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SUSTAINABLE COMPETITIVE ADVANTAGE

Marketing Management…. Dr. V.S. Ramaswamy (Page. 219)Strategic Marketing …. A. NAG



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



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



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



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



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




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




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




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



…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



How is Compet it ive Advantage it distinct from strength ?



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



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



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”



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



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 ?



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



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



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



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



BENCHMARKING




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

Measurement of

relative performance

Along three

components

PRODUCTS & SERVICES

BUSINESS PROCESSES

& PROCEDURES

PEOPLE

Kinds of Benchmarking



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



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”



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



VALUE CHAIN ANALYSIS

Marketing Management…. V.S. Ramaswamy (Pg.188)



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



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



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



MICHAEL PORTER’S

COMPETITIVE STRATEGY MODEL

Marketing Management…. V.S. Ramaswamy (Pg.188)

COMPETITION



COMPETITION

WHAT ARE THE DIFFERENT

MARKETING OPTIONS A COMPANY

CAN RESORT TO STAY AHEAD IN A

HIGHLY COMPETITIVE SCENARIO



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



Cost

Leadership

Focused cost

Leadership

Differen-

tiation

Focused

differentiation

GENERIC STRATEGIC OPTIONS

… PORTER (1985)

Cost Leadership strategy



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



Focused cost Leadership strategy

Exploits the same advantage as in cost leadership

strategy but the company occupies a specific niche orniches

Differentiation strategy



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



Focused differentiation strategy

Based on superior performance

Company specializes in serving the needs of a

specific market or markets

Dimensions of differentiation strategy to



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



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

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