Strategic Elements of Competitive Advantage IKEA u IKEA confront competitors such as supermarkets (Wal-Mart) and other furniture co. u they focused on 3 areas for improvement: product assortment, customer service and product availability. u Prices are affordable to almost everyone; u colors blue and yellow are Sweden national colors; u customers see the furniture in showrooms and with names instead of model numbers; u shopping is a self-service activity –browse, u write names and look up for them at the lowest level where everything is in flat packs in kit forms that you have to assemble at home. Most Ikeas have children play area, restaurant, baby care and grocery store. THE ESSENCE OF MARKETING STRATEGY IS SUCCESSFULLY RELATING THE STRENGHTS OF AN ORGANIZATION TO ITS ENVIRONMENT. As the horizons of markets have expanded from domestic to regional and global, so too have the horizons of competitors. The reality in almost all industries today is GLOBAL COMPETITION. This fact puts organizations under increasing pressure. INDUSTRY ANALYSIS: FORCES INFLUENCING COMPETITION Gain insight into competitors is through INDUSTRY ANALYSIS. An industry can be groups of co. hat are close substitutes for each other. Harvard university’s Michael Porter developed a five forces model that explains competition in an industry: 1. Threat (amenaza) of new entrants: a. New entrants bring new capacity, desire to gain market share and position and new approaches to better customer needs b. New players mean prices will be pushed down and margins squeezed c. Barriers i. Economies of scale a decline per unit cost while production per unit increases. ii. Product differentiation a uniqueness. Achieved as a result of unique product attributes or effective marketing communications, or both. iii. Capital requirements a needed for manufacturing facilities and financing R&D, advertising, etc. iv. Switching costs a caused by the need to change suppliers and products –as the cost of evaluating a new source v. Distribution channels a must invest time and money to enter vi. Government policy a government generally restricts competitive entry. vii. Cost advantages independent of scale economies a establish firms enjoy this viii. Competitive response a if expected a Bruce Henderson: BRINKMANSHIP –occurs when industry leaders convince potential competitors that any market entry effort will be countered with vigorous and unpleasant responses. . Threat of substitute products: i. Availability of substitute products places limits on the prices market leaders can change in an industry ii. High process may induce buyers to switch to the substitute 3. Bargaining (negociacion) power of buyers: i. Buyers refers to manufacturers –e. g. GM- and retailers –e. g. Wal-Mart) ii. Buyer aim to pay lowest possible price iii. A way they do this is to buy high quantities that suppliers depend on the buyer’s business 4. Bargaining power of suppliers: i. Is the converse of buyer power ii. Suppliers will have the advantage if they are large and relatively few in number. . Rivalry among competitors: i. Actions taken by firms in the industry to improve their positions and gain advantage over the other. ii. Manifests in: 1. Price competition 2. Advertising battles 3. Product positioning 4. Attempts at differentiation iii. Forces co. to rationalize costs (positive force) iv. Drives down prices, profitability and creates instability in the industry (negative factor) COMPETITIVE ADVANTAGE Exists when there is a match between a firm’s distinctive competencies and the factors critical for success within its industry. There are 2 basic ways to achieve advantage: With a low-cost strategy that enables it to offer products at lower prices than competitors u With a strategy of differentiating products so that customers perceive unique benefits, often accompanied by a premium price Models: 1. Generic strategies for creating competitive advantage: a. Michael Porter created 4 generic strategies: i. Cost leadership ii. Product differentiation iii. Cost focus iv. Focused differentiation. b. Broad market strategies: COST LEADERSHIP AND DIFFERENTIATION. i. A competitive advantage is based on a firm’s position as the industry’s low cost producer. This co. ust have the most efficient facilities and obtain the largest share of market so that its cost per unit is the lowest of all. It’s an advantage if there are barriers that protect other co. to enter the market. ii. When a firm’s product has an actual uniqueness in a broad market, it has competitive advantage by differentiation. This is an advantage for defending market position and obtaining superior financial returns; unique products often command premium prices. c. Narrow target strategies: COST FOCUS AND FOCUSED DIFFERENTIATION. i. Cost focus means offering low prices to a narrow target market. i. Focused differentiation offers a narrow target market the perception of product uniqueness at a premium price. Ex. By a strong export effort. 2. The flagship firm: the business network with five partners a. According to professors Rugman & D’Cruz, Porter’s model is too simplistic given the complexity of today’s global environment; so they’ve developed an alternative framework based on business networks called the flagship model a see page 494 figure 16-1 3. Creating competitive advantage via strategic intent a. Few competitive advantages are long lasting. b. Layers of advantage: i. There is less risk in competitive markets if it has a wide portfolio of advantages. ii. The process of building layers illustrates how a co. can move along the value chain to strengthen competitive advantage. iii. All of these sources of competitive advantage mutually reinforcing layers that are accumulated over time. c. Loose bricks d. Changing the rules i. Refusing to play under the rules of the industry leader e. Collaborating i. Licensing agreements, joint ventures or partnership GLOBAL COMPETITION AND NATIONAL COMPETITIVE ADVANTAGE 1. Global Marketing Activity brings competition in a global basis (critical factor affecting success) 2. Global competition occurs when a firm takes a global view of competition and sets about maximizing profits worldwide 3. Effects of global competition have been highly beneficial to customers around the world. 4. Global competition creates value for consumers, but it also destroys jobs and profits. 5. Porter a “the competitive advantage of nations” u Factor Conditions: o Human resources o Physical resources o Knowledge resources o Capital resources o Infrastructure resources u Demand Conditions: Composition of home demand a demand determines how firms perceive, interpret and respond to buyers needs. o Size and pattern of growth of home demand o Rapid home market growth o Means by which a nation’s products and services are pushed or pulled into foreign u Related and supporting industries u Firm strategy, structure and rivalry: o Rivalry keeps industry dynamic and creates continual pressure to improve and innovate o External variables: chance and government u Chance u Government o Influence and determinant products and services CURRENT ISSUES IN COMPETITIVE ADVANTAGE 1. Hypercompetitive Industries: a. Dynamic competitive world in which no action or advantage can be sustained for long b. “Everything changes” because of the dynamic MANIOBRAR and strategic interactions of hypercompetitive firms such as Microsoft and Gillette. c. Global Competitive advantage: US: 125 co. ; UK: 21 co. ; Japan: 19, etc d. D’aveni said the only way to sustain this is by the ability of a co. to manage its dynamic strategic interactions with competitors by frequent movements to maintains relative position of strength in each of the four arenas (Dynamic Strategic Interactions in Hypercompetitive Industries): i. Cost/quality 1. Price war 2. Quality and price positioning 3. Value marketplace ii. Timing and know-how 1. First mover advantages 2. Overcoming the impediments 3. Vertical integration 4. Imitation and improvement by followers iii. Entry barriers iv. Deep pockets 1. Drive ‘em out 2. Small competitors use courts to derail deep pockets firms 3. Large firms wins, etc 2. Additional research on comparative advantage a. For smaller countries the nation is not the relevant unit of analysis in formulating strategy; rather, corporate strategists must look beyond the nation to the region or to sets of closely linked countries.
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