MGT-519
STRATEGIC MARKETING
AAMER SIDDIQI
LECTURE 3
RE-CAP
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Definition of Marketing
3 levels of Marketing
The value of Marketing
Understanding Needs, Wants and Demands
The exchange process
Utility
Competitive advantage
Creation of Competitive advantage
IMPLEMENTATION OF COMPETITIVE ADVANTAGE
• Conceiving new ways to conduct activities
• Employing new procedures
• New technologies
• Different inputs
• The "fit" of different strategic activities is also vital to lock out
imitators.
IMPLEMENTATION OF COMPETITIVE ADVANTAGE (CONT’D)
• Porters "Value Chain“
• Value chain - a systematic way of examining all the activities a firm
performs and how they interact
• Maps a firm into its strategically relevant activities in order
• Helps to understand the behaviour of costs and the existing and
potential sources of differentiation
IMPLEMENTATION OF COMPETITIVE ADVANTAGE (CONT’D)
• Value-chain concept extended beyond individual firms
• Applied to whole supply chains and distribution network
• ‘Place’ much more than where a product sold. Includes distributive
and process aspects of business too
• Logistics has become very important in retail businesses
• Value chain framework is beneficial because it
– Emphasizes that competitive advantage can come anywhere the
value chain.
– Important to understand how a firm fits into the overall value
system (suppliers, channels, and buyers)
IMPLEMENTATION OF COMPETITIVE ADVANTAGE (CONT’D)
• Firm's value chain managed as system not collection of separate parts
• Porter’s 3 choices of strategic position
• Variety-based positioning
– Company produces products using distinctive sets of activities
– Involves choice of product variety rather than customer segment
• Needs-based positioning – STP process.
– Distinct groups of customers with differing needs
– Tailored set of activities can serve those needs best.
– Similar as Porter’s focus strategy
• Access-based positioning –
– Customers with same needs but activities to reach them is different
– Example-website and a shop sell the same items but serve
different customers based on access.
SUSTAINING COMPETITIVE ADVANTAGE
• Porter’s 3 conditions
• Hierarchy of source (durability and imitability)
– Lower-order advantages may be easily imitated e.g low labour cost
– Higher order advantages difficult to copy e.g proprietary technology,
brand reputation or customer relationships
– Movement of Foreign to low labour cost countries-exploit low wage
economy
• Number of distinct sources
– Harder to imitate than few
• Constant improvement and upgrading
– Creating new advantages as fast as competitors replicate old ones
SUSTAINING COMPETITIVE ADVANTAGE (CONT’D)
• Impact of technology revolutionized business environment
• Today markets fragment and proliferate quickly & accelerate the product
life-cycles
• Dominating particular market segment more difficult and less valuable
• A successful company will move quickly in and out of products, markets,
and even business segments
• Underlying it is a set of core competencies or capabilities that are hard to
imitate distinguish the company from competition
• These core competencies, and continuous strategic investment in them,
govern the company potential
CORE COMPETENCIES AND CAPABILITIES
• Core competencies-Collective learning, diverse production skills and
integration of multiple streams of technology
• Integration skills underlie a company's various product lines
• 3 tests to identify core competencies:
(1) provides potential access to wide variety of markets,
(2) makes significant contribution to end user value, and
(3) difficult for competitors to imitate
• 4 elements for developing strategy
(1) Portfolio of competencies
• Competencies are the roots of competitive advantage
• Businesses be organized as portfolio of competencies
• Organization of company into autonomous strategic business units can cripple
ability to exploit and develop competencies
CORE COMPETENCIES AND CAPABILITIES (CONT’D)
(2) Products based on competencies
• Product to be based on core competencies
• Core products being physical embodiment of one or more core
competencies
• Core competence allows both focus (on a few competencies) and
diversification (to whichever markets firm's capabilities can add
value).
• Companies should seek to maximize their world manufacturing
share in core products to sustain leadership chosen core
competence areas
CORE COMPETENCIES AND CAPABILITIES (CONT’D)
(3) Continuous investment in core competencies or capabilities
• Skills built through process of continuous improvement
• The costs of losing a core competence can be only partly calculated
in advance
• For example, in America & Europe Wal-mart, has invested heavily in
its logistics infrastructure. These were strategic investments that
enabled the company's relentless focus on customer needs. While
Wal-mart was building up its competencies, K-mart was outsourcing
whenever it was cheapest leaving it less able to react to customers’
changing needs.
CORE COMPETENCIES AND CAPABILITIES (CONT’D)
(4) Caution: core competencies as core rigidities
• Good companies may try to incrementally improve competencies by
adding new core competencies
• Consensus of opinion about the limitations to restricting product
development to areas of core competencies.
– Can transform to core rigidities..
RESOURCE-BASED VIEW OF THE FIRM (RBV)
• RBV framework - Recent development combines internal (core
competence) and external (industry structure) perspectives
• Firms have different collections of physical and intangible assets
and capabilities, called Resources
• Competitive advantage attributed to ownership of valuable resource
• Resources are more broadly defined to be
– physical (e.g. property rights, capital)
– intangible (e.g. brand names, technological know how)
– organizational (e.g. routines or processes like lean
manufacturing)
• Companies don’t have the same resources due to different
– set of experience
– assets and skills
– organisational culture
RESOURCE-BASED VIEW OF THE FIRM-RBV (CONT’D)
• Collins and Montgomery (1995) 5 tests for a valuable resource
1. Inimitability - how hard is it for competitors to copy the resource? A company
can stall imitation if the resource is
(i) physically unique
(ii) a consequence of path dependent development activities
(iii) causally ambiguous (competitors don't know what to imitate)
(iv) a costly asset investment for a limited market-economic deterrence.
2. Durability - how quickly does the resource depreciate?
3. Appropriability - who captures the value that the resource creates: company,
customers, distributors, suppliers, or employees?
4. Substitutability - can a unique resource be trumped by a different resource?
5. Competitive Superiority - is the resource really better relative to competitors?
SUMMARY
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Implementation of Competitive Advantage
Porters "Value Chain”
Sustaining Competitive Advantage
Core Competencies and Capabilities
Resource-Based View of the Firm (RBV)
THANKYOU!