Sustaining Competitive Advantage

Introduction

This report defines competitive advantage and the core types of strategies used by services as an advantage to differentiate and compete against each other. It also evaluates an in-depth discussion on how businesses can sustain competitive advantage using Porters value chain model and how firms define their strategy using competitive advantage with references from both primary and secondary sources.

Competitive Advantage

Competitive advantage is ‘Implementing a strategy not currently being implemented by current or future competitors’ (Barney, 1991, pp.102). This creates an advantage by “meeting or exceeding customer requirements” by providing valuable products and services at an efficient cost to satisfy customers and maximising profit by producing and selling high quality and branded products at an efficient cost which provides customer satisfactory. Competitive advantage is developing strategic values that make products and services more desirable and affordable to customers than any other competitors’ (Twin, 2019). In this case, prestige image can be seen as an essential competitive tool for marketing products because it adds value to the product and attracts high customer attention. Apple’s mission is committed to providing the best innovations and technologies in the world. The company is also committed to protecting the environment, to ensure good health and safety of the company’s employees, customers and the global communities where they are established (Capilla, 2011). ‘Apple’s mission is to provide the best technologies and innovations in the world. The company is committed to protecting the environment; ensure the good health and safety of firm’s employees, customers and the global communities where they are established’ (Odaymat, 2016)

Apple’s prestige image highlights the admiration of “best technology and innovation in the world” which differentiates the firm from its rivers as a firm that provides “world-class quality product and services”. Its products are expensive but highly recognised for its quality and customers are willing to pay premium prices. Therefore, buyers may value Apple’s products than Samsung or LG because Apple provides the best technology and their products are unique. Also, the widespread respect of health and safety of staffs and customers represents and positive image of the company which means staffs and customers are well protected around the premises which makes Apple shops a calm and friendly environment for customers to shop. Hence, for gaining high competitive advantage across the global automobile and electric goods industry, Apple focuses on product diversification with latest technological innovation and creativity in designing the products. On the other hand, LG and Samsung also focus on diversifying their products but they mainly aim at cost leadership strategy to produce the products at lower cost as compared to Apple so that they can provide the quality products at affordable price to the customers. Apple’s mission is committed to providing the best innovations and technologies in the world. The company is also committed to protecting the environment, to ensure good health and safety of the company’s employees, customers and the global communities where they are established (Capilla, 2011). Apple’s mission is committed to providing the best innovations and technologies in the world. The company is also committed to protecting the environment, to ensure good health and safety of the company’s employees, customers and the global communities where they are established (Capilla, 2011).

Cost leadership

Cost leadership strategy is aimed at targeting a broad market and offering the lowest possible prices. Firms develop competitive cost attributes by mapping deliberate activities associated with cost and making adjustments to outperform their competitors. Cost leadership and value chain ‘has a parallel focus on low-cost operations’ and to gain competitive advantage, ‘the firm needs to identify activities within its value chain that can be optimised’ to provide lowest possible prices (Bayrne, 2018). For example, ‘Costco’s supply chain gains cost and competitive advantage from large purchases with single vendors and all its primary activities are performed within the same warehouse function which improves its cost efficiency and interlocking skills’ (Nuthaky, P. 2017, pp4). Costco benefits from discounts and less complexity by making large purchases with a single vendor. The firm operates on financial terms with suppliers and does not have to uses its capital to fund increased sales giving the firm ability to operate on a massive scale while keeping its prices low as possible. Also, by operating on a massive scale and performing all its primary activities in the same warehouse function, the firm has the ability to achieve operational effectiveness, cost efficiency and high flexibility on daily bases to sell its products in bulks and therefore keep prices low as possible. Thus, Costco focus on cost leadership strategy, which is beneficial for the firm to gain high competitive advantage in the market.

Differentiation

These are deliberate product and services that provide unique values which are broadly valued by customers. It targets unique customer needs and those needs are met with premium prices. This is high quality products and services that are value for their brand image, uniqueness or characteristics. ‘Costco offers great prices for high-quality products which attracts loyal customers and this strategy has increase customer-base and grown the company’s market share over the years’ (Nuthaky, 2017, pp4). Costco differentiates itself from other rivals like Wal-Mart by offering high-quality products at great prices. This strategy is used to attract loyal customers which have help to increase the firm’s market share by gaining more loyal customers which has made the firm more sustainable and able to outperform all its retail rivals in the industry. On the other hand, Apple is also famous for their innovation and product creativity and in this regard the strategy of product differentiation is adopted by the companies or better performance and branding in the international market.

Cost focus and differentiation focus

This is the ability of producing desirable quality products and services at an efficient cost than other competitors while maximising profit margins. Cost focus targets segments of the industry and applying a tailored strategy to serve them whereas differentiation focus is when a firm differentiates itself in a target segment. For example, Costco differentiates itself from retail rivals by selling desirable quality products and services in bulks at lowest prices possible. Selling in bulks is effective for gaining competitive advantage of cost efficiency, ability to maximising profit and ability to maintain lowest possible prices. As per the above analysis, the multinational corporations such as Costco, Wal-Mart and Samsung choose the strategy of cost focus and differentiation focus to sustain in the global competitive market.

Competitive advantage and sustainability analysis

There are many micro and Marco activities that influence a company to gain competitive advantage such as using their prestige image as a positive aspect of differentiation to build long-lasting customer relationships in order to stay sustainable or outperform their current and future rivals. Therefore, reflecting on Apple’s mission, ‘technology and innovation’ are used as tools to differentiate the company’s “brand image and uniqueness” which makes its products and services more expensive as a competitive advantage to outperform all its rival in the industry.

Value chain analysis

Primary prospective are discrete actives (from inbound to services) which are directly focus on how the firm ‘designs, produce, markets, delivers and supports its products and services’ (Porter, M. 1985, pp. 36). These activates contribute to the firms cost, positioning and creates differentiation. Direct activates therefore creates value for customers such as product design, sales and advertising. Also, Indirect activities create possibilities to perform direct activities continuously such as scheduling operations, maintenance, record keeping, quality assurance which ensures monitoring and testing of activity qualities (porter, 1998, pp.44).

Inbound logistics

Associated with transportation, inventory control storing and spreading inputs to material handing (figure 2), Costco inventory control has merchandised system that transports raw materials every 24 hours from suppliers to its warehouses with information how the materials should be handle. ‘The high-volume purchasing skills from single vendors has developed an efficient method for Costco’s inbound logistics capable of delivering freight to designated warehouses within 24 hours’ (Nuthaky, 2017). According to Nuthaky (2017), Building strong relationships with a single vendor help to develop efficient and fast methods of transportation. Costco focuses on inventory management through inbound logistics system where warehouse and stock of the products are maintained well to serve the customers efficiently.

Operations

Associated with assembling, packaging equipment maintenance and testing in order to transform raw materials into finished products (figure 2).The reason Costco uses machines to assemble products on the sales floor is because it’s a retailer that operates or sell its products in bulks therefore, they need good equipment maintenance in order to assemble or package products in bulks. ‘Costco operational activities improve productivity, maximise efficiency and ensure competitive success. This result is an increase to profitability and consistent economic growth (Bayrne, 2018). All Costco operational activates are operated in one functional area (warehouse) which has is a competitive advantage that maximise cost efficiency, increase profitability and growth of the firm. On the other hand, for example, Apple, Samsung as well as Wal-Mart also focus on operations in order to manage their supply chain and distribution network across the international markets. The ecommerce activities of Wal-Mart are strong to support the supplies and distributers for successful distribution of the products in the market as per the customer’s demand.

Outbound logistics

Order processing, scheduling, delivery operations, inventory turnover, collecting and delivering finished products to buyers (figure 1). This is the process collecting finished products from the warehouse and delivering it to customers using delivery vehicles. For example, Costco works in partnership with hertz and enterprise provide delivery vans on site the warehouse which can be hired by customers for goods delivery 27/7 at the cost £20 per hour. This is a competitive advantage because customers who buy large products that can not fit into their cars will need to hire a van. Outbound logistics system of Wal-Mart and Costco are strong where they choose to cross docking and Just-in-Time method to manage lean and warehouse.

Marketing and sales

This is associated with advertising, promotions, sales force, channel relation, channel selection and pricing. Costco has no advertising policy and uses less SG&A (selling, general and administrative expense) (figure 2).Minimal use of SG&A expense is a competitive advantage for Costco to market its products in bulks because SG&A are is included in expense section of income statement which is not include cost of products sold. Costco uses SG&A as competitive advantage because it’s a firm that implements a low pricing strategy. Therefore, SG&A does not affect its production or manufacturing of goods directly. Wal-Mart, Samsung as well as Apple focus on marketing and sales management where the organisations invest a lump sum amount for the promotional activities. As per the strategy of value chain, the marketing and sales are beneficial for the firm to establish the products and retain the customers for long run. The social media advertisement, developing customer portal as well as the software system of the company is beneficial to engage with the customers and promote the products as well as handle the sales volume.

Service

Activities that ‘provides support services maintain to enhance product value such as training, installations and repairs. Costco provides extended warranty and special membership service to enhance its service (figure 1). Costco offers a tailored membership service which gives easy access customer data. There making it easy to implement a “cost focus and differentiation focus” strategy on specific target segments.

Sustainable competitive advantage

Competitive advantage is “implementing a strategy not currently been implemented by rivals” whereas sustained competitive advantage is developing ‘rare, valuable, imperfectly imitable, substitutable and non-substitutable organisational knowledge that makes it difficult for rivals to copy’ (Barney, 1991, pp99). Sustainable competitive advantage is implementing strategies before rivals by ‘exploiting and isolating the internal strengths and responding to environmental opportunities, while neutralising external threats in order to avoiding internal weaknesses which gains access to distribution channels and develop positive reputation before competitors’ (Barney, 1991, pp99),

Knowledge management

Corporate culture

Long-term strategies create a sustainable corporate culture because when a firm launches new campaigns, its overall message to customers never change. Therefore, the firm can maintain focus on marketing and demand. Costco has been operating for over 100 years under the same corporate culture by making high-volume purchases from a single vendor, selling in bulks, offering customer loyalty keeping prices low and securing its customers using a tailored/personalised marketing strategy as a corporate culture. On the other hand, Apple’s corporate culture is good to handle the staff members and lead them efficiently. Additionally, harmony and freedom, managing transparency, and developing cooperative working practice strategy at Wal-Mart are beneficial for the firm to manage their culture and lead the organisation towards achieving future success.

Technology and Innovation

Firms that capture new knowledge from R&D (research and development) are able to define, store, categorize as well as “link digital objectives to corresponding knowledge units” which give the firm ability to be more innovative and be able to design unique products and services that are rare and hard to copy. For example, Tesla is the only electric car manufacturer in the industry. Its technology and innovation are valuable, rare and hard to capture by rival in the industry. Tesla differentiates itself as a car manufacturer that produces unique electric cars that do not depend on fuel and does not pollute or cause damage to the environment. Cars that do not depend on fuel are cost efficient which is also a sustainable competitive advantage. Hence, as per the strategy of technology and innovation, recently Tesla is innovative brand to serve their customers with new product range, where product diversification strategy for managing environmental sustainability is beneficial for the brand to expand their business sustainably.

Organisational structure

Operating all primary activities (Business units) in one functional area is essential because it’s cost effective and maximises profitability especially firm’s that operates on massive scale and make high-volume purchases. Costco operates all business units in one fictional area easy to make high-volume purchases from a single vendor and therefore are able to sell in bulks. It’s a sustainable competitive advantage because it speeds up operates from inbound to outbound activities, making orders and scheduling fast to process with 24 hours. This is a rare and valuable way to speed up services and Costco being the only retailer to achieve this knowledge of firm management. Wal-Mart on the other hand chooses vertical organisational structure as per the business functions of marketing and sales, finance, operations, production and technology.

Knowledge quality

Opportunities and threats

Building ties from identified manufacturer on high quality service in order to create long-lasting relationships or by providing customer loyalty and satisfaction creates long-term sustainability. This is imperfectly imitable because building long-term relationship with suppliers and customers makes it harder for competitors to create a new entry. Apple creates ties with its customers through product part-exchange. In this case, customers are willing to offer their current products and pay less in order to receive a new product. This knowledge quality creates sustainable competitive advantage by offering customers opportunities to buy more products and reduce threats from competitors finding new entry.

Evaluation

A firm can achieve sustainability and competitive advantage by implementing its strategy before its rivals and building good distribution channels as well as analysing its internal and external strengths and developing “rare, valuable, imitable and substitutable” knowledge that is hard for rival to copy. This can be achieved by building strong relationship with single vendors to reduce cost of suppliers and speeding up delivery process. Also, it can be achieved by creating an efficient operational value chain that is cost effective and operates all primary activities in one warehouse (such as Costco) to reduce cost and maximise profit. In addition, it can be achieved through differentiation by developing rare and valuable Knowledge quality such as technology and management strategies hard for rivals to copy. As per the above analysis, the organisation Apple focuses on technological innovation and creativity and chooses to be different by implementing product diversification strategy. Tesla is also another brand focusing on product diversification for successful branding in the automobile market across the international markets. On the other hand, Wal-Mart and Samsung focuses on diversification and cost focus strategy to minimise their cost of production and operation and deliver the products at lower price.

Reference List:

Garfinkle, J., (ND). 7 Strategies to Define your Competitive Advantage (article)

Johnson, G. & et al. (2014) Exploring Corporate Strategy, Pearson Education Ltd, Harlow.

Porter, M. (1985) Competitive advantage, Free Press

Porter, M. (1988) From competitive advantage to corporate strategy (pdf)