A Framework for Diagnosing Competitive Superiority

Topics: Marketing, Strategic management, Microeconomics Pages: 42 (14147 words) Published: May 14, 2012
George S. Day & Robin Wensley

Assessing Advantage: A Framework for Diagnosing Competitive Superiority Strategy is about seeking new edges in a market while slowing the erosion of present advantages. Effective strategy nnoves are grounded in valid and insightful monitoring of the current competitive position coupled with evidence that reveals the skiHs and resources affording the most leverage on future cost and differentiation advantages. Too often the available measures and methods do not satisfy these requirements. Only a limited set of measures may be used, depending on whether the business starts with the market and uses a customer-focused approach or alternatively adopts a competitor-centered perspective. To overcome possible myopia, the evidence of advantage should illuminate the sources of advantage as well as the manifestations of superior customer value and cost superiority, and should be based on a balance of customer and competitor perspectives.

HE notion that superior performance requires a business to gain and hold an advantage over comf)etitors is central to contemporary strategic thinking. Businesses seeking advantage are exhorted to develop distinctive competences and manage for lowest delivered cost or differentiation through superior customer value. The promised payoff is market share dominance and profitability above average for the industry. This advice is sound, but usually difficult to follow. Management first must understand the reasons for the current advantages or deficiencies of the business and the vulnerability of the advantages to copying or leap-frogging by competitors. Without a proper diagnosis, managers cannot choose the best moves to defend or enhance the current position. For many reasons the prevailing approaches to understanding competitive advantages are unlikely to yield valid and insightful diagnoses. We therefore evaluate the current approaches and methods within an organizing framework that clarifies the nature of competitive advantage. Our primary objective, however, is to use this framework to propose a process that can be used to


ensure a thorough and balanced assessment of the reasons for the competitive position of a business. Perspectives on competitive position. Little is known about how managers decide what advantages distinguish their business and how those advantages were gained. Two distinct approaches have been identified; one starts with the market and is customer-focused and the other is primarily competitor-centered. Competitor-centered assessments are based on direct management comparisons with a few target competitors. This approach often is seen in stalemated industries where the emphasis is on "beat the competition." The key question is, "How do our capabilities and offerings compare with those of competitors?" These businesses watch costs closely, quickly match the marketing initiatives of competitors, and look for their sustainable edge in technology. Managers keep a close watch on market share and contracts won or lost to detect changes in competitive position. Customer-focused assessments start with detailed analyses of customer benefits within end-use segments and work backward from the customer to the company to identify the actions needed to improve performance. This "market back" orientation is found in service-intensive industries such as investment banking where new services are easily imitated, cost of funds is the same, and entry is easy (Bhide 1986).

George S. Day is Magna International Professor of Business Strategy, University of Toronto. Robin Wensley is Professor of Marketing, University of Warwick, UK.

Journal of Marketing Vol. 52 (April 1988), 1-20,

Assessing Advantage / 1

Relatively little attentioti is given to competitors' capabilities and performance—the emphasis is on the quality of customer relationships. Evidence of continuing customer satisfaction and loyalty is more meaningful than market share. Why should it...

References: Abell, Derek F. (1980). Defining the Business: The Starting Point of Strategic Planning. Englewood Cliffs, NJ: Prentice-Hall. Inc. Alberts. William W. and James M. McTaggart (1984), "ValueBased Strategic Investment Planning." Interfaces, 14 (January-February). 138-51. Barnes, J. H. (1984). "Cognitive Biases and Their Impact on Strategic Planning." Strategic Management Journal, 5 (April-June). 129-38. Baumöl. William J. and Robert D. Willig (1981). "Fixed Costs. Sunk Costs. Entry Barrier and Sustainability of Monopoly." Quarterly Journal of Economics, 96 (August). 4 0 5 31. Bhide, Amar (1986). "Hustle as Strategy." Harvard Business Review, 64 (September-October). 59-65. Boynton. Andrew C. and Robert W. Zmud (1984), "An Assessment of Critical Success Factors," Sloan Management Review, 25 (Summer). 17-27. Buzzell, Robert D. (1981). "Are There 'Natural" Market Structures?" Journal of Marketing. 45 (Winter). 42-51. Capon, Noel and Joan Robertson Spogli (1976), "Strategic Market Planning: A Comparison and Critical Examination of Two Contemporary Approaches." in Educators ' Proceedings. Chicago: American Marketing Association. 21923. Carpenter, Gregory S. and Donald R. Lehmann (1985). "A Model of Marketing Mix. Brand Switchmg. and Competition." yowrna/o/A/arAi-//«^ Äwi-arr/i. 22 (August), 31829. Carroll. Peter J. (1982), "The Link Between Performance and Strategy," Journal of Business Strategy. 2 (Spring). 3-20. Cattin, Philippe and Dick R. Wittink (1982), "Commercial Use
18 / Journal of Marketing, April 1988
of Conjoint Analysis: A Survey," Journal of Marketing. 46 (Summer). 44-53. Caves, Richard E. (1984), "Economic Analysis and the Quest for Competitive Advantage, " AEA Papers and Proceedings (May), 124-32, , Bradley T. Gale, and Michael E. Porter (1977), "Interfirm Profitability Differences: Comment," Quarterly Journal of Economics, 91 (November), 667-76. Chakravarti, Dipankar, Andrew Mitchell, and Richard Staelin (1981), "Judgment Based Marketing Decision Models: Problems and Possible Solutions," Journal of Marketing. 45 (Fall), 13-23. Chattopadhyay. Amitava. Prakash Nedungadi, and Dipankar Chakravarti (1985), "Marketing Strategy and Differential Advantage: A Comment, ' Journal of Marketing. 49 (Spring), 129-36. Churchill, Gilbert A., Jr. and Carol Surprenant (1982), "An Investigation into the Determinants of Customer Satisfaction," Journal of Marketing Research. 19 (November), 491504. Cook, Victor J.. Jr. (1983). "Marketing Strategy and Differential Advantage." Journal of Marketing. 47 (Spring), 6 8 75. (1985), "The Net Present Value of Market Share," Journal of Marketing. 49 (Summer), 49-63. Day, George S. (1981), "Strategic Market Analysis and Definition: An Integrated Approach," Strategic Management Journal. 2, 281-99. (1984), Strategic Market Planning: The Pursuit of Competitive Advantage, Minneapolis: West Publishing Co. and David B Montgomery (1983), "Diagnosing the Experience Ctirve," Journal of Marketing. 47 (Spring), 4458, -, Allan D. Shocker, and Rajendra K. Srivastava (1979), "Customer-Onented Approaches to Identifying Product-Markets," Journal of Marketing. 43 (Fall). 8-19. Dickson, Peter R. and James L. Ginter (1987). "Market Segmentation, Product Differentiation and Marketing Strategy," Journal of Marketing. 51 (Spring), 1-10. Doyle, Peter and John Saunders (1985). "Market Segmentation and Positioning in Specialized Industrial Markets," Journal of Marketing. 49 (Spring), 24-32. Forbis, John L. and Nitin L. Mehta (1982), "Value-Based Strategies for Industrial Products," Business Horizons (Summer). 32-42. Gale, Bradley T. and Robert D. Buzzell (1988), "Market Position and Competitive Strategy," in The Interfaces of Marketing and Strategy. George S. Day, Barton Weitz, and Robin Wensley. eds. Greenwich, CT: JAI Press. Inc. Gensch. Dennis H. (1984). "Targeting the Switchable Industrial Customer," Marketing Science. 3 (Winter), 41-54. Ghemawat, Pankaj (1986), "Sustainable Advantage," Harvard Business Review. 64 (September-October), 55-8, Glueck, William F. and Lawrence R. Jauch (1984), Strategic Management and Business Policy. 2nd ed New York: McGraw-Hill Book Company. Green, Paul E. and V. Srinivasan (1978), "Conjoint Analysis in Consumer Research: Issues and Outlook," Journal of Consumer Research. 5 (September), 103-23. and Yoram Wind (1975), "New Way to Measure Consumers ' Judgements," Harvard Business Review. 53 (July-August), 107-17. Hitt, Michael A. and R. Duane Ireland (1985), "Corporate Distinctive Competence. Strategy. Industry and Performance," Strategic Management Journal. 6 (July/September), 273-93. Hofer, Charles W, and Dan Schendel (1978), Strategy For-
mulation, Analytical Concepts. Minneapolis: West Publishing Co Hogarth. Robin M. and Spyros Makridakis (1981), "Forecasting and Plannmg: An Evaluation," Management Science. 27 (February), 115-38, Jacobson, Robert and David A. Aaker (1985), "Is Market Share All That It 's Cracked Up to Be?" Journal of Marketing. 49 (Fall), 11-22. Johnson, Tod (1984), "The Myth of Declinmg Brand Loyalty," Journal of Advertising Research. 24 (February/ March), 9-17. Kamani, Aneel (1982), "Equilibrium Market Share—A Measure of Competitive Strength," Strategic Management Journal. 3 (January-March), 43-51. King. William R. (1983). "Integrating Strength-Weakness Analysis into Strategic Planning," Journal of Business Strategy. 4 (Spring). 475-87. Kotier, Philip (1984), Marketing Management: Analysis. Planning and Control. 5th ed. Englewood Cliffs. NJ: Prentice-Hall, Inc. . William Gregor, and William Rodgers (1977). "The Marketing Audit Comes of Age," Sloan Management Review. 18 (Winter). 25-43. Larréché. Jean-Claude and Reza Moinpour (1983). "Management Judgment in Marketing: The Concept of Expertise," Journal of Marketing Research. 20 (May). 110-21. and V. Srinivasan (1982). "STRATPORT: A Model for the Formulation of Business Portfolio Strategies." Management Science. 28 (September), 979-1001. Learned, E. P., C. R. Christensen, K. R. Andrews, and W. D. Guth (1969). Business Policy: Text and Cases. Homewood. IL: Richard D. Irwin. Inc. Leidecker, Joel K. and Albert V. Bruno (1984), "Identifying and Using Critical Success Factors." Long Range Planning. 17 (February), 23-32. Lippman. S A. and R P Rumelt (1982). "Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency Under Competition," Bell Journal of Economics. 418-38. Little. John D. C. (1979). "Decision Support Systems for Marketing Managers," Journal of Marketing. 43 (Summer), 9-27. , David E. Bell, and Ralph E. Keeney (1975), "A Market Share Theorem," Journal of Marketing Research. 12 (May). 136-41. Loomis, Carol J. (1987), "IBM 's Big Blues: A Legend Tries to Remake Itself," Fortune (January 10), 34-54. MacAvoy. Robert E. ( 1983). "Corporate Strategy and the Power of Competitive Analysis," Management Review (July). 9 19. (1987), "Establishing Superior Performance Through Competitive Analysis," in Strategic Planning and Management Handbook. William R. King and David 1. Cleland. eds. New York: Van Nostrand. Mancke. R. B. (1974), "Causes of Interfirm Profitability: A New Interpretation of the Evidence," Quarterly Journal of Economics. 88 (May). 181-93. Martilla. John A. and John C. James (1977), "Importance-Performance Analysis," Journal of Marketing. 51 (January), 77-9. Mehrotra. Sunil (1984), "How to Measure Marketing Productivity," Journal of Advertising Research. 24 (June/July), 9-15. Meyers, Stewart C, (1984), "Finance Theory and Financial Strategy." Interfaces. 14 (January-February), 126-37. Mintzberg, Henry (1978). "Patterns in Strategy Formulation," Management Science. 24. 934-48. Moran, William T. (1984), "Research on Discrete Consump-
Assessing Advantage / 1 9
tion Markets Can Guide Resource Shifts," Marketing News (May 15), 4. Moriarty, Rowland T., Ralph Kimball, and John H. Gay (1983), "The Management of Corporate Banking Relationships," Sloan Management Review. 24 (Spring), 3-16. Ohmae, Kenichi (1982), The Mind of the Strategist. New York: McGraw-Hill Book Company. (1985), Triad Power. New York: McGraw-Hill Book Company. Peters, Thomas J. (1984), "Strategy Follows Structure: Developing Distinctive Skills," California Management Review. 26 (Spring), 111-25. Pfeffer, Jeffrey and Gerald R. Salancik (1978), The External Control of Organizations: A Resource Dependence Perspective, New York: Harper and Row Publishers, Inc. Porter, Michael E. (1976), International Choice. Strategy and Bilateral Market Power, Cambridge, MA: Harvard University F*ress. (1980), Competitive Strategy, New York: The Free Press. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free f*ress. Quinn, James Brian (1980), Strategies for Change: Logical Incrementalism, Homewood, IL: Richard D. Irwin, Inc. Rao, Vithala and Frederick W. Winter (1978), "An Application of the Multivariate Probit Model to Market Segmentation and Product Design," Journal of Marketing Research. 15 (August), 361-8. Rappaport, Alfred (1981), "Selecting Strategies That Create Shareholder Value," Harvard Business Review. 59 (May/ June), 139-49. (1986), Creating Shareholder Value: The New Standard for Business Performance, New York: The Free Press. Robinson, William T. (1984), "Market Pioneering and Sustainable Market Share Advantages in Industrial Goods Manufacturing Companies," Krannert School, Purdue University (November). Root, H. Paul (1986), "Industrial Market Intelligence Systems: A Source of Competitive Advantage," presentation to the Business-to-Business Marketing Conference, American Marketing Association, New Orleans (April). Rothschild, William E. (1984), How to Gain (and Maintain) the Competitive Advantage, New York: McGraw-Hill Book Company. Rumelt, R. P. and J. R. C Wensley (1981), "Market Share and the Rate of Retum: Testing the Stochastic Hypothesis,"
Working Paper MGL-03, University of Califomia, Los Angeles. Selznick, Philip (1957), Leadership in Administration, New York: Harper & Row Publi.shers, Inc. Shocker, Allan D. and V. Srinivasan (1979), "Multiattribute Approaches to Product Concept Evaluation and Generation: A Critical Review," Journal of Marketing Research, 16 (May), 159-80. and David W. Stewart (1983), "Mapping Competitive Relationships: Practices, Problems and Promise," Working Paper 83-115, Vanderbilt University (September). Smith, Wendell (1956), "Product Differentiation and Market Segmentation as Altemative Marketing Strategies," Journal of Marketing. 21 (July), 3-8. South, Stephen (1981), "Competitive Advantage: The Cornerstone of Strategic Thinking," Journal of Business Strategy. 1 (Spring), 15-25. Stevenson, Howard H. (1976), "Defining Strengths and Weaknesses," Sloan Management Review. 17 (Spring), 5 1 68. Stigler, George J. (1968), The Economics of Industry. Homewood, IL: Richard D. Irwin, Inc. Teece, David J. (1980), "Economies of Scope and the Scope of the Enterprise," Journal of Economic Behavior and Organization. 223-47. Urban, Glen L., Theresa Carter, and Zofia Mucha (1985), "Market Share Rewards to Pioneenng Brands: An Exploratory Empirical Analysis," in Strategic Marketing and Management. H. Thomas and D. Gardner, eds. New York: John Wiley & Sons, Inc., 239-52. and John R. Häuser ( 1980), Design and Marketing of New Products, Englewood Cliffs, NJ: Prentice-Hall, Inc. Varadarajan, V. R. (1985), "A Two-Factor Classification of Competitive Strategy Variables," Strategic Management Journal. 6 (October-December), 357-76. Wagner, Harvey M. (1984), "Profit Wonders: Investment Blunders," Harvard Business Review. 62 (September-October), 121-35. Wensley, Robin, Patrick Barwise, and Paul Marsh (1984), "Strategic Investment Decisions," Research in Marketing. 8. Wemerfelt, Birger (1984), "A Resource-Based View of the Firm," Strategic Management Joumal. 5 (April/June), 17180. Wilkie, William L. and Edgar A. Pessemier (1973), "Issues in Marketing 's Use of Multiattribute Anitude Models," Journal of Marketing Research. 10 (November), 428-41.
20 / Journal of Marketing, April 1988
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Five Forces Competitive Framework Essay
  • Legal Framework Essay
  • Essay on competitive anylasis
  • framework Essay
  • Essay about Competitive Analysis for Cisco in China
  • Vrin Framework Essay
  • Resilience:Continuous Renewal of Competitive Advantages Essay
  • Competitive Advantage Essay

Become a StudyMode Member

Sign Up - It's Free