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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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8/9/2019 Creating Competitive
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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