IMPORTANCE OF COMPETITIVE ADVANTAGE IN MANAGING

INNOVATIONS

ANKITA SRIWASTAVAAMRITA CHADA

BAISHALI PALDEEPAK G

UNDER THE GUIDANCE OF:-

VENKATESH GANAPATHYASSOCIATE PROFESSOR

What is Competitive advantage?

• A competitive advantage in a marketplace is a distinguishing factor that drives a company's profit.

• Building and maintaining competitive advantages attracts customers, contributes to fair prices and generates loyalty.

CA

• any characteristic that enables a competitor to beat its peers in achieving a goal.

• Goal of business - increase shareholder and stakeholder value.

• As long-term investors, invest in the companies that will outperform their peers.

Why competitive advantage?

• While low prices attract a large percentage of a typical target market, only one company in an industry succeeds in the long run with a profitable lowest-price strategy.

• Most companies must come up with differentiation in their products or services.

IMPORTANCE OF COMPETITIVE ADVANTAGE

It examines the economics of a firm’s business.

It primarily focuses on its ability to generate excess returns on capital

It links the business strategy with fundamental finance and capital markets, for a longer period of time.

Competitive Advantages allow the firm to earn excess returns for its shareholders

A firm has limited economic reason to exist- its competitive advantage is its reason of life.

creating a sustainable competitive advantage – important goal.

3 IMPORTANT CHECKPOINTS FOR COMPETITIVE ADVANTAGEunique.

sustainable.

relevant.

The Coca Cola company

• Incorporated in 1892.• Sweet fizzy drink first developed by a

pharmacist.• Today, almost 120 years later, The Coca-Cola

Company is still going strong

Coca Cola’s CA

• Sustainability over the last 100 years.

• The secret recipe for Coca-Cola.

• Continue developing new products and re-inventing old ones

• Good supply and distribution

• Coca-Cola’s production techniques are so well developed that it costs a fraction of the selling price to manufacture their product, resulting in high profit margins.

A relevant competitive advantage

• is one that aids in achieving the goal.

• For investors, this goal is a high return on capital and profit growth.

EXAMPLES OF COMPETITIVE ADVANTAGES

Brand equity.

Barriers to entry.

Cost advantages.

Distribution.

innovation

Brand Equity

• Having a strong brand means customers think favorably when coming into contact with that brand.

• Leads to greater mindshare• Lux, Apple,Coca-Cola, Colgate, Pepsodent,

Maggi - best examples of brand equity

Barriers to Entry

• In Coca-Cola’s case, the cost of setting up manufacturing, bottling equipment and distribution is very high and that capital outlay deters many potential competitors from entering the market.

• In South Africa the cell phone industry has high barriers to entry. This is due to the large capital outlay required to set up a cellular network, as well as the cost and difficulty in acquiring a cellular license.

Cost advantages

• – If one company possesses a machine, a process or technology that allows it to produce a similar product at a lower cost, it may have a significant competitive advantage.

• Can competitors do it?

Distribution

• Ability to deliver products to all potential customers on demand is a massive competitive advantage.

• In South Africa, South African Breweries (SAB) relies heavily on its distribution system to townships and rural areas, where it sells over 70% of all its beer. Until now competitors have not been able to compete with SAB in these areas because they simply don’t have the distribution network.

Innovation

• Innovation – Apple Inc., the developer of the IPod, is an excellent example of a company that has outperformed its competitors with superior technology and design.

• The technological landscape changes so fast and innovations become obsolete so quickly that these companies have to continually reinvent themselves to maintain their competitive advantage.

Where to implement CA?

• Market share• Strong brand management (Price premiums)• Network Effect: The network effect occurs

when a product creates demand from consumers, which then enhances the product.

• A firm can benefit from the network effect by attracting more sellers; it has in turn attracted more buyers, establishing a dominant market share (ex. EBay Company).

Other sources of CA

• Trademarks and patents• Cost effective structure• High switching costs

Switching costs

• For example, wireless telephone companies require clients to enter into contracts that restrict their capacity to change service providers.

• Some software companies also have high switching costs because the learning curve to become skilled at a new software program is often quick.

Value and CA

• A firm uses its resources and abilities to generate a competitive advantage that at last results in superior value creation

The Sequence

• Resources and capabilities• Core Competencies• Innovation, Efficiency, Quality, Customer

Satisfaction.• Low cost strategy or a differentiation

strategy.

WHY IS IT IMPORTANT FOR A FIRM TO GAIN COMPETITIVE ADVANTAGE

IN A MARKET PLACE?

Price versus quality. Trade-off

Offering superior value.

Economies of scale.

Generating repeat business and loyalty.

When does a CA exist?

• Firm delivers the same benefits as competitors but at a lower cost or through differentiation

• Create superior value for its customers

• Profits

CONCLUSIONBefore buying shares in the company, ask yourself what set this company apart from its competitors. If there is nothing, move on to another company that possesses a competitive advantage. Always evaluate the sustainability of the advantages and then most importantly, assess the competitive advantages in relation to achieving a relevant goal - does the company make money??

THANK YOU