Explain the strategies for competitive advantage. The challenge for a marketing strategy is to find a way of achieving a sustainable competitive advantage over the other competing products and firms in a market. A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Porter suggested four “generic” business strategies that could be adopted in order to gain competitive advantage.
The strategies relate to the extent to which the scope of a business’ activities are narrow versus broad and the extent to which a business seeks to differentiate its products. 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. Cost leadership With this strategy, the objective is to become the lowest-cost producer in the industry.
The traditional method to achieve this objective is to produce on a large scale which enables the business to exploit economies of scale. Why is cost leadership potentially so important? Many (perhaps all) market segments in the industry are supplied with the emphasis placed on minimising costs. If the achieved selling price can at least equal (or near) the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale businesses offering “standard” products with relativelylittle differentiation that are readily acceptable to the majority of customers.
Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share. A strategy of cost leadership requires close cooperation between all the functional areas of a business. To be the lowest-cost producer, a firm is likely to achieve or use several of the following: •High levels of productivity •High capacity utilisation •Use of bargaining power to negotiate the lowest prices for production inputs •Lean production methods (e. g. JIT) Effective use of technology in the production process •Access to the most effective distribution channels The four strategies are summarised in the figure below Cost focus Here a business seeks a lower-cost advantage in just one or a small number of market segments. The product will be basic – perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called “me-too’s”. Differentiation focus In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments.
The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants – in other words that there is a valid basis for differentiation – and that existing competitor products are not meeting those needs and wants. Differentiation focus is the classic niche marketing strategy.
Many small businesses are able to establish themselves in a niche market segment using this strategy, achieving higher prices than un-differentiated products through specialist expertise or other ways to add value for customers. There are many successful examples of differentiation focus. A good one is Tyrrells Crisps which focused on the smaller hand-fried, premium segment of the crisps industry. Differentiation leadership With differentiation leadership, the business targets much larger markets and aims to achieve competitive advantage across the whole of an industry.
This strategy involves selecting one or more criteria used by buyers in a market – and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product – often to reflect the higher production costs and extra value-added features provided for the consumer. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products.
There are several ways in which this can be achieved, though it is not easy and it requires substantial and sustained marketing investment. The methods include: •Superior product quality (features, benefits, durability, reliability) •Branding (strong customer recognition ; desire; brand loyalty) •Industry-wide distribution across all major channels (i. e. the product or brand is an essential item to be stocked by retailers) •Consistent promotional support – often dominated by advertising, sponsorship etc Great examples of a differentiation leadership include global brands like Nike and Mercedes.
These brands achieve significant economies of scale, but they do not rely on a cost leadership strategy to compete. Their business and brands are built on persuading customers to become brand loyal and paying a premium for their products. Q6. (a) Define learning organization. Ans: It is difficult to find a single definition of a “Learning Organisation” that all the industry gurus can agree to. Starting with ECLO’s working definition. “A Learning Organisation places high value on individual and organisational learning as a prime asset.
It is working towards full utilisation of al individual and group potential for learning and adapting in the interests of meeting organisational objectives. It does this in a way that also satisfies the needs and aspirations of the people involved. Inhibitors or blocks to learning are being identified and removed and strong enhancers and structural support for sustained continuous learning are being put in place. A climate of continuous learning and improvement is being created. ” Below you will find some of the definitions provided by many of the leading authors in this domain. Learning Organisations are organisations where people continually expand their capacity to create the results they truly desire; where new and expansive patterns of thinking are nurtured; where collective aspirations are set free and where people are continually learning how to learn together” – Peter Senge (1990) “A Learning Company is an organisation that facilitates the learning of all its members and continuously transforms itself” – Mike Pedlar, Tom Boydell, John Burgoyne (1988) “Learning Organisations experiment more, encourage more tries, permit small failures, encourage internal competition, maintain a ich formal environment heavily laden with information which spurs diffusion of ideas at work” – Tom Peeters “Organisational Learning is a process in which members of an organisation detect errors or anomalies and correct it by restructuring organisational theory of action, embedding the results of their enquiry in organisational maps and images” – Chris Argyris “The Learning Organisation can mean two things : it can mean an organisation which learns and / or organisation which encourages learning in its people.
It should mean both” – Charles Handy (1989) “A Learning Organisation is an organisation skilled at creating, acquiring and transferring knowledge and at modifying its behaviour to reflect new knowledge and insights” – David Garvin “A Learning Organisation places high value on individual and organisational learning as a prime asset. It is working towards full utilisation of all individual and group potentials for learning and adapting in the interests of meeting organisational objectives.
It does this in a way that also satisfies the needs and aspirations of the people involved. A climate of continuous learning and improvement is being created” – Pearn-Kandola (b) Explain the need for learning organization. Ans: In Kathia Laszlo’s May 2nd post, she spoke to the critical need to rethink and expand boundaries within a system to support different ways of working and learning together. The need to create organizational cultures where learning together is the norm has never been so important as it is during this time of increasing complexity and change.
The major news story this week is JPMorgan Chase admitting big losses on egregious credit trades. The $2 billion loss was unexpected and CEO Jamie Dimon is now challenged to explain the result of the bank’s action in light of his stance on government regulation. Government regulation is not a systemic solution to the problem, but likely needed until organizations create learning cultures that ensure they can take healthy risks and learn from small mistakes.
Since Peter Senge published The Fifth Discipline: The Art and Practice of the Learning Organization in 1990, I have been focused on bringing the concepts and practices of organizational and transformative learning to graduate students and to organizations. As I was discussing with a group of students taking a course on generative and strategic dialogue with me, dialogic approaches to communication and relational ways of being and working together in organizations are still counter-cultural to the way we do things in the U.
S. and many other countries. We need to find ways to change that reality quickly. We cannot afford to operate in a highly regulated environment. The costs are high and regulation can thwart innovation. Yet, we can’t continue to absorb the costs of mistakes that are the result of bad decisions and lack of oversight. I hope you will join me in bringing a greater awareness to what it means to a continuous learner and participate in learning organizations. We all need to develop the competencies and skills to do this work.
As Senge noted more than 20 years ago, it is time to give up the illusion that the world is created of separate, unrelated forces. We have seen this proven in many instances now. What Senge wrote two decades ago still holds true today: What we need are learning organizations “where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning how to learn together. “