9 - Strategic Positionning For Competitive Advantage Flashcards
Competitive advantage
A firm has a competitive advantage over its rivals when it’s able to generate more economic profit. It’s ability depends on 2 factors:
1- market economies
2- value created relative to competitors
And it is based on superior resources and capabilities
Maximum willingness to pay
Depends on tates and target groups.
Consumer surplus
Buy only when t is positive
For 2 substitutes at the same price but the one that creates more CS
Consumer surplus parity
When firm’s price quality positions line up along the same indifference curve = firms are offering hé same amount of consumer surplus.
Value created
CS + PS
Porters value chain model
Support activities:
- firm infrastructure
- HR
- technology development
- procurement
Primary activities:
- inbound logistics
- production operations
- outbound logistics
- marketing and sales
- -service
Either:
1) configure its value chain differently
2) or perform activities more efficiently
Resources
Firm-specific assets that cannot:
- be duplicated easily
- acquired by other firms
Ex: parents, reputation, expert workers
Capabilities
Activities that a firm does outstandingly well compared to its competitors.
- valuable across multiple products
- embedded in organisational routines
- difficult to reduce to simple algorithms or procedure guides
Ex: use of technology, product design
Ways to achieve cost leadership
- benefit parity: same benefit but lower cost
- benefit proximity: benefit a little lower (lower quality ink pen)
- alter quality: worse quality
Despite its quality disadvantage, the cost leader achieves a higher profit margin than its higher cost competitor.
Ways to achieve benefit leadership
- cost parity:
- cost proximity: a bit higher than competitors
- substantial higher cost
Despite the cost disadvantage the benefit leader achieved a higher profit margin than its lower quality competitors.
Pure strategies to maximise profits
- cost leadership with benefit parity
- benefit leadership with cost parity
Only if customer preferences are identical.
Margin strategy
Low price elasticity of demand
Share strategy
High price electricity of demand
Cost advantage when
- the nature of the product limits opportunities for enhancing its perceived benefit
- consumers are relatively price sensitive
- search good
Benefit leadership when
- niche market
- will in to pay premium for enhanced qualities
- experience good
Stuck in the middle problem
When a firm pursued elements of cost leadership and benefit leadership at he same time and fail to achieve neither.
But: high quality and cost can be achieve with quality product and scale and scope economies or learning economies
Benefit drivers
1- physical characteristic
2- quantity and characteristics of service/complementary goods: warranty
3- sale or delivery characteristic: timeliness
4- perception characteristic: reputation
5- subjective image: packaging
Cost drivers
1- related to firm size, scope and experience 2- non related to firm size, scope and experience - economies of density - input prices - location - less F.C. (advertising) - government policies 3- organisation of the transaction
Broad coverage strategy
Seeks to serve all customer groups in the market by offering a full line of related products.
Focus strategy
Either offers a narrow set of product varieties or a narrow set of customers or both.
- geographic specialisation
- product specialisation
- customer specialisation
Can extract firms from competition
Techniques to estimate benefit position:
A) reservation price method (ask)
B) attribute-rating method (rate)
C) hedonic pricing analysis (look)
D conjoint analysis (cross)
PA =
CA + (VA-VB)
