Another aspect of customer responsiveness that is of concern today is customer response time, i.e. the time it takes to deliver and deliver goods and services. Consumer surveys show that response time is the number one source of customer dissatisfaction, so reducing response time can create a competitive advantage for businesses.
To enhance customer responsiveness, a business can design better after-sales support services. All of these factors also have the ability to satisfy the business's customers and allow the business to differentiate its products from less responsive competitors.
Above are four important factors in creating a competitive advantage for a business. The question is how to produce and do business more effectively, with better quality, innovate and respond to customers faster, requiring businesses to have special capabilities, resources and certain capabilities.
Resources are understood as financial, material, human, technological and organizational resources. These resources are divided into tangible resources such as factories, machinery and equipment and intangible resources such as trademarks, reputation, technological know-how or marketing. To be able to create competitive advantages, businesses must have valuable resources and the necessary skills to exploit those resources, and the ability to manage resources effectively.
Another question that arises is how long competitive advantage lasts and how it can be sustained over time. The answer depends on three factors: barriers to imitation, the capabilities of competitors, and the dynamics of the industry environment.
Barriers to imitation are factors that make it difficult for a competitor to copy and acquire a firm's distinctive capability. The greater the barrier, the longer a firm's competitive advantage will last. It is important to remember that the longer any capability is imitable, the longer a firm has the opportunity to consolidate its strong market position and reputation, making it harder for competitors to overtake it and giving the firm time to perfect its advantage.
Advantages that are easily imitated by competitors are usually those based on the possession of valuable and unique tangible resources such as factories and machinery. Because these resources are visible to competitors and can be purchased, intangible resources are more difficult to imitate, such as a company's brand and reputation. In general, resources are easier to copy than capabilities. Therefore, it is important for a company to establish the basis for a sustainable competitive advantage and maintain that competitive advantage.
3.2.4. Choosing competitive advantage
When planning its business strategy, businesses must ask themselves how they can gain competitive advantages that are truly useful to the business in each period.
Some firms will find small advantages that are readily available, but all are easy to imitate and therefore easily lost. For these firms, one solution is to continually develop new potential advantages and gradually exploit them to keep competitors at bay. But this firm needs to innovate constantly, not with much hope of creating a large, lasting advantage, but with the hope of gaining market share by introducing many small differentiators over time.
One method that companies can use to choose a competitive advantage is the comparative scoring method. Suppose a company has identified four positioning options: technology, cost, quality, and service. It has one major competitor. Both companies have a technology score of 8 (1 = lowest, 10 = highest), meaning that both have good technology. The company cannot gain much by improving its technology further, especially at the cost it has set for doing so. The competitor has a better cost position (8 instead of 6), which could hurt the company if the market becomes more price sensitive. The company provides better quality than its competitor (8 instead of 6). Finally, both companies provide below average service.
Table 3.1: Methods for selecting competitive advantages
Competitive advantage
Business location (1-10) | Competitor position (1-10) | The Importance of Improving Position (HML) | Feasibility and speed (H-LM) | Competitor's ability to improve position (HML) | Proposed measures | |
(1) | (2) | (3) | (4) | (5) | (6) | (7) |
Technology | 8 | 8 | L | L | M | Keep it the same |
Expense | 6 | 8 | H | M | M | Follow |
Quality | 8 | 6 | L | L | H | Follow |
Service | 4 | 3 | H | H | L | Invest |
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* H = High; M = Medium; L = Low
It seems that businesses need to pursue the issue of cost or service to increase their market attractiveness compared to competitors. However, there is a problem
Other issues. First, how important are improvements in each of these attributes to the target customers? Column 4 shows that improvements in cost and service would be important to customers. Second, can the firm afford to make those improvements and how quickly can it do so? Column 5 shows that service improvements are feasible and very fast. But will competitors be able to improve their service when the firm starts? Column 6 shows that the ability to improve the service is likely to be constrained by funding. Then column 7 shows the appropriate actions to take for each attribute. The most appropriate action for the firm is to improve its service and then promote the improvement as a side benefit. Service is so important to customers that businesses can afford to improve their services and innovate so quickly that their competitors cannot keep up.
Thus, this way of reasoning can help businesses choose or enhance genuine competitive advantages to help businesses win in the business marketplace.
FURTHER READING
THE DIFFERENCE BETWEEN CORE COMPETENCIES AND COMPETITIVE ADVANTAGE
Core competencies and competitive advantages are two concepts that are easily misunderstood in business management. Many people think that core competencies are competitive advantages and vice versa.
In general, core competencies and competitive advantages both help a company gain more market share, satisfy customers better, increase customer loyalty, and generate more profits. Competitive advantages and core competencies both help a company differentiate itself from its competitors, but they are not the same. Specifically:
What is competitive advantage?
Competitive advantage helps a company compete with its competitors. The advantage can be products, services, strategies, employee skills, etc. when compared to competitors.
There are two types of competitive advantage: cost leadership and differentiation.
With the above definition, competitive advantage is achieved when we can "arrange" cheap input materials, save resources through advanced management models, find good locations, build strong brands...
What is core competency?
Core competencies are the set of skills and expertise that give a company a competitive edge.
A point is considered a core competency if and only if it meets three conditions:
- Market fit (market recognized).
- Create benefits for customers.
- Unique and difficult to imitate.
Core competencies often include: technology, management, systems...
The biggest difference between competitive advantage and core competence is that core competence leads to competitive advantage. But competitive advantage must satisfy all three conditions listed above for it to become a core competence.
So, although there are many similarities, both helping companies outperform their competitors, there are still fundamental differences between these two concepts. Sometimes a factor can be a competitive advantage but not a core competency because it is too simple and can be easily imitated.
REVIEW QUESTIONS
Question 1. What is a business's competitive advantage? What are the main factors that a business can rely on to create a competitive advantage?
Question 2. Analyze the factors affecting the creation of competitive advantage.
Question 3. What are the competitive weapons? What issues need to be considered when choosing the appropriate competitive weapon?
Question 4. List the tools to create competitive advantage.
Question 5. What must a business do to gain a competitive advantage? Why?
Question 6. State how to choose competitive advantage.
CASE EXERCISES
Lesson 1
Vinamilk is ranked in the top 10 strongest brands in Vietnam. From 03 factories specializing in producing Thong Nhat milk, Truong Tho, Dielac, Vinamilk has continuously built a distribution system to create a premise for development.
Currently, the company has over 200 milk and dairy products such as: condensed milk, powdered milk for children and adults, nutritional powder, fresh milk, drinking yogurt, soy milk, ice cream, cheese, fruit juice, biscuits, purified water, coffee, tea, etc. All products must meet international standards.
Vinamilk has established a widespread distribution system with over 180 distributors and 80,000 retailers nationwide. Vinamilk's product prices are competitive, similar products on the market are priced higher than Vinamilk.
Vinamilk also seeks opportunities in foreign markets such as: America, Thailand,
Cambodia, Laos, China, the Middle East. At the same time, developing domestic fresh milk material areas by supporting farmers, consuming products, developing a milk purchasing system with 82 milk purchasing agents nationwide. In addition, the company has carried out many community activities such as: sponsoring the Vinamilk Scholarship Fund to nurture young Vietnamese talents, supporting 18 heroic Vietnamese mothers for life, building houses of gratitude, ...
Question : Analyze Vinamilk's competitive advantages.
Lesson 2
The supercenter model developed by Wal-Mart since 1990 is not only an expansion in area but also a combination of many types of businesses at one shopping location. These centers provide a wide range of products and services such as pharmacies, laundry, hairdressing, photo printing, gas exchange, etc., helping customers to shop for everything they need in life at one place (one-stop shopping).
Wal-Mart has become the world's leading retailer thanks to its mega-stores that sell goods at lower prices to customers. Wal-Mart operates extremely low profit margins and an every day low price (EDLP) policy. According to the Wall Street Journal, many of Wal-Mart's items are 8-27% cheaper than its competitors (compared to Kroger, Albertsons, Safeway).
Economies of scale allow Wal-Mart to negotiate with manufacturers and suppliers of goods and services for lower purchasing prices. Modern management, less need for workers, plus low labor costs have also created a big advantage for Wal-Mart. (In the retail industry, labor costs account for about 70% of fixed operating costs. Therefore, saving on labor costs will reduce a significant amount of expenses.) As of mid-2006, Wal-Mart was operating 6,600 stores worldwide with sales of $312.4 billion.
In mid-2006, Wal-Mart announced its withdrawal from Korea and sold all of its facilities to domestic retail group Shinegae for nearly $900 million. When Wal-Mart first entered the country eight years ago, people flocked to shop with mountains of goods piled up in warehouses. Electronics, clothes, handbags, shoes... from all over the world were sold at competitive prices. But the careful packaging and American-style service without staff to guide and answer questions, advise customers... gradually discouraged customers. Koreans prefer to go to domestic stores, arranged in a convenient way to choose, compare similar types, with staff regularly answering all questions... Domestic goods have the advantage of fresh food, airy decoration, reasonable arrangement...
According to foreign experts, Wal-Mart failed in its efforts to sell cheap goods, but to do so they had to pressure suppliers to buy goods at low prices, pay low wages to employees... losing the sympathy of consumers and not being able to compete with dynamic domestic businesses that understand the tastes of Korean consumers.
Similarly, Wal-Mart also plans to sell 85 stores in Germany after 8 years of operation with sales of about 2.55 billion USD to Metro. According to Euromonitor, Wal-Mart sold the entire store system due to declining sales and not understanding the shopping habits and tastes of Germans, relying only on the advantage of price. The German retail market is currently in the hands of Rewe, Aldi, Lidl, Metro...
Question:
1. Based on the above information, point out the factors that create Wal-Mart's competitive advantage.
2. Analyze the reasons for Wal-Mart's failure in the Korean and German markets.
CHAPTER 4. BUSINESS LEVEL STRATEGY
With development over time, most businesses expand their activities into many new industries/business fields.
For example, Virgin Group started out as a music distribution business, but now Virgin is present in a wide range of diverse fields from airlines, film studios, telecommunications services or financial services, etc. Similarly, when it was first established, Sony was a radio manufacturer, but now Sony's business group covers video game businesses, film and music production, audio-visual electronic equipment, etc.
When a company chooses to diversify away from its traditional business, its strategy exists at two distinct levels: business-level strategy (or competitive strategy) and corporate-level strategy. Each business unit (SBU) in a diversified company chooses a competitive strategy in a particular market. Corporate-level strategy answers two important questions: what businesses will the company be involved in and how will it manage these businesses?
Thus, corporate strategy aims to identify the business activities that the enterprise has and will implement to create competitive advantage by selecting and managing a group of different business activities in a number of different industries and markets. In essence, the value of corporate-level strategy is assessed by the level of profitability of the combination of business units under the management of the enterprise compared to when they were under other forms of ownership.
Corporate level strategies are generally general strategies and aim to coordinate business strategies in relation to the expectations of the owners. With a long-term perspective, corporate level strategies always aim at long-term growth and development, so corporate level strategies are referred to the different ways in which the industry is growing, stable or declining.
4.1. GROWTH STRATEGIES
Strategies aimed at achieving a business's growth goals are often referred to as general or master strategies. They include:
- Focused growth strategy.
- Growth strategy through integration (association).
- Growth strategy through diversification.
4.1.1. Focused growth strategies
Concentrated growth strategy is a growth strategy based on focusing on the main points of the business in a specific strategic period. Concentrated growth strategy mainly aims to improve existing products and markets without changing any other factors.
When pursuing this strategy, the business focuses its efforts on exploiting the available opportunities in the products it is producing in the consuming markets by doing better than what it is currently doing.
Many mono-industry businesses see this as a key strategy to help businesses maximize their internal potential and fully exploit external market opportunities. Businesses that implement a concentrated growth strategy often develop internally, they do not like to acquire other businesses in the same industry.
In reality, this strategy is suitable for businesses that still have the ability to exploit the market, have reputable brands, and have products that can be improved and diversified in design.
Intensive growth strategies generally fall into three categories: market penetration, market development, and product development.
4.1.1.1. Market Penetration
Market penetration strategy is a strategy that seeks to increase the market share of current products in the current market of the enterprise. This is a type of strategy in which the enterprise seeks to expand the scale of operations and market share in current markets with current products. For this type of strategy, the enterprise can maximize marketing tools as well as take advantage of available market advantages.
Market penetration can be used widely as a single strategy and in combination with other strategies. Market penetration is often implemented by increasing the sales force, increasing advertising expenditures, offering extensive sales promotion, or increasing public relations efforts.
Businesses can use market penetration strategy in the following cases:
- Market penetration strategy is applied when the business's product market is in the growth stage and has not yet reached saturation (stage 3 of the product life cycle).
- When a business assesses that it expects to see a sudden increase in sales in the current market and that if it increases its marketing efforts it will be able to take advantage of that market opportunity.