Competitive Advantage; What everyone's talking about...

“There are no ideas that exactly fit customers’ needs ever or for ever”

McKeown, M. (2008:9).

The main aims of achieving competitive advantage is:

• Attracting and maintaining customers
• Keeping out competitors via defensive strategies

Gaining competitive advantage is essential for any organisation regardless of sector, industry and size. In today’s tough economic climate, the retention of existing consumer and acquisition of new customers is one of the many challenges facing businesses. Attempts to achieve this can include marketing. This has shown to be the approach adopted by supermarket chain Asda over one of its main rivals; Tesco. Its continuous ‘price war’ advertisement campaigns aim to retaining its current customers as a sense of security that they are benefitting from the ‘best value’ and acquire Tesco’s (and other competitors’) customers to help them save money. Price wars are a period of intense competition and can potentially drive rivals out of the marketplace through the market share and control of the leader(s).

The product life cycle

The product life cycle is a simple, yet important, concept for all organisations to understand. In an ‘ideal’ situation, a business will have products situated throughout the life cycle to spread risks, costs and success. Whereas previously a product could live on for a sustained period of time with little intervention, the average life of products is now approximately 4-6 months; illustrating the need for constant and continuous innovations. The cycle consists of 4 distinct phases: introduction, growth, maturity and decline (Conway, S. and Steward, F. 2009:128).

To survive in today’s business world, continuous innovation is critical. For example, Amazon began as an online bookseller and has now become an online marketplace for a wide selection of items. Nintendo are another prime example; continuously introducing newer versions of the original NintendoDS. These correspond to customer wants, for example, the NintendoDSXL is for those who require a larger screen if they have eyesight problems. Not only the consoles themselves, but the games are also designed to attract a wide range of ages; satisfying the needs and enjoyment of various customers. For example, one of their adverts for Brain Training involved Terry Wogan whereas the X Factor stars One Direction were used to advertise their new Pokemon range. The above illustrate how improvements can always be made due to the dynamic nature of customers’ desires.

Any organisation that stands still is destined for failure. Constant analysis of competitor activity can shed light on their weaknesses; enabling rivals to improve on these and gain competitive advantage. Strategies can be put in place to lower costs, improves current models and target a wider range of users. Aaker (2005:67) describes the importance of monitoring past and current strategies of competitors; in particular the past strategies that have failed as further attempts may be made in the near future. He also highlights the value of rivals’ pattern of new products or markets to “help anticipate its future growth directions”.

New ideas

When a new product, brand or service launches itself into the marketplace, the public may be wary or suspicious. However, if done correctly and effectively, marketing can help overcome this.

It is important to remember that customers buy benefits now features. What the consumer decides to buy will be dependent on which product they believe displays the most benefits for them which may also be compared to the costs.

Finding a new gap in the market is an ideal opportunity for businesses to produce innovative ideas. Although a high proportion of market share can be gained by the concerned organisation, if proven to be successful, this can be threatened by other businesses guaranteed entrance shortly after with similar products or improved versions. This poses a great concern because although patents and protection are in existence, “no idea can be protected for long, and big ideas can rarely be protected at all” (McKeown, M. 2008:8).

The diagram below is taken from Trott, P. (2002:77). This virtuous circle of innovation relates to Michael Porter’s concept of competitive advantage (1985).  He argued that those companies who were able to gain advantage over their rivals are “able to reinvest this additional profit into the activities that created the advantage in the first place”; creating competitive advantage.

Following on from the above, Trott (2002:174) identifies the short and long term competitive strategies of an organisation. The short term should include the defensive strategy and cover all possible areas to deter new entrant to the market. This could be attained through minor product changes. In contrast, the long term could include the introduction of new products; either to the same customer or entering a new market segment. Such changes could involve radical product development.

Strategies

Aaker, D.A (2008:121) depicts the need for strategies to be meaningful, sustainable, substantial to make a difference. To achieve sustainability of a product, a service or even a brand, advantage needs to be supported and enhanced over time to become a moving target for competitors. In this book, Gillette is used as an example to support his view (2008:121). With their continuous products, one innovation after another, they are able to create an advantage that is difficult for competitors to replicate, follow and exceed. He expresses his views about competitive advantage and explains that the advantage “should be visible to customers and provide or enhance a value position” (2008:122). This can be related to the positioning of a business, both actual and of the customers’ perceptions.

Product portfolio

A business can assess its progress (in terms of products) using the concept of a product portfolio. This enables an organisation to plot the positions of its products and decide where its priorities lie in terms of investment. From using this tool, current, future and desired positions can be analysed. It is important to be able to achieve a balance i.e balance products across all the quadrants rather than concentrate in one particular area. Trott, P. (2002:175)

Such models include the Boston Matrix. This was devised in the early 1970s by the Boston Consulting Group (Mindtools, Accessed 29/10/11). On the horizontal axis lies the market share, on the vertical axis lies market growth. The matrix is divided into 4 quadrants: stars, cash cows, question marks and dogs.

Stars – High market growth, High market share

• Market leaders
• Heavy investment required to maintain position
• Become cash cow when growth slows

Cash cows - Low market growth, High market share

• Mature and successful product
• Little investment required because well established

Question marks - High market growth, Low market share

• Has potential
• Requires high investment to increase market share
• Business chooses which to pursue and which to dispose of

Dogs - Low market growth, Low market share

• Low growth market
• Rarely worth investment
• Not well established in market 

References:

Aaker, D.A (2005) Strategic  Market Management, 7^th Edition, New York: Wiley

Aaker, D.A (2008) Strategic Market Management, 8^th Edition, New York Chichester: Wiley

Conway, S. and Steward, F. (2009) Managing and Shaping Innovation, New York: Oxford University Press

Mindtools [online], Available from: http://www.mindtools.com/pages/article/newTED_97.htm, (Accessed 29^th October 2011)

McKeown, M. (2008) The Truth About Innovation, Harlow: Pearson Education Ltd.  

Trott, P. (2002) Innovation Management and New Product Development, 2^nd Edition, Essex: Pearson Education Ltd

YouTube, Available from: http://www.youtube.com/watch?v=pZzWsHbjLWM, ASDA Price Guarantee Advert – 2011, (Accessed: 27^th October 2011)