Sustainable Competitive Advantage

Sustainable Competitive Advantage

Competitive advantage is gained when a firm acquires attributes that allow it to perform at a higher level than others in the same industry.

Learning Objectives

Demonstrate the ideology behind a sustainable competitive advantage from a marketing perspective

Key Takeaways

Key Points

• Firms can obtain a competitive advantage by implementing value-creating strategies, not simultaneously being implemented by any current competitor. These strategies need to be rare, valuable, and non-substitutable.
• Sustainable, competitive advantages are advantages that are not easily copied and, thus, can be maintained over a long period of time. The competition must not be able to do it right away or it is not sustainable.
• Developing a sustainable, competitive advantage requires customer loyalty, a great location, unique merchandise, proper distribution channels, good vendor relations, a reputation for customer service, and multiple sources of advantage.

Key Terms

• competitive advantage: The strategic advantage one business entity has over its rival entities within its competitive industry. Achieving competitive advantage strengthens and positions a business better within the business environment.
  

A sustainable competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors. These attributes can include access to natural resources or access to highly trained and skilled personnel human resources. It is an advantage (over the competition), and must have some life; the competition must not be able to do it right away, or it is not sustainable. It is an advantage that is not easily copied and, thus, can be maintained over a long period of time. Competitive advantage is a key determinant of superior performance, and ensures survival and prominent placing in the market. Superior performance is the ultimate, desired goal of a firm; competitive advantage becomes the foundation. It gives firms the ability to stay ahead of present or potential competition and ensure market leadership.

Competition: Just like athletes, a firm seek to gain a competitive advantage in order to perform better than its peers.

Resource-Based View of the Firm

In 1991, Jay Barney established four criteria that determine a firm's competitive capabilities in the marketplace. These four criteria for judging a firm's resources are:

1. Are they valuable? ( Do they enable a firm to devise strategies that improve efficiency or effectiveness? )
2. Are they rare? (If many other firms possess it, then it is not rare. )
3. Are they imperfectly imitable (because of unique historical conditions, causally ambiguous, and/or are socially complex)?
4. Are they non-substitutable? (If a ready substitute can be found, then this condition is not met? )
   

When all four of these criteria are met, then a firm can be said to have a sustainable competitive advantage. In other words, the firm will have an advantage in the marketplace which will last until the criteria are no longer met completely. As a result, the firm will be able to earn higher profits than other firms with which it competes.

Developing Sustainable Competitive Advantages

1. Customer Loyalty: Customers must be committed to buying merchandise and services from a particular retailer. This can be accomplished through retail branding, positioning, and loyalty programs. A loyalty program is like a "Target card." Now, when the customer uses the card as a credit card, Target can track all of their transactions and store it in their data warehouse, which keeps track of the customer's needs and wants outside of Target. This will entice Target to offer products that they do not have in stock. Target tracks all sales done on their cards. So, Target can track customers who use their card at other retailers and compete by providing that merchandise as well.
2. Location: Location is a critical factor in a consumer's selection of a store. Starbucks coffee (shown here ) is an example. They will conquer one area of a city at a time and then expand in the region. They open stores close to one another to let the storefront promote the company; they do little media advertising due to their location strategy.
3. Distribution and Information Systems: Walmart has killed this part of the retailing strategy. Retailers try to have the most effective and efficient way to get their products at a cheap price and sell them for a reasonable price. Distributing is extremely expensive and timely.
4. Unique Merchandise: Private label brands are products developed and marketed by a retailer and available only from the retailer. For example, if you want Craftsman tools, you must go to Sears to purchase them.
5. Vendor Relations: Developing strong relations with vendors may gain exclusive rights to sell merchandise to a specific region and receive popular merchandise in short supply.
6. Customer Service: This takes time to establish but once it's established, it will be hard for a competitor to a develop a comparable reputation.
7. Multiple Source Advantage: Having an advantage over multiple sources is important. For example, McDonald's is known for fast, clean, and hot food. They have cheap meals, nice facilities, and good customer service with a strong reputation for always providing fast, hot food.

Source: Lumen Learning, https://courses.lumenlearning.com/boundless-marketing/chapter/the-strategic-planning-process/
This work is licensed under a Creative Commons Attribution 4.0 License.

Customer Excellence

Obtaining customer feedback to ensure customer satisfaction and loyalty is essential to any marketing plan or strategic planning process.

Learning Objectives

Identify ways to gather customer information in order to achieve customer excellence

Key Takeaways

Key Points

• Indirectly tracking customer attitudes and satisfaction can indicate the organization's longer-term performance.
• Firms can track customer satisfaction through market research, lost business and customer complaints.
• Simpler methods of obtaining customer attitudes include directly asking them, phone calls and store-based questionnaires or surveys.

Key Terms

• bottom line: The final balance; the amount of money or profit left after everything has been tallied.
  

One of the key inputs to achieving sustainable competitive advantage is long-term customer satisfaction excellence (i.e., being excellent in the eyes of your customers). It's not always easy to determine what actions will lead to customer excellence, but there are iterative ways of solving for this competitive advantage.

Feedback: Aside from generating net profit, one of the most important aspects of running a business is getting feedback from customers.

Market research using your customers is one of the most important aspects of running a business, as no amount of discussion with professionals, friends or colleagues will ever replace the feedback from a real customer. The "bottom line" of all marketing activities and strategies is net profit. Performance figures can be tracked directly or indirectly. Indirectly tracking customer satisfaction can indicate the organization's long-term marketing performance. The easiest methods to obtain information from customers are:

1. Asking them – When dealing with existing or potential customers, strike up a conversation.
2. Focus Groups- Gather a number of customers, sit them down, and discuss a range of issues relevant to your business. The advantage of using this method over a questionnaire is that you will get more detailed information and feedback, rather than "tick the box"- style responses from a questionnaire.
3. Telephone – Ring them and ask a couple of questions over the phone.
4. Questionnaires – Distribute one-page questionnaires that ask key questions like: What do you like/dislike? How can things be improved? Is convenience important? Is after-sales service critical? The use of computers in these questionnaires is becoming increasingly popular. Kiosks are often placed in stores to easily track customer satisfaction.
   

Other useful, but not so simple, measures of tracking customer attitudes and satisfaction are:

1. Market research – This includes customer panels used to track changes over time.
2. Tracking lost business -For example, the orders lost because the stock was not available or the product did not meet the customer's exact requirements.
3. Customer complaints – How many customers complain about products, services, or the organization itself.

Strategic Business Units

A strategic business unit is a semi-autonomous corporate unit that focuses on a product offering and market segment.

Learning Objectives

Diagram the role and functionality of a strategic business unit (SBU)

Key Takeaways

Key Points

• An SBU is a semi-autonomous unit that is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting.
• An SBU may be a business unit within a larger corporation or it may be a business unto itself. Corporations may be composed of multiple SBUs, each of which is responsible for its own profitability.
• Factors that determine the success of an SBU include the degree of autonomy given to each SBU manager, the degree to which an SBU shares functional programs and facilities with other SBUs, and the manner in which the corporation adopts to new changes in the market.
  

Key Terms

• Functional strategies: The selection of decision rules in each functional area, such as human resources or marketing.
  

Strategic Business Units

Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short-term and medium-term plans and is limited to the domain of each department's functional responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, so to some extent their strategies are derived from broader corporate strategies.

Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have re-engineered according to processes or strategic business units (SBUs). An SBU is a semi-autonomous unit that is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting.

General Electric: General Electric is known for having strategic business units.

An SBU is a profit center which focuses on a product offering and a market segment. SBUs typically have a discrete marketing plan, analysis of competition, and marketing campaign, even though they may be part of a larger business entity. An SBU may be a business unit within a larger corporation or it may be a business unto itself. Corporations may be composed of multiple SBUs, each of which is responsible for its own profitability. General Electric is an example of a company with this sort of business organization. SBUs are able to affect most factors which influence their performance. Managed as separate businesses, they are responsible to a parent corporation. Companies today often use the word segmentation or division when referring to SBUs or an aggregation of SBUs that share such commonalities.

There are three factors that are generally seen as determining the success of an SBU:

1. The degree of autonomy given to each SBU manager
2. The degree to which an SBU shares functional programs and facilities with other SBUs
3. The manner in which the corporation adopts to new changes in the market

Multiple Sources of Advantage

One of the main goals of marketing planning and strategy is to produce multiple sources of competitive advantage in the marketplace.

Learning Objectives

Illustrate the types of corporate competitive strategies

Key Takeaways

Key Points

• Competitive sources of advantage include pricing, operational efficiency, digital presence and employee talent.
• Sellers must assess factors including business objectives, target audience and market conditions before choosing the competitive strategy most appropriate for their brand.
• Pricing, differentiation, innovation, operational effectiveness and customer service are strategies companies use to generate competitive advantage.

Key Terms

• marketing channel: Sets of interdependent organizations involved in the process of making a product or service available for use or consumption, as well as providing a payment mechanism for the provider.

Multiple Sources of Advantage

For most businesses, one of the primary goals of implementing a marketing strategy is producing multiple sources of competitive advantage. These sources encompass a variety of business and marketing channels, including customer service, location or real estate, operational efficiency, product qualities, and employee talent. Thus, it is both possible and advantageous to have multiple sources of advantage to increase sales and maintain brand dominance in the marketplace.

Gaining an Advantage: McDonald's cost leadership strategy makes it the market leader in fast food.

Competitive Advantage in the Internet Age

Competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors. These attributes can include access to natural resources, such as high grade ores or inexpensive power, or access to highly trained and skilled personnel. Products that use cutting-edge robotics and information technologies can act as a source of competitive advantage for a company.

In fact, information technology has become such a prominent part of the modern business world that it can also contribute to competitive advantage by outperforming competitors with regard to Internet presence. The Internet has supplanted the traditional middleman, serving as an information conduit between the producer and final consumer. As a result, businesses can gain a competitive advantage by building a compelling and visually appealing website or social media business page. Web technologies have significantly reduced the time and effort required to build this marketing advantage, but have also forced companies to become more transparent with end consumers.

Competitive Strategies

Effective strategic planning allows companies to pursue a variety of different strategies for building and retaining competitive advantage across product categories, industries and regions. Sellers must assess factors including business objectives, target audience and market conditions before choosing the competitive strategy most appropriate for their brand.

• Cost Leadership Strategy – The goal of cost leadership strategy is to produce products and services at the lowest cost in the industry. Walmart, a leader in offering low-cost products, uses an automated inventory replenishment system to reduce inventory storage requirements and save floor space for additional goods.
• Differentiation Strategy – Differentiation is allows companies to provide products that are different or offer more/different features than their competitors. Southwest Airlines has differentiated itself from the airline industry through its low cost and express service features.
• Innovation Strategy -Companiesthat rely on innovation competitive strategies provide new and different products/services via added features, and new methods of production. Apple is probably one of the best examples of companies that use innovation strategy due to its introduction of revolutionary products such as the iPod, iPhone, and iPad.
• Operational Effectiveness Strategy -The goal of operational effectiveness and efficiency is to perform internal business activities better than competitors. This strategy attempts to increase quality, employee productivity, and customers satisfaction within the company.
• Customer-Orientation Strategy – Customer-orientation competitive strategies focus on making customers happy through outstanding customer service. This strategy focuses on what the customer wants from the company and how to provide that. This strategy has been most effective with web-based companies due to one-to-one relationships.