Chapter 6: Competitive Position and Sources of Advantage Flashcards
What are the two general kinds of advantages?
- Cost advantage
- Differentiation advantage
competitive advantage results in _________________________ based on a customer’s preference for performance benefits, the cost of the purchase, and the ease of the purchase.
some level of superior customer value
cost advantage
able to create superior customer value even with products that have average performance benefits if the businesses offer the products at below-average cost
A significantly lower cost position from which to create lower prices while still achieving desirable profit margins.
differentiation advantage
able to create superior customer value with above-average performance benefits, even at above-average prices
A meaningful differentiation that creates desired per- formance benefits at a level superior to those of competitors.
variable cost advantage
– Lower VC per unit
– Volume is the key
– Scale, Scope and Learning Effects
marketing cost advantage
– Advantages from product line extensions
– Marketing cost scope effect
what are the three kinds of cost advantage?
- variable cost advantage
- marketing cost advantage
- operating cost advantage
what are the three kinds of differentiation advnatages
- product advantage
- service advantage
- reputation advantage
what is the third kind of advantage? (other than cost and differentiation)
marketing
marketing advantage
A market position and marketing effort that dominates the competition in brand recognition, product line, and channels of distribution
describe scale effect
A larger unit volume allows for production and purchasing economies that lower the per-unit manufacturing cost of a product, thereby creating a scale effect
–> e.g. By making large volume purchases, Wal-Mart has been able to negotiate a lower cost of goods. The same scale effect occurs for a manufacturer who doubles production capacity
describe scope effect
when a business adds products to its product line that have similar manu- facturing processes and that are made of the same purchased materials as its other prod- ucts, the business can lower the average unit cost of all products.
e.g. For Honda, the cost of ignition switches is lower than for some other manufacturers because the same ignition switch components are used in cars, motorcycles, lawn mow- ers, all-terrain vehicles, snowblowers, snowmobiles, jet skis, and generators.
describe learning effects
as a business builds more of the same product, there is a greater opportunity for learning effects. These nonscale, nonscope effects contribute to lower costs through process improvements that are the result of learning.
describe marketing cost scope effect
could benefit from marketing cost efficiencies derived from product line extensions, which is another way to gain a cost advantage
for example, it takes a certain number of salespeople to adequately cover a target market. As the sales force is given more products to sell to the same customers, a marketing cost scope effect is created
Another area of marketing cost advantage is derived from the advertising cost effi- ciency of a brand extension strategy
e.g extensive product line offered by Campbell’s Soup. Each time an individual soup is advertised, the ad reinforces top-of-the-mind awareness of Campbell’s Soup brand and other soups in the product line
operating cost advantage
e,g. McDonald’s has been able to cut construction costs of new restaurants by 50 percent since 1990 by using standardized building designs. Because the building is an asset that is depreciated over time, this source of operating expense is drastically lower than it would be if each building had a unique design
describe product advantage
features, performance, reliability etc.
describe service advantage
Meaningful sustainable service advantage
–>service advantage has to be meaningful and important to target customers, and second, it has to be sustainable.
reputation advantage
– Superior brand equity
–Leads to customer attraction and premium price
For these companies, the stature of their brand names adds a dimension of appeal that is an important customer benefit for many less price-sensitive, more image-conscious consumers.
what are the three kinds of marketing advantages
- market share
- product line
- channel
market share advantage
- advantage based on market dominance rather than differentiation or cost
- Logic or Habit (i.e. Milk)
product line advantage
- Broad product line = more prospective customers
- *Emerging and growing stages
channel advantage
Build key relationship with distributors (control market access)
when is marketing advantage relevant?
this type of competitive advantage, like all others, is relevant only when the com- munications created are meaningful and important to target customer
inside-the-box strategy (knowledge advantage matrix)
Based on Minimal or Limited Customer/Competitor Knowledge
* Little or No Customer Knowledge
* Little or No Competitor Knowledge
Customer Reactive Strategy (knowledge advantage matrix)
Overreaction to Customer Demands Due to Limited Competitor Knowledge
* Extensive Customer Knowledge
* Limited Competitor Knowledge
oblique strategy (knowledge advantage matrix)
Leverages a Knowledge Advantage with Respect to Customers and Competitors
* Extensive Customer Knowledge
* Extensive Competitor Knowledge
competitor reactive strategy (knowledge advantage matrix)
Overreaction to Competitor Moves Due to Limited Customer Knowledge
* Limited Customer Knowledge
* Extensive Competitor Knowledge
what is knowledge advantage good for?
Gain a competitive advantage without direct confrontation
Gains without Excessive Losses (Pizza Wars)
Developing a strong competitive position is ___________
critical
perceptual maps
Perceptual mapping is a technique that is used to capture customer perceptions of competing products or services.Without specifying criteria for evaluating competing products, customers are simply asked to rate the degree to which they perceive two com- peting products to be different from one another
Based on surveys of customer ratings between the brand, sets of competitors, & ideal product ratings
what are some sources of CI
Trade press, trade shows, financial reports, industry reports, customers, suppliers
what are some behaviors exhibited by a competitor under pressure to improve profits/cash flow:
- Laying off employees and closing plants or sales offices
- Making across-the-board price increases without market justification
- Reducing advertising and not attending trade shows
- Cutting investment in research and development
- Increasing the average days in accounts payable
- Taking on more debt/increasing debt-to-equity ratio
- Tightening the terms of sale and payment conditions
- Not recruiting new people as employees retire; shrinking workforce
- Paying salespeople to collect unpaid bills
what are some Behaviors exhibited by a competitor that lacks marketing leadership/market focus:
- Frequently changing advertising message; changing ad agencies often
- Having lower-than-average sales per salesperson
- Having higher-than-average marketing and sales expenses as a percent of sales
- Having frequent new-product failures
- Communicating a hollow or vague value proposition
- Using cost-based pricing, unaware of its product’s customer value
- Frequently cutting prices to increase volume
- Frequently changing senior management/marketing management
what are the steps in competitive benchmarking?
- Identify a key area of competitive weakness.
- Identify a benchmark company.
- Track the benchmark company’s process advantage.
example of xerox doing competitive benchmarking
- Xerox found billing errors were more frequent than those of competitors.
- Xerox looked at Citicorp, AT&T, and American Express.
- With the cooperation of American Express, Xerox developed new systems to reduce billing errors.
what does competitive intelligence do?
opens the door for well timed, effective strategies
industry analysis five forces
- Barriers to Entry/Exit
- Customer Buying Power
- Supplier Selling Power
- Product Substitutes
- Competitors Rivalry
describe barriers to entry/exit
- Technology, legal, low cost manufacturer
- Specialized assets, strategic importance
customer buying power
- size, concentration
- switching costs
supplier selling power
- Switching costs, commodity vs. specialized
competitors rivalry
intensity, strength
