Chapter 5 Competitive advantage A company has a competitive advantage whenever it has an edge over rival s in attracting customers and

defending against competitive forces Competitive forces of porter 1) Generic strategy 2) Cooperative strategies( Joint venture, alliance strategy) 3) Merger and acquisition strategy 4) Vertical integration vs. outsourcing 5) Offensive strategies Generic strategy Five generic strategy 1) Low cost provider 2) Differentiation strategy 3) Best cost 4) Focus strategy based on low cost 5) Focus strategy based on differentiation Low cost provider Offer the products at an overall low cost Ways to achieve cost advantage: there are 2 ways ----------Controlling the cost drivers --------- Revamping the value chain Controlling the cost drivers: 9 drivers 1) Economies and diseconomies of scale 2) Learning and experience curve effect 3) Cost of key resources input 4) Link with other activities 5) Benefits of vertical integration 6) Capacity utilization Capture scale economies; avoid scale diseconomies Capture learning and experience curve effects Manage costs of key resource inputs Consider linkages with other activities in value chain Find sharing opportunities with other business units Compare vertical integration vs. outsourcing Assess first-mover advantages vs. disadvantages Control percentage of capacity utilization Make prudent strategic choices related to operations Economies and diseconomies of scale: Such a thing that can increase or decrease fixed cost spreaded over larger volume. as a result unit cost decline. Fixed cost== machine cost, building cost, R & D, advertising Learning and experience curve effect: Cost of performing an activity can decline due to experience and learning over a period of time. Training and experience w ill reduce the cost of an activity. Learning and experience occurrences when production doubles. Rearrange the machine equipment both productive. Cost of key resources input: 1) Union vs. non union 2) Bargaining with the suppliers 3) Locational variables Locational variables: tax level, wage level, energy cost, inbound and outbound s hipping cost Link other activities with the company and industry value chain: Involve differ ent departments in product design. Benefits of vertical integration and rate of capacity utilization: you produce p

en. Its raw material is plastic . Except purchasing from supplier you produce pl astic. Forward integration: you sell your product by yourself Controlling cost drivers Revamping value chain 1) Shifting to E-business technologies 2) Simplify the product design 3) Stripping away the extras 4) Shifting to a simpler, less capital intensive and flexible technology 5) Relocating the facilities 6) Reengineering the core business process 7) Bypassing the use of high cost raw materials. Shifting to E-business technologies: Online shopping and purchases, online order processing and bill payment, online data sharing with suppliers, fast e-mail co mmunication and teleconferencing. Simplify the product design: reduce number of parts, CAD, standardizing parts an d components, shifting to an easy-to-manufacture product design. Stripping away the extras: offering only basic products and services. For exampl e no-frills airlines like Southwest airline. Shifting to a simpler, less capital intensive and flexible technology: CAD and m anufacture or other flexible manufacturing system. Relocating the facilities: moving plants closer to suppliers ,customers or both can help reduce inbound and outbound logistics cost. Reengineering the core business process: rethink the business process Bypassing the use of high cost raw materials.: high cost raw material can be des igned out of the product. When low cost strategy works best? 1) When competition is severe? 2) Switching cost of the buyer is lowmobile sim 3) Buyers are getting higher bargaining power 4) Standardize product and few ways to product differentiation Differentiation strategy Meaning of differentiation Theme of differentiation Achieving a differentiation base competitive advantage The essence of differentiation strategy is to be unique which are valuable to cu stomer and that are valuable and can be sustained To be successful in differentiation strategy you as a manager of the org anization should be careful in steering the customer behavior 1) What customer consider important 2) What they think valuable 3) And what they are willing to pay What does successful differentiation strategy yield? 1) Command a premium price 2) Increase in unit sell 3) Gain buyer/customer loyalty. Types of differentiation theme Unique taste -- Dr. Pepper Multiple features -- Microsoft Windows and Office Wide selection and one-stop shopping -- Home Depot and Amazon.com Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar More for your money -- McDonald's, Wal-Mart Prestige -- Rolex Quality manufacture -- Honda, Toyota, Karastan in carpets Technological leadership -- 3M Corporation, Intel Top-of-the-line image -- Ralph Lauren, Chanel Engineering design and performanceMercedes, BMW

Complete line of productsCampbell's soups

Achieving a differentiation based competitive advantage 4 ways 1) Incorporating the features that lower overall cost of using of the produ ct: , (IPS). You need 2) Incorporating features that will raise the performance of the product: i n order to increase performance ease of use, durability should be increased. 3) Incorporating features that enhance buyer satisfaction in non economic o r intangible way: customer will not be happy. We need to give some fine tuning a ppearance . 4) Compete on the basis of capabilities.: Give more value to customer than rivals. D: Design C: Create D: Distribute A: Advertising S: Sell Walton bring new products faster than rivals. When a differentiation strategy works best? 1) There are many ways to differentiate a product that have value and pleas e customers 2) Buyer needs and uses are diverse 3) Few rivals are following a similar differentiation approach 4) Technological change and product innovation are fast-paced Best Cost Provider Strategies Giving more value to customers for the money they paid Ensures price low caliber=quality up. It bids the customer expectation regarding price and quality service performance . You should have the qualities/capabilities to offer good to excellent pr oduct than the rivals, good to excellent service than the rivals. Focus strategy/when focus strategy attractive/market niche strategy Focus the narrow piece of the total market. 1. By geographic uniqueness 2. Specialized requirement 3. Special product attribute that appeal to the niche members. 2 types of focus strategy 1) Focus strategy based on low cost 2) Focus strategy based on differentiation Virgin airline offer low rate Low costmotel six DifferentiationRitz Carlton Ritz Carlton offer varieties of services . Motel Six location exit and entry position of the city. Ritz Carlton set location in attractive parts of the city Motel six--- 40 dollars Ritz Carlton--- 200 dollars When focusing strategy is attractive 1) Target market niche is bigger 2) Industry leaders do not see that the presence is crucial for their succe ss. 3) The industry have many different niche and segments. Target market niche is bigger: why malindo starts from Chittagong than sylhet? Merger and acquisition strategies Merger is the combination and pulling of equals in newly created company often t aking a new name.

In acquisition a company acquires or absorbs the operation of another co mpany(acquired company) Three differences 1) Ownership: 2 companies conduct business operation together. In acquisiti on acquired company has no ownership. 2) Management control 3) Financial arrangement

Offensive strategies Alliance, Vertical integration 1) Initiative to match or exceed competitors strength. 2) Initiative to capitalize on competitors weakness 3) Simultaneous initiatives on many fronts 4) End-run offensives to move to less contested ground. 5) Guerilla offensives. 6) Preemptive strikes.