A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and services that justifies higher prices. Following on from his work analyzing 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 a businesses' activities are narrow versus broad and the extent to which a business seeks to differentiate its products. The four strategies are summarized in the figure below:
How do companies achieve competitive advantages and how do they operationalize these advantages in marketing? Definition:
- An advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices - Organizations might deliver more customer value than their competitors by: - Offering lower prices
- Providing more benefits, justifying higher prices
- Offering specialist products and services
Competitive Advantages in Marketing:
Can exist in any or all aspects of the marketing mix
1. Product : quality, functions, design, branding
2. Pricing: levels versus the competitors; sources of cost advantages 3.Place: location, convenience, store image
4.Promotions: creativity, use of media, execution
5.People: Customer Service
6.Processes: Service Delivery Systems
Basic Competitive Strategies:
More than two decades ago, Michael Porter suggested four basic competitive positioning strategies that companies can follow—three winning strategies and one losing one.
The winning strategies are:
1- Overall cost leadership: The company works hard to achieve the lowest production and distribution costs. 2- Differentiation: The company concentrates on creating a highly differentiated product line and marketing program. 3- Focus: The company focuses on serving a few market segments well rather than going after the whole market.
Marketing Implications of a Market Penetration Strategy:
• Overall strategy: to increase volume sales in existing markets with existing product offers. The full extent of the market is untapped- need to gain greater Penetration.
• Segmentation/Targeting: Current users
• Product: no changes; stick to existing product lines
• Price: could use penetration pricing in order to increase sales volume • Promotions: mainly on sales promotions; generally a “push” strategy • Place: increase distribution channels/ intermediaries in order to widen availability of the product.
Marketing Implications of a Market Development Strategy:
• Overall strategy: to take existing products into new markets (geographic, customer segments) • Segmentation/Targeting: New users
• Product: no major changes but adaptation for new user segment • Price: use differential pricing for different segments
• Promotions: targeting at new audiences; possibly reaching with different media and messages • Place: use new distribution channels to reach new segments. International marketing for geographic market expansion Marketing Implications of a Product Development Strategy:
• Overall strategy: to launch new products and innovations. Establish market leadership position • Segmentation/Targeting: Innovators/ Early adopters
• Product: Innovation (“first-in-market”)
• Price: Skim pricing
• Promotions: Creating awareness, educating customers about new products • Place: Selective distribution initially
Marketing Implications of a Differentiation Strategy:
- Overall strategy: to achieve superiority in all aspects of marketing and business operations - Segmentation/Targeting: Quality/ Value seeking customers
- Product: Premium product; excellent service. Strong brand equity - Price: Value based pricing; higher than...