CORE COURSE IN ENTREPRENEURSHIP

BUSINESS AND MANAGEMENT

MODULE

Competitive Advantage
Week 5. Part 5

Madina Nurguzhina
COMPETITIVE ADVANTAGE
Competitive advantage is
an attribute that allows you
to outperform competitors
• low-cost leadership
• high quality product or service
• first mover status
• unique technology
• customer loyalty
• economies of scale
• vertical integration
• government regulation
• and so on
COMPETITIVE ADVANTAGE

Competitive advantage refers to factors that

allow a company to produce goods or services
better or more cheaply than its rivals.
These factors allow the productive entity to
generate more sales or superior margins
compared to its market rivals

Sustainable competitive advantage is a

competitive advantage that last for years, and
therefore keep the profits to continue for years
 COMPETITIVE ADVANTAGE

The goal of your business strategy is to find your business's

secret sauce and invest in it. When you have a focused
business strategy around an area of sustainable competitive
advantage, your business will be more effective.
 COMPETITIVE ADVANTAGE

Competitive
advantage
Distinctive is build upon a
Examples of competences could
competence be competence
distinctive
Core to create attractive
capability in performing
and easy-to-use
is a competitively
an
websites,
activity important
competence
expertise valuable activity
in a specific technology, proven a capabilities
to market success, in
Competence selecting is a proficiently
good
company
locations for
performs
retail whenproficiency
outlets, rival companiesin
performed internal better than its rivals,
is something a do not have offsetting
working with
activity that thus represents
customers on use of product,
is central a proficiency
company is good at competencies, and
to a company’s competitively superior
doing. It is about in merchandising and product when
display, it is costly
and so and
on.
strategy and resource strength
combination of time-consuming for
experience, learning competitiveness rivals to imitate the
and proficiency in competence
performing an
internal activity
 COMPETITIVE ADVANTAGE

A core competence examples: Competitive expertise

in integrating multipleadvantage
technologies to
Distinctive
create families of newisproducts,
build upon a know-
competence
how in creating and operating a cost-
distinctive competence
Core efficient supply chain,in
is a competitively
performing an
the capability to
activity important
competence valuable activityspeed
a new or success,
to market
Competence is a proficiently company performs
next-generation
than its rivals, products to market,
when rival companies
performed internal better
is something a do not have offsetting
activity that is central
goodthus after-sale
represents a service capabilities, skills
competencies, and
company is good at competitively superior
doing. It is about to a company’s in manufacturing a high-quality product
when it is costly and
strategy and resource strength
combination of at a low cost, or thetime-consuming
capability toforfill
experience, learning competitiveness rivals to imitate the
customer orders
competence
and proficiency in
performing an accurately and swiftly.
internal activity
 COMPETITIVE ADVANTAGE

The distinctive competencies of Toyota in Competitive

low-cost, high-quality manufacturing and advantage
in short design-to-market cycles for new Distinctive is build upon a
models have proved to be competitive competence distinctive competence
Core
advantages in the global market for is a competitively
in performing an
activity important
competence
motor vehicles. valuable activity a
to market success,
Competence is a proficiently company performs
when rival companies
performed internal better than its rivals,
is something a do not have offsetting
Starbucks’ distinctive competence
company is good at
in
activity that is central thus represents a
competencies, and
competitively superior
innovative
doing. It coffee
is about drinks and its capability
to a company’s when it is costly and
strategy and resource strength
to chooseoflocations for
combination its stores time-consuming for
experience, learning competitiveness rivals to imitate the
propelled it to the
and proficiency in
forefront among coffee competence
performing an retailers.
internal activity
 COMPETITIVE ADVANTAGE

Competitive
It is always easier to build a competitive advantage: advantage
Distinctive is build upon a
• competence
when a firm has a distinctive competence in distinctive competence
Core to market success
performing an activity important is a competitively
in performing an
activity important
competence valuable activity a
to market success,
• Competence is a proficiently company performs
when competitors do not have offsetting when rival companies
performed internal better than its rivals,
is something a do not have offsetting
competencies,
company is good at
and activity that is central thus represents a
competencies, and
to a company’s competitively superior
doing. It is about when it is costly and
resource strength
• strategy and
when it is costly and time-consuming for
combination of time-consuming for
experience, learning competitiveness rivals to imitate the
competitors to
and proficiency in
imitate the competence. competence
performing an
internal activity
 TYPES OF COMPETITIVE ADVANTAGE
Comparative Advantage
A firm's ability to produce a good
or service more efficiently than
its competitors, which leads to
greater profit margins, creates a
comparative advantage. It does
not imply a better product or
service, it only shows the firm
can offer a product or service of
the same value at a lower price
Differential Advantage
A differential advantage is when
a firm's products or services
differ from its competitors'
offerings and are seen as
superior, e.g. advanced
technology, patent-protected
products or processes, superior
personnel, and strong brand
identity, etc.
FOUR "GENERIC" BUSINESS STRATEGIES

The differentiation and cost leadership

strategies seek competitive advantage
in a broad range of market or industry
segments
By contrast, the differentiation focus
and cost focus strategies are adopted
in a narrow market or industry
 THE COST LEADERSHIP STRATEGY

The Cost Leadership strategy proposes two main ways

to develop the “edge”:

• Increasing profits by reducing costs, while charging

industry-average prices.
• Increasing market share by charging lower prices,
while still making a reasonable profit on each sale
because you've reduced costs
 THE COST LEADERSHIP STRATEGY

The Cost Leadership is about minimizing the cost to the

organization of delivering products and services, but not about
reducing price paid by the customer

It is not enough just to be the lowest-cost producers, as you leave

yourself wide open to attack by other low-cost producers who may
undercut your prices and therefore block your attempts to increase
market share.
 THE COST LEADERSHIP STRATEGY

Companies that are successful in achieving Cost Leadership usually

have:
• Access to the capital needed to invest in technology that will bring
costs down
• Very efficient logistics
• A low-cost base (labor, materials, facilities), and a way of
sustainably cutting costs below those of other competitors

It is important to continuously find ways of reducing every cost;

otherwise, competitors may copy your cost reduction strategies
 THE DIFFERENTIATION STRATEGY

Differentiation involves making your products or services different

from and more attractive than those of your competitors. To make a
success of a Differentiation strategy, organizations need:
• Good research, development and innovation
• The ability to deliver high-quality products or services
• Effective sales and marketing, so that the market understands the
benefits offered by the differentiated offerings
Differentiation strategy followers need to stay agile with their new
product development processes to avoid risk of being attacked on
several fronts by competitors pursuing Focus Differentiation
strategies in different market segments
 THE FOCUS STRATEGY

Focus strategies concentrate on particular niche markets and, by

understanding the dynamics of that market and the unique needs of
customers within it, develop uniquely low-cost or well-specified
products for the market
Due to strong brand loyalty amongst their customers their particular
market segment becomes less attractive to competitors
Focus is not enough on its own, you still have to decide whether you
will pursue Cost Leadership or Differentiation, by reducing costs
(perhaps through your knowledge of specialist suppliers) or
increasing differentiation (though your deep understanding of
customers' needs)
 THE FOCUS STRATEGY

The key to succeed with the Focus strategy is to ensure

that you add something extra as a result of serving only
that market niche.
It's simply not enough to focus on only one market segment
because your organization is too small to serve a broader
market
(otherwise better-resourced broad market companies'
offerings may win this competition).
 CHOOSE THE RIGHT STRATEGY

Step 1
For each generic strategy, Step 2
carry out a SWOT
Analysis. What S, W, O Use Five Forces Analysis Step 3
and T you would face, if to understand the nature
you adopted that strategy of the industry you are in Compare the SWOT
Analyses of the viable
This way you will strategic options with the
eliminate strategies for results of your Five Forces
which it becomes clear analysis. For each strategic
that they would not bring option, ask yourself how you
success to your company could use that strategy to:
• Reduce or manage supplier power
• Reduce or manage buyer/customer power
• Come out on top of the competitive rivalry
• Reduce or eliminate the threat of substitution
• Reduce or eliminate the threat of new entry
* select the strategy that gives you the strongest set of options
Thank you
 REFERENCES

• Thompson A., Peteraf M., Gamble J., Strickland A., Crafting & Executing Strategy: The
Quest for Competitive Advantage, McGraw-Hill/Irwin
• Porter M., Competitive Strategy, The Free Press
• Byers T., Dorf R., and Nelson A., Technology Ventures: From Idea to Enterprise (4th
Edition), McGraw-Hill.
• Mullins, J., The New Business Road Test: What entrepreneurs and executives should do
before writing a business plan. (3rd Edition), Pearson UK.