978-0130387752 Chapter 6 Market-Based Strategic Thinking

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CHAPTER6

CompetitivePosition and Sources of Advantage

An effective competitive advantage should be

substantial, sustainable, and leveraged.

— David Aaker

in Developing Business

Strategies

The quote from David Aaker’s book could be used to open a discussion on what a sustainable competitive

advantage is and what it is not. By substantial, the quote is referring to a price or unique product benefit that is

meaningful to consumers―something they cannot find in another product. Sustainable means that competitors

cannot easily copy the business’s source of competitive advantage. And leveraged means the source of

advantage can be extended to other products, new or existing, in the business’s product portfolio.

The discussion could be built around Oreo cookies, Harley-Davidson, and Apple Computer, each of which has

substantial differentiation and appeal, has sustained a competitive advantage, and has leveraged its brand into

an expanded product line.

Introductory Discussion

IKEA, the Swedish home furnishings manufacturer, uses a cost advantage as its marketing strategy.The

company’s a “ready-to-assemble” concept and a variety of manufacturing and marketing techniques enable

IKEA to attract target customers with lower prices.

Discuss IKEA’s sources of cost advantage and how volume (economies of scale) is an important part of a

cost advantage.

Discuss how product line additions (economies of scope) affect the cost of various IKEA products.

Discuss how IKEA uses itscost advantage to create customer value.

Teaching Objectives

Demonstrate the mechanics of assessing the attractiveness of a competitive environment and the value it

plays in strategy development and profitable growth.

Present competitor analysis tools that can be used to better understand the competitive position of a product

or business.

Discuss the various sources of competitive advantage and the factors that shape a particular source of

competitive advantage.

Harvard Business SchoolCase Materials

Sears, Roebuck & Co.HBS CaseM278. Industry and company analyses are performed to gain an

understanding of Sears’ slumping sales and profit performance. These analyses are critical in reformulating

a marketing strategy for repositioning Sears to achieve profitable sales growth.

GenRad, Inc. (1990) (A).HBS Case9-592-045. GenRad must rethink its product strategy to respond to

massive change in the printed circuit board (PCB) test equipment industry. GenRad’s key customers, many

U.S. electronic manufacturers, are facing tough times in their own markets, and the demand for PCB test

equipment has stagnated. Moreover, due to complex advances in integrated circuit (“chip”) design, PCB

testing requirements have become more complex at a time when customers are seeking lower-cost testing

solutions. As a result, competition among industry players is brutal, and GenRad’s position as market share

leader is being assailed by competitor initiatives at both the low and high end of the market.

Sixth Edition –39– Pearson Education, Inc.

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Crown Cork and Seal in 1989.HBS Case 9-793-035. Describes the structure and trends of the metal

container industry and Crown’s successful strategy for competing in the industry for more than 20 years. In

1989, the company was forced to consider new strategic options in the face of industry change. Teaching

Purpose: Allows for a structural analysis (five forces) of the industry, identification and evaluation of a classic

focused strategy, and a critique of proposed new strategic directions.

Market-Based Strategic Thinking

1. How would a market leader such as Google use a cost advantage to build customer value and

above-average profits in an emerging market?

Google, as the share leaderin an early market,can pursue a low-price penetration strategy to build volume

and a cost advantage. The more volume and cumulative experience Google builds, the greater its cost

advantage becomes. Any potential competitors that might follow the business into the early market would

2. What is the iPad’s primary source of competitive advantage? How does this source of competitive

advantage help build a superior customer value for iPad and above-averageprofits for Apple?

The iPad is unique in concept and design, with meaningful customer benefits. It has sources of advantage

in brand name, distribution, customer loyalty, and price. In its first year (2010), iPad owned the market with

3. How would Coca-Cola use its marketing advantage to build customer value and profitability in the

consumer market?

Coca-Cola has high product awareness, good brand recognition, a broad product line, and massive

distribution. These marketing advantages enable Coca-Cola to capture more market share worldwide and

4. How would a marketing knowledge advantage be a source of competitive advantage in the

cellphone market for a company like Nokia?

Knowing more about the level of service and the features that cellphone users want but cannot get, as well

as knowing their frustrations with cellphones, helps Nokia to stay ahead of competitors in bringing

5. What areas of competitive advantage does Wal-Mart use to drive its competitive position? How

should Target and Sears develop their competitive positions?

Wal-Mart— As the world’s leading retailer, Wal-Mart achieves a cost advantage relative to competitors with

lower unit costs (through more efficient buying and inventory practices), lower fixed operating costs (as a

Sixth Edition –40– Pearson Education, Inc.

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6. Why are businesses with a competitive advantage in market share, unit cost, or product

performance more profitable than businesses with no advantage in any of those areas?

contribute to higher levels of profitability.

costs for their computers through cost-effective assembly and direct marketing.

due to the superior quality of their products.

7. For each area of differentiation advantage, identify a business that has a competitive advantage in

that area. Explain how each business’s source of differentiation advantage helps the business

attract and satisfy target customers.

will be covered in Chapter 7. The more the overall perceived advantage increases, the easier it is to attract

and satisfy customers who value product performance.

hospitals to lower the hospitals’ cost of managing supplies. The service saves hospitals time and money in a

industry. Its reputation has enabled the company to successfully introduce new products and penetrate global

8. Identify businesses that have developed different types of marketing advantage, and explain for

each how this advantage affects profitability.

bettertrained salespeople. The company’s high-quality sales force provides a significant advantage in both

companies with well-known brands, their dominance of channels creates another source of competitive

of market awareness and image through superior marketing communications. This type of marketing

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9. How could a business with a niche market strategy develop a marketing advantage as a source of

competitive advantage?

A low-share niche business focuses its sales, channel, and advertising efforts on customers with more

10. How has the Internet affected competitor intelligence gathering?

What traditional sources of competitor intelligence would most likely be available on the Internet? It used to

11. What is the benefit of a competitor gap analysis for General Motors? How could it use the results in

its strategy development?

A business with a strong market orientation will pay as much attention to competitors as it does to

customers. By tracking performance relative to key competitors in areas of market-based performance,

12. What is the main difference between competitor benchmarking and competitive benchmarking?

When should a business engage in competitive benchmarking, and what are its benefits?

Competitor benchmarking involves identifying a business’s main competitors and then comparing itself

against them in key performance areas. Competitive benchmarking involves going outside a business’s

market or industry to study a company that excels in an area where the business is deficient. Competitive

13. Cost and differentiation are well known sources of competitive advantage, but why is a marketing

advantage also a potential source of competitive advantage?

In many markets, product differentiation may be minimal and a cost advantage difficult to attain. Therefore,

14. What are the various ways a business like Kia can achieve a cost advantage?

low-priced car. A lower per-unit manufacturing cost(materials and labor) allowed Kia to establish this position.

marketing expenses across a wider range of products.

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15. Why do share leaders like Wal-Mart, Google, and Intel often have a cost advantage?

A share leader by definition has to have more unit volume than any of its competitors. And, in most

cost advantages.

Wal-Mart— The company insists on dealing only with manufacturers and wants a lower price because

Google— Google is the share leader in search engines by a large margin. This allows Google to have an

Intel— Intel has an 85 percent share of the microprocessor market. Its closest competitor (AMD) has less than

16. How might the industry forces for a regional phone company be different from the industry forces

for a regional bank?

Using the six factors listed under “Industry Forces” in Figure 6-23, we can separately profile the regional

17. How will the industry change as competitors enter the regional phone market? How will profit

potential be affected?

We can explain the ways in which the regional phone service industry is changing by using the six factors

listed under “Industry Forces” in Figure 6-23.

Barriers to entry have been lowered by the government, giving many more companies market access to

potential customers.

18. What impact would Procter & Gamble’s “everyday-low-price” strategy have on competitive rivalry

and the prisoner’s dilemma?

Prior to P&G’s “everyday low price” strategy, the competitive rivalry of its markets could be described as

Sixth Edition –43– Pearson Education, Inc.

Instructor’s Manual– Chapter 4 Publishing as Prentice Hall