Competitive Advantage

COMPETITIVE ADVANTAGE
Competitive Advantage is an integral part of strategic planning. A good strategic plan capitalizes on the company’s strength and seeks to minimize the effect of company’s weaknesses. A company that does better than anyone else in the industry or market speaks of its distinctive competencies and such competencies can form the foundation of successful marketing strategy. Mere building the company competencies, the firm should take into account the resources at its disposal for, even a brilliant marketing strategy is of little value in case the company does not have the much needed time, talent, treasure to pull it off.
Just as one is having SWOT analysis of the firm, it is essential to understand competitors and their influence on the company’s effort and hence results.
According to Michael Porter, “Competitive advantage is a function of either providing comparable buyer value more efficiently than competitors (low cost) or performing activities at comparable but in unique ways that create more buyer value than competitors and, hence, command a premium price (differentiation)”.
Indian corporate sector is lucky enough to have certain plus points that high light the not only national level but global competitive advantages. These are:
Strong political democracy with adequate administrative machinery,
Long standing tradition of business with experience in most sectors,
Well developed infrastructure,
Well developed service sector,
Industry concentration in key areas, promoting the growth of ancillary or supporting units,
Low cost of labour as compared to developed nations,
Highly trained technical or scientific pool and so on.

Competitive advantage is the perfect match or fit between an organisation and the strategy a company decides to employ. Put in other words, competitive advantage is a position of superiority in relation to its competitor or competitors. Competitive advantage is the company superiority over its competitors by performing the market function or functions in a distinct way may be production, product variety, quality, and cost, introduction of new products, its size, its flexibility and the speed of performance or rendering a marketing service.
Competitive advantage is the gain or surplus or plus or premium that a company enjoys by constantly performing the strategically important activities more efficiently and cost effectively as compared to competitors. Very succinctly, the things a company does better than anybody else in the market place is better known as distinctive competency or competitive advantage.
SIGNIFICANCE OF COMPETITIVE ADVANTAGE
The significance or importance of competitive advantage can be well explained under the following points:
1. It is the heart of marketing strategy.
Successful companies normally bring into shape those strategies which revolve around an area of distinctive competence to the firm. The real need of acquiring the competitive advantage is as clear as crystal that the companies have failed to acquire competitive advantage needed to make the strategy to work in favour of the company. It is competitive advantage that takes the company to its pre-set objectives for objectives for objectives remain elusive and the strategies naturally hollow. Any successful strategy is a fabric of competitive advantage.
2. It is the antidote for competitor’s superiority.
Soaring over the competitors as well as defending against the competitors, is founded on competitive advantage. It is the well thrashed out competitive strategy and the competitive advantage of the firm that is clearly understood by examining the various activities of the company by observing as to how differently and distinctively the firm performs these activities as compared to its open and hidden competitors.
3. It acts as a route to the long term marketing success.
The opening up of borders has forced companies to look at what competitive marketing strategies one needs to follow to counterattack the likely competition from the global players. Competitive strategy is one that should be able to give competitive advantage. This needs competitive analysis that consists of:
a) The long term profit opportunity and
b) The company’s competitive position – the strength and weaknesses.

To grasp the implications of the phrase “profit opportunity” it is inescapable to have knowledge of market, knowledge of the government policies etc. and to know the real meaning of phrase “competitive position”, one should know the source or sources of competition. The source s can be intra-industry, inter industry, globalization, liberalization, etc.


4. It makes profit a secondary product.
Profit means an advantage or a benefit or the excess of returns over expenditure. Profits are important because they provide much needed basic energy. It is something that an organisation generates in the process of transforming its resources into customer satisfaction.
5. It makes the unit to remain competitive evergreen.
Every organisation wants to grow. As it grows, it is natural that its structure becomes more fragile, shape becomes less flexible, and the nerve system tends to be more rigid. Organisation develops several restraining forces as they grow, and therefore, they need to be watchful and continuously manage themselves to remain competitive. Competitive means an attempt, a struggle to strive for the number one position in parameters of cost, quality design and marketing the management of which is difficult but not an impose.
SOURCES OF COMPETITIVE ADVANTAGE
The sources of competitive advantage can be classified under five broad functional categories, namely,
A) Marketing factors
B) Production factors
C) Research and development and engineering factors
D) Personnel and expertise factors and
E) Corporate resources and finance factors.

A. Marketing factors
Marketing is a major corporate function. It is marketing that gives life to the very enterprise for; it has no right to survive unless it produces those goods and services needed by the market place. Competitive advantage can be built over wide range of the marketing functional areas:
i) The corporate product mix.
ii) Packaging
iii) Service norms
iv) Pricing
v) Market share
vi) Marketing organisation
vii) Marketing research and marketing intelligence
viii) Brand dominance
ix) Marketing communication
x) Channel strength and
xi) New product leadership

B. Production Factors
It is the set of marketing factors that dictate production factors for a company cannot produce what it can not sell lucratively. The field of production has therefore certain areas where the firm can have core competencies and therefore competitive advantage. By nature, production implies conversion of inputs into value added output as per the consumer specifications. The production factors that are a source of competitive advantage are:
i) Economies of scale,
ii) Locational advantage,
iii) Raw materials,
iv) The strength of maintenance,
v) Production and post production facilities,
vi) Inventory norms,

C. Research and development and engineering factors.
One cannot underestimate the role of research and development in these days of cut throat competition. Research in the industry of discovery and development is the conversion of a dream into reality. Research and development is a must these days by almost every adaptive firms though it costs in term of time, treasure and talent. It is that areas which can mop up all others in the field and can create place on the mop of performance. The important aspects are:
i) Basic or fundamental research capabilities.
ii) Applied research capabilities
iii) Speed and advance of research and development
iv) Development of new products, and
v) Value engineering

D. Personnel and expertise factors.
It is indeed foregone conclusion that with the advent of more competition the number of industries has multiplied. In actual practice, with the human resource being scarce, organisations are vying for same set of individuals and skills. As a result, the shift of people and skills, across the organisations has reached new heights. On the other end, each organisation is compelled to achieve more in terms of performance for both sheer survival and growth- both in short and long term perspectives. It is manpower difference between the organisation that brings the competitive edge. The major components of this set of factors are:
i) High caliber employees,
ii) Motivational level,
iii) Lower costs of labour,
iv) Industrial peace, and
v) Employee training and development.

E. Corporate resources factors.
Corporate resources factors are the parameters of corporate strength and weaknesses. If external forces give opportunities and threats to the corporation, these opportunities can be enchased or left out based on internal forces namely strength and weaknesses. The corporate resources factors to be considered are:
i) The corporate image,
ii) The chief executive officer,
iii) The size of the company,
iv) The corporate performance record,
v) Financial health of the company, and
vi) The structure and the systems

HOW TO ACQUIRE THE COMPETITIVE ADVANTAGE?

Building up of competitive advantage is as important as making use of it as a back up strategy formulation. At corporate level grand strategies create competitive advantage; the business level strategies can use corporations competitive advantage as the rock foundation to forge ahead. Put alternatively, building of competitive advantage is a conscious , congruous and strategic activity of the firm’s management. The areas that are to be considered are:
i) Through integration process
ii) Through research and development activities
iii) Through alliances
iv) Through mergers
v) Through core competency.



Competitive Strategies
Following on from his work analysing the competitive forces in an industry, Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. The four strategies relate to the extent to which the scope of business activities are narrow versus broad and the extent to which a business seeks to differentiate its products.
The four strategies are summarised in the figure below:

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.
Strategy - Differentiation
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.
Examples of Differentiation Strategy: Mercedes cars; Bang & Olufsen
Strategy - Cost Leadership
With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed 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 relatively little differentiation that are perfectly 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.
Examples of Cost Leadership: Nissan; Tesco; Dell Computers
Strategy - 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.
Examples of Differentiation Focus: any successful niche retailers; (e.g. The Perfume Shop); or specialist holiday operator (e.g. Carrier)
Strategy - Cost Focus
Here a business seeks a lower-cost advantage in just on 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".
Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label products.