2.2 Competitive advantage in the market Flashcards
What is a competitive advantage?
Point of difference or superiority over one’s competitors
Difference between you and your competitors
Rival business in same industry of goods or services
Ways to achieve competitive advantage.
- Offer low retail price
- Produce good in bulk quantities to achieve economies of scale
- Use of technology to inprove production or service deliveries
- New product features
- Strong brand name generating customer loyalty
- Improve finished product quality.
What is economies of scale?
Cost savings gained by increased level of output using same number of inputs
Efficient production
E.g increasing production and lowering costs
What is porter’s strategic theory?
A business will choose one of two options to create a competitive advantage.
1. Lower costs
2. Differentiation
Cannot choose both
Porter’s strategic theory
Lowering costs
Achieved through reducing production or delivery expenses.
Porter’s strategic theory
Differentiation
Differentiation of product or service features to create a competitive advantage.
How can you use Porter’s theory to create a competitive advantage?
Must only choose option to avoid wasting precious resources to avoid confusing customers.
How does business become lower cost?
- Input prices
- Bulk production
- Stanardised products
- Storage of materials or finished goods
- Efficient use of labour resources
Lower cost businesses:
Why does this occur?
When businesses produce same goods or services as competitors, but produces them with fewer operating expenses.
May change suppliers, may change packaging
Lower cost businesses:
How does input prices lower business costs?
May change suppliers or find cheaper option for packaging.
Lower cost businesses:
How does bulk production lower business costs?
Assists businesses in negotiating to recieve quality discounts from suppliers
How does standardised products lower business costs?
Large production of basic products
- not tailored to individual customer needs
- basic with limited variation
How does storage of materials or finished goods lower business costs?
Store raw materials or finished goods wherever possible to minimise expensive storage costs.
Raw materials not complex, not hard to store, cheap.
How does effective use of labour resources lower business costs?
Staff only available to meet consumer needs when appropriate.
e.g restaraunt open only during dinner
e.g using machines for checkout
Why does lower cost achieve competitive advantage?
- Increase profit by reducing operating expenses, still charging same retail price.
- Increase profit through discounts to loyal customers
- Increase % of market share by attracting price-sensitive customers.
