Chapter 6: Competitive Position and Sources of Advantage:
Porter: Competitive advantages lead to superior customer value. Benefits such as being able to
offer lower prices or superior quality.
Types of advantage:
Cost advantage: Average products with below average cost. Attract price sensitive customers. Dell
Differentiation advantage: attract performance conscious customers. Either way you will have
superior profits. Apple
Marketing: high levels of brand awareness and brand preference and market share, along with
broad product lines and highly effective distribution. Normally they have prices slightly above the
average. High share + high margins = above average profits. Nike.
Businesss that have average customer value need to spend more to retain customers.
Is it sustainable? Hard because of the changing competitive environment.
For example GMs share was eroded by foreign competitors coming in with smaller and cheaper
makes. It is important not to take defensive actions.
Competitive advantage is about continually updating your info about clients and competition, as
well as innovation.
How to get one?
1. Be in an area of the market were the advantage produces things that are meaningful to clients.
Ex. Wal-Mart (price)
1. Variable: lower unit costs include manufacturing cost and costs associating with distribution.
Volume is key to this, as volume increases, the cost per unit decreases.
- We then achieve scale effects. For example, Walmart has been able to negotiate better deals by
buying higher volume of product.
- Scope effects: add more and more products to a line that have similar manufacturing processs for
example Honda manufacturers ignition switches for not only cars, but lawn mowers, generators etc.
- Learning effects: each unit produced provides info and learning opportunity to build the next one
more efficiently. 2. Marketing cost advantage: as the sales force is given more products to sell to the same
customers, a marketing cost scope effects is created. Advertising: as you expand your brand line,
you reinforce the top-of-the-mind awareness. Increase in product then means less dollars spent in
adds. For example Campbells soup.
3. Operating Cost Advantage: you do this by lowering operating cost to sales ratio, Walmart does
this well, having a ratio of less than 20 %.
1. Product: durability, features, appearance. For example ESCO builds heavy equipment that is
incredibly durable. Let the customer save money even though it is sold at a higher price.
2. Service: must be meaningful, and sustainable. FedEx does this well, they track their service
ratings each day to keep this advantage up.
3. Reputation: brand rep, for example Rolex. The name adds dimension of appeal especially less
price sensitive consumers.
1. Market Share Advantage: Market dominance, Google. Well known and trusted, many
variations in their product line, and highly effective distribution systems. Relevant only when
communication is relevant and meaningful.
2. Product line advantage: broad line means more customers to sell to.
3. Channel Advantage: A business that has access to top notch distributers that control market
access has a big competitive advantage. Harder now a days that stores have their own private
Knowledge as a source of an advantage:
Think of art of war.
The best way to subjugate ones competitor is not to fight outright but use knowledge that your
competitor does not have or does not know that you have. Less confrontation the better. Knowledge
about consumer s as well as competitors is important.
Avoid reactive strategies. These leave you blind, think pizza wars. Instead opt for an oblique
Competitive Intelligence: great example p. 210
Which competitors should be analyze?
1. Who to benchmark? The more similar the competitor, the more a customer is likely to switch.
We can create a perceptual map using this concept. You can then find out who your competition
will be within a particular segment and how you are viewed relative to them.
2. Competitor analysis: evolves continuously.
3. How to get it: normally available publically. But the valuable stuff is harder to gather. Its useful
because say for example you find out a competitor is switching add agencies and will not be
releasing a new add soon, this is the time for you to bump up your own advertising.
Benchmarking: Xerox billing and utilizing intelligence gathered from American express 1. Identify a key area of competitive weakness that affects customer satisfaction
2. Identify a benchmark company utilize processes
3. Track the benchmark companys process.
Barriers to entry: international markets have political barriers, high startup costs etc, or limited
resources that are needed to be successful.
Barriers to exit: high in pharma market (legally and politically)
Customer Buying Power: easily switch in between suppliers, this is low in pharma market
Supplier selling power: For example pharmaceuticals, switching cost is low, and they buy large
amounts, so supplier power is weak.
Product Substitutes: soft drinks
Competitive Rivalry: increase in intensity = smaller margins
Prisoner Dilemma: all competitors better off if no one cuts prices
Chapter 7: Product positioning, branding and product line strategies.
Starbucks logo great example of evolution.
Fighter Brands: Black and Decker priced and designed products (cordless drills based on 5 different
Product positioning: Choose a target customer, what are their needs, benefits they seek, prices they
are willing to pay. Also must develop a brand image that communicates the desired needs of
consumers. For example, Locite came out with a new glue that could hold metal machinery together
to avoid maintenance down time, they originally targeted this at engineers, but learned after a year
of disappointing sales that they should be shift to targeting machine maintenance people. The
product was then rebranded under a different name, different packaging (easier to store) and
PP and Market Share: MS = PP x Marketing Effort.
PP differentiation, price , product breadth, new products, service quality, brand image
ME Sales force, physical distribution, retailing and merchandising, customer support, sales
promotions, media advertising.
For example: Originally positioned at lower prices and quality. Shifted through massive investment
to higher quality, it paid off.
PP and Strategies: Who? How? Range? Consistent message? Bundle? Broaden?
1. Differentiation: take a product position that is different and superior. For ex: price sensitive
market requires lower price.
Product performance and differentiation:
Customers will pay more for things that are better. How to make it better.