Literature Review Leveraging Product Innovation to Gain Competitive Advantage

Topics: Customer satisfaction, Research, Brand Pages: 10 (2859 words) Published: May 21, 2012

By Ahmadrawi

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In this chapter, the researcher will discursively review literature on the conceptual and theoretical frameworks of the constructs involved in this research. 2. Discussion
2.1. Competitive Advantage
The term competitive advantage, despite its widespread use and popularity, has no uniformly acceptable definition (Peteraf 2005, pg 178). Most often, it is described (as opposed to defined) in term of superior financial performance (Winter, 1995 cited in Peteraf 2005, p. 179). Michael Porter (1985, p.3 cited in Bredrup 1995,p. 43), the strategic management guru who popularised the term described competitive advantage as:

“Competitive advantage grows out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. There are two basic types of competitive advantage: cost leadership and differentiation.”

Echoing Porter’s definition above, Saloner, Shepard and Podolny (2001) say that “most forms of competitive advantage mean either that a firm can produce some service or product that its customers value than those produced by competitors or that it can produce its service or product at a lower cost than its competitors.” They also say that “In order to prosper, the firm must also be able to capture the value it creates.In order to create and capture value the firm must have a sustainable competitive advantage.”

In Peteraf and Barney (2003, p.314 cited in Peteraf 2005,p. 179), competitive advantage has been described as follows :
“An enterprise has a competitive advantage if it is able to create more economic value than the marginal (breakeven) competitor in its product market.” The following paragraphs will discuss further into the conceptual relationship between a firm’s service and product innovation and the firm’s potential to create more economic value (i.e. gaining competitive advantage). 2.2. Innovation

Innovation, as an academic construct, has been given various definitions in the literature. Innovation leading theoretician is Joseph Schumpter (1883-1950). Schumpter has a broad vision of the concept of innovation. According to Schumpter, innovation encompasses new products, new production processes, new markets, new raw material and new forms of organizations. However, to Schumpter, there is a common thread between all these changes in that they involve carrying out new combination which are qualitatively important and introduced by dynamic business leaders or entrepreneurs (OECD,2006,p.86). There has been no significant change to the definition which is linked to any particular theorist up to recent times (OECD,2006,p.86).

Among the newer definitions which is still anchored on Schumpter definition is that innovation is the generation of a new idea and its implementation into a new product, process or service leading to the dynamic growth of the national economy and the increase in employment as well as to a creation of pure profit for the innovative business enterprise (Urabe, Child and Kagono,1988,p.3). 2.3. Customer Satisfaction

As has been pointed out in the preceding paragraphs, the common theme in the definitions of competitive advantage is value creation- and topical in our research is how innovation create this value to the business. In the final analysis, it is the consumer who will be the judge of the value this innovation is supposed to create (OECD,2006,p.86). The relationship between these variables (i.e. innovation, competitive advantage and the...

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Bredrup, H.(1995) Competitivenes and competitive advantage, In : Rolstadas, A. (ed.) Performance management: a business process benchmarking approach. London : Kluwer Academic Publishers, pp. 43-60
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Hallowell, R.(1996).The relationship of customer satisfaction, customer loyalty and profitability : An empirical study. International Journal of Service Industry Management. 7(4),pp.27-42.
Kotler,P. & Pfoertsch, W.(2010). Ingredient Branding: Making the Invisible Visible.Berlin : Springer-Verlag
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Mohammad, A.A.S.(2012). The Effect of Brand Trust and Perceived Value in Building Brand Loyalty. International Research Journal of Finance and Economics. 85 (2012), pp. 111-126.
OECD.(2006). Innovation and Growth in Tourism. Paris : OECD Publishing
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Muller,W.(1991). Gaining competitive advantage through customer satisfaction. European Management Journal. 9 (2), pp. 201–211
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Poza,E.J.(2010).Family Business. Mason OH : Cengage Learning
Saloner,G, Shepard,A and Podolny,J.(2001)
The Stationery Office of the Government of the Unitwed Kingdom (2010) Management of risk: guidance for practitioners.3rd edn.Norwich : The Stationery Office
Urabe, K.,Child,J
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