS A COMPANY
CAN RESORT TO STAY AHEAD IN A
HIGHLY COMPETITIVE SCENARIO
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MICHAEL PORTER’S COMPETITIVE STRATEGY MODEL
COST
LEADER-
SHIP
FOCUSED COST
LEADERSHIP
DIFFERENT-IATION
FOCUSED
DIFFEREN-TIATION
STRATEGIC
OPTIONS
Lower Price
Than
Competitors
Highly Differen-tiated products
than
competitors
Focus On Few
Market Segments
Than The Whole
Market
On The Middle
Road
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Cost
Leadership
Focused cost
Leadership
Differen-
tiation
Focused
differentiation
GENERIC STRATEGIC OPTIONS
… PORTER (1985)
Cost Leadership strategy
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Cost Leadership strategy
Based on exploiting some aspects of production
process which can be executed at a cost significantlylower than that of the competitors
Sources of cost advantage
Low input costs Low in-production cost Low delivery costs
Cheap source of
inputs/raw materials
Locating operations
where labour cost is
low
Proximity to key
markets
Focused cost Leadership strategy
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Focused cost Leadership strategy
Exploits the same advantage as in cost leadership
strategy but the company occupies a specific niche orniches
Differentiation strategy
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Differentiation strategy
Based on offering superior performance product
Offers a “high scale advantage
Because
Producer can easily
command a premium price
for his product
Competitors are less of a
threat because they have
to offer a superior product
Focused differentiation strategy
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Focused differentiation strategy
Based on superior performance
Company specializes in serving the needs of a
specific market or markets
Dimensions of differentiation strategy to
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gy
make it superior to that of competitors
PRODUCT
… Features
… Actual performance… Conformance to quality
standards specified by customers
… Durability
… Reliability
… Style & design
OTHER
ASPECTS
… Delivery
… Installation… Superior/outstanding services
… Customer training
… Repair & maintenance
… Post purchase product upgrade
F o r
I n d u s t r i a l g
o o d s
For Consumer goods & Services
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For Consumer goods & Services
Core attributes are similar
E.g.… Liquid detergents
… Life insurance
… General insurance
Use of promotion as a means of creating a
“perceived difference”
E.g.
… Liquid detergents that do not harm the hands
… Life insurance
… Citibank guarantees Diners Club
International Card Holders loan delivery at
home within 72 hours