LEVERAGING PRODUCT INNOVATION TO GAIN COMPETITIVE ADVANTAGE : A
SURVEY OF IMPACT OF INNOVATION ON CUSTOMER SATISFACTION AND BRAND
LOYALTY AMONG SAMSUNG HANDPHONES USERS IN MALAYSIACHAPTER TWO
LITERATURE REVIEW
1. Introduction
1.Theoretical construct of competitive advantage
The term competitive advantage, despite its widespread use and
popularity, has no uniformly acceptable definition (Peteraf 2005,
pg 178). Most often, it is described (as opposed to defined) in
term of superior financial performance (Winter, 1995 cited in
Peteraf 2005, p. 179). Michael Porter (1985, p.3 cited in Bredrup
1995,p. 43), the strategic management guru who popularised the term
described competitive advantage as:
Competitive advantage grows out of value a firm is able to
create for its buyers that exceeds the firm's cost of creating it.
Value is what buyers are willing to pay, and superior value stems
from offering lower prices than competitors for equivalent benefits
or providing unique benefits that more than offset a higher price.
There are two basic types of competitive advantage: cost leadership
and differentiation.
Echoing Porters definition above, Saloner, Shepard and Podolny
(2001) say that most forms of competitive advantage mean either
that a firm can produce some service or product that its customers
value than those produced by competitors or that it can produce its
service or product at a lower cost than its competitors. They also
say that In order to prosper, the firm must also be able to capture
the value it creates.In order to create and capture value the firm
must have a sustainable competitive advantage.In Peteraf and Barney
(2003, p.314 cited in Peteraf 2005,p. 179), competitive advantage
has been described as follows :
An enterprise has a competitive advantage if it is able to
create more economic value than the marginal (breakeven) competitor
in its product market.
It has been stated that in order to achieve a competitive
advantage, a company needs to pursue strategies that build on its
existing resources and capabilities and formulate strategies that
build additional resources and capabilities (develop new
competencies) (Hill and Jones, 2010, p.103).
Strategies are formulated after considering various factors
external and internal. There are at least three analysis tool to
evaluate a company's competitive advantage in relation to its
competitors. The first one of them is PEST analysis. PEST analysis
is an overview analysis of the environment that the business is in.
In PEST analysis, four factors are considered namely Political
factors, Economic factors, Social factors and Technological factors
(Turner, 2010,p.56).
Recent trend in the field of strategic management advocates the
inclusion of a further two factors namely, Environmental factors
and Legal Factors. All combined the macro environment factors
analysis will be known as PESTEL. Environmental factors include
weather and climate, climate change which may affect the industry.
Whereas Legal factors includes legislation which may have effect to
the business (Paladino, 2011, p.112).
A more focused, industry level analysis is done using the
Porter's Five Forces Model. According to Hill and Jones (2010),
once the extend of the boundaries of an industry has been
identified, competitive forces in the industry environment can be
analyzed using the Five Forces Model developed by Michael E.
Porter. According to Porter, there are five forces that shape
competition within an industry namely (1) the risk of entry by
potential competitors; (2) the intensity of rivalry among
established companies within an industry; (3) the bargaining power
of buyers; (4) the bargaining power of suppliers; and (5) the
closeness of substitutes to an industry's products. Finally, SWOT
analysis can also achieved the same objective. SWOT stands for
Strengths, Weakness, Opportunities and Threats and is a tool for
analyzing an organization's competitive position in relation to its
competitors. Analysis of the strengths, weaknesses, opportunities
and threats brings together the results of both internal company
analysis and external environmental analysis. The common and
beneficial applications of SWOT are gaining of better understanding
and insight into competitors and market position (The Stationery
Office of The Government of the United Kingdom, 2010,p.88).
2. Theoretical construct of Innovation Innovation, as an
academic construct, has been given various definitions in the
literature. Innovation leading theoretician is Joseph Schumpter
(1883-1950). Schumpter has a broad vision of the concept of
innovation. According to Schumpter, innovation encompasses new
products, new production processes, new markets, new raw material
and new forms of organizations. However, to Schumpter, there is a
common thread between all these changes in that they involve
carrying out new combination which are qualitatively important and
introduced by dynamic business leaders or entrepreneurs
(OECD,2006,p.86). There has been no significant change to the
definition which is linked to any particular theorist up to recent
times (OECD,2006,p.86).
Among the newer definitions which is still anchored on Schumpter
definition is that innovation is the generation of a new idea and
its implementation into a new product, process or service leading
to the dynamic growth of the national economy and the increase in
employment as well as to a creation of pure profit for the
innovative business enterprise (Urabe, Child and
Kagono,1988,p.3).
3. Innovation as Competitive Advantage The Consumer as Judge of
ValueAs has been pointed out in the preceding paragraphs, the
common theme in the definitions of competitive advantage is value
creation- and topical in our research is how innovation create this
value to the business. In the final analysis, it is the consumer
who will be the judge of the value this innovation is supposed to
create (OECD,2006,p.86). The relationship between these variables
(i.e. innovation, competitive advantage and the consumer as arbiter
of value) is succinctly explained by Jean-Paul Flipo (2001 cited in
OECD,2006,p.86) when he states that :
(Innovation) is a process of creating new value (which is)
geared first towards customers, as the main arbiters of business
competitiveness, but one that can also involve other stakeholders
as major beneficiaries, such as the organization itself
(employees),shareholders (profitability), external partners,
etc.
What this mean is that in todays economy, to be successful,
business must provides customers with the service or product they
want in any form, at any time and in any place and in order to
accomplish this, the business must be a customer oriented company
(Poza,2010,p.182). According to Poza further, what matters most to
customer oriented companies is the outcome from the perspective of
the customer who is using their product or service. Only if
customers see value in what a particular organizational capability
does for them can that capability turn into competitive advantage
for the firm. This proposition necessitates us to explore the
definition of value in the literature.
Value has always been regarded as the fundamental basis for all
marketing activity (Holbrook, 1994 cited in Ulaga,2003,p.678).
Anderson, Jain, and Chintagunta (1993 cited in Ulaga,2003,p.678)
define value in business markets asthe perceived worth in monetary
units of the set of economic, technical, service, and social
benefits received by a customer firm in exchange for the price paid
for a product offering, taking into consideration the available
alternative suppliers offerings and prices.
Obviously, Anderson, Jain and Chintaguntas definition above is
not the only singular definition of value.Explaining further, Ulaga
(2003) citing several literature, states that while the marketing
literature contains a variety of definitions stressing different
aspects of the concept of value, four common themes can be
identified: (1) Customer value is a subjective concept; (2) it is
conceptualized as a trade-off between benefits and sacrifices; (3)
benefits and sacrifices can be multifaceted; and (4) value
perceptions are relative to competition. In short, customer value
is generally defined as the trade-off between the benefits (what
you get) and the sacrifices (what you give) in a market exchange
(Zeithaml, 1988 cited in Ulaga,2003,p.678).4. The Quest to
Understand Customer ValueUnderstanding what buyers value within a
given offering, creating value for them, and then managing it over
time have long been recognized as essential elements of every
market oriented firms core business strategy (Drucker, 1985,
Porter, 1998; Desarbo, Jedidi and Sinha, 2001 cited in
Atalik,2009,p.85).
Companies, therefore, are continuously searching for new and
better ways to create value and differentiate their market
offerings from their competitors to attract and retain customers
and make a profit (Bendapudi, Leone 2003 cited in
Atalik,2009,p.85).In order to do this (i.e. identifying ways to
create value), many businesses are interested in Customer Value
Analysis which involves a structural analysis of the antecedent
factors of perceived value (i.e. perceived quality and perceived
price) to assess their relative importance in the perception of the
buyers. Atalik (2009,p.85) explains further that customer value has
something to do with the benefit which a product or service creates
in customer in return for the cost that customer bear in order to
get that service. The concept of value is often compared to quality
and price. Quality is a feature (a variable) that increases or
decreases the value of a product or a service. This can therefore
be stated that quality = customer satisfaction. Similarly, price
factor is the money demanded for a product or a service but it does
not necessarily indicate the value of that product or service. The
value of a product or service is the proportion of the benefit it
brings to customer relative to the price or cost. Delivering
customer value more effectively than competitors is perceived in
many industries as being quite straightforward customers are
offered products and services that solve a certain problem or
fulfill a certain need, and for that they are willing to pay a
reasonable price. Firms that can provide this value more
efficiently or in a better way than others have been seeing their
revenues increases (Pynnonen, Ritala and Hallikas (2011,p.51).
Today however, as services and products are becoming
increasingly intertwined and the competition increasingly global,
delivering customer value is not as simple as it used to
be.Pynnonen, Ritala and Hallikas (2011) discussed about systemic
customer value in order to ascertain customers need. According to
Pynnonen, Ritala and Hallikas (2011,p.52), The essence of the
concept of systemic value is in customer value creation. In order
to beat the competition the firm has to provide value for its
customers, and the value of its offering has to be higher than that
of its competitors in the eyes of the customer (Bowman and
Ambrosini, 2000 cited in Pynnonen, Ritala and Hallikas 2011,p.52).
It thus has to know what customers need and how to fulfill these
needs. Therefore, after successfully figuring out what customers
want, it might seem straightforward to analyze customer value
since, in general, customers value products and services that solve
a certain problem, entertain them, or provide other specific
benefits.
A firm that is able to deliver these benefits more efficiently
and effectively will be successful in the long run. However, in
many cases the delivery is not straightforward because the value
the customer perceives may derive through several different but
intertwined attributes that are differently preferred by the
customer. In order to provide insights into this issue Pynnonen,
Ritala and Hallikas (2011,p.52) has built a framework for the
systemic analysis of customer value.5. Theoretical Framework of the
Relationship Between Constructs in this ReviewA theoretical
framework of the relationship of innovation with customer
satisfaction and brand loyalty has been proposed by Nemati, Khan
and Iftikhar (2010,p.303) as follows :
Figure 1: Relationship of innovation with customer satisfaction
and brand loyalty
The above diagram is based on the hypothesis that innovation has
positive relationship with customer satisfaction and brand loyalty.
The diagram further indicates that customer satisfaction and brand
loyalty are dependent variables whereas innovation is an
independent variable and relationship between them is positive
(Nemati, Khan and Iftikhar, 2010,p.303).
Nemati, A.R., Khan, K. & Iftikhar, M.(2010). Impact of
Innovation on Customer Satisfaction and Brand Loyalty, A Study of
Mobile Phones users in Pakistan. European Journal of Social
Sciences. 16 (2), pp. 299- 306This research proposed a refinement
of Nemati et. al. (2010) theoretical framework above as follows
:
Synthesis of the Literature Review and ConclusionCompetitive
advantage of a product is closely connected to its value in the
perception of the consumer (i.e. the customer value). However,
researches on customers value is still an area with many potentials
of growth. Most analysis focused on the trade off between quality
and price in order to ascertain customer value. Innovation, in this
regard, is a subset of quality which is ascertainable. There is a
gap in the literature whereby study on Samsungs mobile phone
innovation as value in the eyes of its consumer is not
investigated. Hence, this current study.REFERENCES
Atalik,O.(2009). Customer Value Analysis from a Customer's
Perspective: Case of Turkish Airlines Domestic Passengers.
International Business Research Vol.2,No.3 (2009)85-91
Bredrup, H.(1995) Competitivenes and competitive advantage, In :
Rolstadas, A. (ed.) Performance management: a business process
benchmarking approach. London : Kluwer Academic Publishers, pp.
43-60
Hill, C.W.L. & Jones, G.R.(2010) Strategic Management
Theory: An Integrated Approach. 9th edn. Mason,Ohio : South-Western
Cengage Learning.
OECD.(2006). Innovation and Growth in Tourism. Paris : OECD
Publishing
Paladino, B.(2010) Innovative Corporate Performance Management:
Five Key Principles to accelerate results.New Jersey : John Wiley
& Sons, Inc.
Peteraf, M. (2005) A resource-based lense on value creation,
competitive advantage, and multi-level issues in strategic
management research, In : Dansereau, F. & Yammarino, F.J.
(eds.) Research in multi-level issues : Multi-level issues in
strategy and methods. Vol. 4. Oxford : Elsevier Ltd,pp. 177-188
Poza,E.J.(2010).Family Business. Mason OH : Cengage Learning
Pynnonen,M.,Ritala,P. & Hallikas,J.(2011). The new meaning
of customer value: a systemic perspective. Journal of Business
Strategy (2011), Vol 32, No. 1, 51-57
Saloner,G, Shepard,A and Podolny,J.(2001). Strategic Management.
New York, NY: Wiley
The Stationery Office of the Government of the Unitwed Kingdom
(2010) Management of risk: guidance for practitioners.3rd
edn.Norwich : The Stationery Office
Turner, S.(2010) The Little Black Book of Management: Essential
Tools for Getting Results NOW. New Jersey : McGraw-Hill
Companies
Ulaga, W.(2003). Capturing value creation in business
relationships: A customer perspective. Industrial Marketing
Management 32 (2003) 677693
Urabe, K.,Child,J. & Kagono,T.(1988).Innovation and
management: international comparisons. Berlin : Walter De
Gruyter
Webb,B. & Schlemmer,F.(2008). Information technology and
competitive advantage in small firms. New York NY : Routledge
INNOVATION
CUSTOMER SATISFACTION
BRAND LOYALTY
BRAND LOYALTY
CUSTOMER SATISFACTION
INNOVATION
1
