theme 4 Flashcards
Competitive advantage based on 3 value disciplines, what are they ?
- Operational excellence like IKEA, Ryan air, Amazon
- Product leadership focusing like apple Mercedes
- Customer intimacy focus like south west airlines and rolls Royce
It is very difficult to be good at all three and most companies can focus on only two
Competitive advantage through positioning ?
Cost leadership and Differentiation
These are the two most common strategies that businesses use to gain competitive advantage
The best companies are the ones who can have both strategies
• Organizations who adopt the cost leadership strategies still cant offer bad products, they focus on cost reducing but they also need to be competitive
• Organizations who adopt the differentiation strategy cannot raise the price as much as they want because they still need to be competitive
features of cost leadership strategy
• Scale (volume) is important because the more you produce the same product you more you learn to be effective and efficient then the more you save money by reducing cost
• the processes for manufacturing and supply chain and the control of cost of R&D is very important
o Examples: Aldi, Liddle
• Avoidance of marginal customer accounts means the 80-20 rule which means 80% of your profit comes from 20% of your customers and when you are in a scale or volume strategy you cannot apply it because you cannot spend time on each customer
• Same products, no distinction only scale
• Access to capital is important to produce big quantities
features of differentiation strategy
- Scale is not important what is important is bringing a unique product
- Emphasis on branding, quality, good product development
- Marketing is important not like on cost leadership
- Creative and R&D is very important
- Quality not quantity
what would happen if you deviate from your strategy ? give example
you will be stuck in the middle
example : This is when happened when starbucks wanted to expand and deviated from the differentiation strategy then got stuck in the middle until they restored their differentiation strategy
Any company should avoid being stuck in the middle and focus on their target
what are cost drivers ?
1- Economy of scale: is being able to repeat to produce the product all over in different countries which lead to learning and gaining knowledge on lowering cost hence lowering price and gaining advantage over competitors , This strategy requires a good relationship with supplier and a good supply chain management
2- Capacity utilization: usually cost leadership requires access to capital and that is because volume means big manufactures and high capacity to produce high volume
3- Bargaining power especially to suppliers
4- Supply chain efficiencies: the relationship with suppliers who provide volume must be positive to reduce cost and get good quality
Pitfalls of low cost strategy ?
- If you lower your prices too much and you get to your cost level your profit margin will be tiny
- relying on cost advantage that is not sustainable, can allow rivals to copy your product and strategy
Differentiation strategies drivers ?
- customer service : Unlike in cost leadership, customer service is crucial because people pay more to be serviced in a good way
- R & D : , high quality and different products require continuous innovation
Sales and marketing : differentiated products require marketing to increase awareness .
Pitfalls of differentiation strategy?
- relying on product, can be easily copied by rivals
- charging too high a price premium
- adding many features may not evoke an enthusiastic buyer response , and can also increase your spending
what is segmentation
Segment means finding a special niche with less competition
capturing value and segmentation
In order to make sure that you are capturing value you need to balance your margin profit and the value cost you offer because you need to make sure that you are gaining enough profit
The more you segment the less competition the more margin of profit you have
Tesla have high margin because there is not a lot of competition and they are scaling
advantages and disadvantages of segmentation
Advantages :
- higher prices and margins
- higher loyalty
- less competition
disadvantages :
- higher costs
- more dependent on buyers
Zara case ?
Zara value preposition is about cutting edge fashion at moderate prices for chic shoppers and everything they do is supporting unique value preposition
They know they are having cutting edge fashion by looking at what is trendy and slightly changing it and selling it such as dresses found on catwalk and this is where they have an advantage on other rivals
They have about 200 designers that capture the trend they go to fashion shows and cat walks of haute couture and cutting edge fashion
One time a dress that Madona was wearing in a tour in Europe and 6 weeks later a dress that is slightly changed was available at Zara
They use now influencers om social media to create a buzz
• Concerning lead time, zara is one of the organizations that reduced the lead time to 6 weeks including distribution in shops and maybe they now they can do it in 4 weeks while other companies need two months to do that
• That enables them to always create a large variety of cloth in a short amount of tine that they can be
• Regarding scarcity, they create it by continuously having a big variety and always changing stock so if you go now and 6 weeks later you wont find the same clothes they had,
o They also don’t put a lot of clothes in showrooms to create that feeling and perception that there is not a lot of models so you should buy it before it is gone
• They invest a lot in market research and they have people only for that
• Proximity and control means that zara have a good control of craftmenship
• They invested a lot in it and inventory system
o For example when someone buys anything from zara a data will be downloaded to the headquarter of zara,and they are able to replenish a product in 24 hours in Europe and 40 hours in the whole world
• That is why you cannot copy everything that makes zara unique which allows it to has an advantage
• Zara doesn’t spend a lot on marketing which is 3% compared to their rivals such as H&M which is 10% but they do choose specific and expensive places to locate their shops at which are primary locations to give the feeling of primary quality and chic shopper
• Zara has 200 or 300 real estate people that their purpose is only finding new places for zara shops
• Zara get 12% in total revenues in sales which is half than hm which is 20% that means zara is selling less on sales and that is because they are continuously creating artificial scarcity so people are continuously buying and not only in sales
Victoria secret case
• If we look at the stock price of Victoria secret we see that after they were coming up from 2000, in 2015 went up very high and then went down very fast in 2017
• Every year they used to organize a catwalk for marketing
• What made this company so special is that before this company you had to either buy lingerie or underwear, but what the owner of Victoria secret was able to do create an image that young confident women can wear this sexy lingerie that is also comfortable without only wearing lingerie.
• His products were also at a lower price than lingerie and he created buzz by marketing and these cat walk shows
• He expanded over us borders and positioned his shops in a lot of places including airports
After 2018 a movement started that changed how women and people look at Victoria secret
• It was criticized by women that felt that this company is seeing women as sexist objects and after trump said that statement (grab the pussy) and also created that feeling that women should not be looked at like that
• Because this movement, the strategy of this company that worked for 16years started to fall
• This adding competition from amazon and calvin klein that lead Victoria secret to change strategy after the stock fell down immediately
This case is a prove that PESTL analysis is important because here the social element played a huge role in Victoria secret strategy
Renovo toilet paper case study
this company created the image of intimacy to customers that going to the toilet is not a filthy thing and that is nothing wrong about it.
The way they advertise it is using mostly male models to advertise this product In a very boring industry that has nothing special in it.
Some countries think that this type of marketing (see below) is too provocative
