Creating Competitive

8/9/2019 Creating Competitive

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Creating Competitive Advantage


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Competitive AdvantageWhen a firm sustains profits that exceed the average

for its industry, the firm is said to possess a

competitive advantage over its rivals.

Cost Advantage

Differentiation Advantage


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Porter’s Generic Strategy


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ey terms • ! a x i m u m a m o u n t o f m o n e y t h a t t h e

c u s t o m e r " i l l p a y f o r p r o d u c t a n d s e r v i c eWillingness to

pay

• S m a l l e s t a m o u n t t h a t s u p p l i e r " i l l a c c e p t f o r t h e s e r v i c e s o r g o o d s h e p r o v i d e s

Suppliersopportunity cost

• # a l u e c r e a t e d $ y t h e t r a n s a c t i o n Added #alue


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Cost Advantage

Deliver a G%%D product or service at the lo"est possi$le cost.&. g. ar$onn mo$iles

%pen a significant and sustaina$le cost gap over all

competitors Create advantage through superior management of 'ey cost

drivers (ranslates into a$ove)average profits "ith $elo" industry)

average prices

Dra"$ac'sCost leaders must maintain parity or proximity in satisfying $uyer

needs

Cost leadership often re*uires trade)offs "ith differentiation


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Division of #alue


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Differentiation Advantage Select one or more needs that are valued $y $uyer

Achieve and sustain superior performance $y meeting these

needs uni*uely

Selectively add costs if necessary to do so Successful differentiation leads to premium prices

!ay have upper limits on volume gro"th

Avoid

Creating differentiation that $uyers do not value. &. g. +ody Shopin non)&urope mar'ets, local’ $)schools

Charging an excessive price premium. &. g. -ee$o' Creating differentiation that competitors can emulate *uic'ly or

cheaply. &. g. irefox ta$s


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/nterplay $et"een Cost and

Differentiation


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Creating Advantage

irm’s Activity Analysis0nderstand "hy the firm does or does not

have a competitive advantage

Spot the opportunities to increase thefirm’s advantage

oresee future shift in competitive

advantage


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our Step Analysis

Step 12 Catalog Activities/dentify list of activities that drives your $usiness

Primary activities /n$ound logistics, %perations, %ut$ound logistics,

!ar'eting 3 Sales, After)sales service

Support activities

Procurement of inputs, Development of technologyand human resources, general infrastructure


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1. Catalog Activities 4(he #alue Chain5

/n$ound

6ogistics

%perations %ut$ound

6ogistics

!ar'eting

3 Sales

After)Sales

Service

!

a

r g

i

n

Primary Activities

irm

/nfrastructure

7uman

-esource

!anagement

(echnology

Development

Procurement

• +ig stores in small to"ns

89 local monopolies, lo"

rental costs

• Pricing that reflects local

monopoly

• Concentric expansion

• +rand)name merchandise• Private la$els

• 6ittle space for inventory

• Suggestion program

• Store "ithin a store

• (raiting2 tailoring

merchandise to locale

• &D6P

• 6o" prices

• Store manager

latitude on pricing

• 6ittle advertising• !erchandise meeting

• re*uent

replenishment

• Automated DCs,

cross doc'ing,

pic')to)light

• &D/

• 7u$ and spo'esystem

• &asy returns

• P%S

• Satellite system

• Associates, not employees

• :ot unioni;ed

• Store manager autonomy

• rugal culture 4sharing hotel rooms,

calling collect

• :o regional offices

• 6ots of management visits

• Store performance trac'ing

• 0PC

• 7ard)nosed negotiating

• Centrali;ed $uying

• :o)frills meeting rooms

• Partnerships "ith some vendors

• &(, electronic invoicing

• Planning pac'ets

• !anager compensation tied to

store

• Stoc' o"nership plan

• Decentrali;ed training in DC

• -eal)time mar'et research

• Saturday meetings

• un "or'ing environment

• Promotion from "ithin

• Associate compensation tied

to company

• Shrin' incentive planSupport

Activities


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7ostess’s Cost Components

<

1<

=<

><

?<

@<

<

B<

<

C e n t s p e r u n

i t

Profit

!ar'eting2 Promotions

!ar'eting2 Advertising%ut$ound logistics

%perations2 !anufacturing

%perations2 Pac'aging

%perations2 /ngredients


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Step =2 0se activities to

analy;e relative costsPitfalls of standard costing need to $e reali;ed

Determine costs associated "ith each activity/dentify cost drivers associated "ith each activity

0se cost drivers to analy;e competitor’s position

Analy;e multiple cost drivers for complex activities

%nly relevant cost drivers need to $e analy;ed


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=. 0se Activities to Analy;e -elative

Costs


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Step >2 0se activities to analy;e relative

"illingness to pay Activities that affect "illingness to pay

Product design 3 physical characteristics Sales or delivery

Post)sales service or complementary goods Advertising, pac'aging, $randing efforts

Su$ectivity to the "illingness factor rame"or' for analysis

/dentify "ho your real customer is

/dentify customer needs and their trade)offs 7o" successful are you at thisE (ie customer needs $ac' to activities


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Customer :eed 4and /mportance FFFF5

<

1

=

>

?

Price4FFFF5

+rand

/mage4FFFF5

reshness4FFF5

#ariety4FF5

Si;e4F5

-ating

7ostess

6ittle De$$ie

%ntario +a'ing

Savory Pastries

>. 0se Activities to Analy;e

-elative W(P


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Step ?2 &xplore options and

ma'e choices

Study competitor’s strategies

Consider competitor’s responses to your strategiesScan entire value chain to identify opportunities

Consider adustment to scope of operations

(a'e decisions "ith a holistic $usiness vie"


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Case Studyara2 A Spanish retail store o"ned $y /nditex group

-evenue of H.=? $illionStarted as a lo" priced loo' ali'e product store

Shortest lead time from design ta$le to store

Daniel Piette 4ashion director 6ouis #uitton5

“possibly the most innovative and devastating retailer

in the world”


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Competitive Advantageast Production2 = "ee's from design ta$le to store

compared to months industry average

ero advertisement $udget and focus on customer

experience

0se of /( for fast design. ara produces approx

1


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Competitive AdvantageCompara$le *uality to 0C+ and GAP clothing $ut

cheaper

7igh (urnover and lo" inventory

&fficient distri$ution system

ept production "ithin Spain to aid their fast

turnaround time

Creating Competitive

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