This document discusses developing competitive advantage and strategic focus. It begins by defining competitive advantage and sources of competitive advantage. It then covers Porter's five competitive forces model and generic competitive strategies of cost leadership, differentiation, and focus. It notes the risks associated with each generic strategy if not sustained properly. It also briefly discusses the concept of transient advantage.

1. Developing Competitive Advantage & Strategic
Focus
Marketing Management [MKTG 315] Lecture 6
With Texts Based on Kotler & Keller (2012), Ferrell & Hartline (2011), Porter (1985)
Lartey Jared Offei
Entrepreneurship Training Institute [E.T.I]
Corresponding E-mail:
joffei@vvu.edu.gh
Facebook||Twitter: @offeijared
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Scholar

2. • Defining competitive advantage
• Sources of competitive advantage
• Porter’s five competitive forces
• Generic competitive strategies
• Risks of generic strategies
• Transient advantage
- What are competitive advantages?
- How do they differ from comparative advantages?
- What are the basic strategies for competitive advantage?
- What are the risks associated with generic strategies?
- What is a transient advantage?
Lecture Outline/Questions

3. • Somehow, all firms face competition, even in monopolistic
markets. Today, competition has found a place at the core of
the success or failure of firms.
• For marketing managers, this has incited the development
and sustenance of competitive advantages as a key
ingredient in determining the profitability of a firm.
• Marketers have since been challenged with developing
competitive strategies, in search for a favorable competitive
position in an industry.
• The aim is to establish a profitable and sustainable position
against the forces that determine industry competition.
• Clearly, competitive advantage grows out of value a firm is
able to create for its buyers that exceeds the firm’ cost of
creating it.
Overview

4. • This associates competitive advantage to sustainability.
• Many have referred to CA as something the firm does so
well, superior to competitors, difficult to easily imitate and
sustainable.
• From a SWOT perspective, we may refer to competitive
advantages as real differences between competing firms,
advantages that stem from real strengths possesses by the
firm or real weaknesses possessed by rival firms.
• However, it can also be based more on perception than
reality.
• Competitive advantages that do not translate into specific
customer benefits are of little use to a firm.
• Class activity: What is a firm’s comparative advantage?
Overview

5. Relational Advantages Product Advantages
• Brand-loyal customers
• High customer switching costs
• Long term relationships with supply
partners
• Strong bargaining power
• Strategic alliances
• Brand equity / brand name
• Superior quality & features
• Production expertise
• Outstanding customer service
Legal Advantages Pricing Advantages
• Patents & trademarks
• Tax advantages
• Zoning laws
• Government subsidies
• Lower production costs
• Economies of scale
• Low-cost distribution
Common Sources of Competitive Advantage

6. Organizational Advantages Promotion Advantages
• Superior R&D capacity
• Abundant financial resources
• Modern plant & equipment
• Effective competitor / customer
intelligence systems
• Strong culture / organization goodwill
• Company image
• Large promotion budget
• Superior sales force
• Creativity
• Extensive marketing expertise
Human Resource Advantages Distribution Advantages
• Highly skilled and committed
employees
• World-class employee training
• Superior management talent
• Effective / efficient distribution
system
• Real-time inventory control
• Extensive supply chain integration
• Strong E-commerce capabilities
• Convenient locations
Common Sources of Competitive Advantage
* Competitive advantages may arise from internal or external sources

7. • Competitive strategy must grow out of a sophisticated
understanding of the rules of competition within an industry.
• In this case, the role of developing a competitive strategy
will be to cope with, and ideally, change those rules in the
firm’s favour.
• Michael Porter has argued that, in any industry, whether
domestic or international, the rules of competition are
embodied in five competitive forces.
• Entry of new competitors, the threat of substitutes,
bargaining power of buyers, bargaining power of suppliers
and the rivalry among existing competitors.
• Over the years, these forces have gained wide acceptance.
• Worth noting, the strength of these forces can vary per
industry or change as an industry evolves.
Porter’s Five Competitive Forces

8. Porter’s Five Competitive Forces
Industry Competitors
Rivalry Among
Existing Firms
Potential Entrants
Substitutes
BuyersSuppliers
Threat of Substitute Products / Services
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Fig 1.Poter’s Five Competitive Forces that Determine Industry Profitability

9. • In recent years, many successful firms have developed
capabilities and competitive advantages based on three
generic strategies.
• Cost Leadership
• Differentiation
• Focus
• Each generic strategy involves a fundamentally different
route to competitive advantage.
• While selecting and implementing a generic strategy may be
far from simple, they are the logical routes to competitive
advantage that must be probed in any industry.
• The notion underlying the concept of generic strategies is
that achieving competitive advantage requires a firm to
make a choice.
Generic Competitive Strategies

10. • Being “all things to all people” is a recipe for below-average
performance, as it means the firm has no competitive
advantage at all.
Cost Leadership
• Cost leadership is perhaps the clearest of the three generic
strategies.
• The firm sets out to become the low-cost producer in its
industry.
• It is expected of the firm to have a broad scope and perhaps
even operate in related industries. i.e.. The firm’s breadth is
often important to its cost advantage.
• Cost advantages include the pursuit of economies of scale,
proprietary technology, preferential access to raw materials,
automation capacity.
Generic Competitive Strategies

11. • Cost leadership producers typically sell standard or no-frills
product and place considerable advantage on reaping scale.
• If a firm can sustain overall cost leadership, then it will be an
above-average performer in its industry and can command
prices.
• A cost leader’s low-cost position should translate into higher
returns.
• Unless one firm can gain a cost lead and “persuade” others
to abandon the strategy, the consequences of profitability
may be disastrous.
Generic Competitive Strategies

12. Differentiation
• The second generic strategy is differentiation.
• In a differentiation strategy, a firm seeks to be unique in its
industry along some dimensions that are widely valued by
buyers.
• It selects one or more attributes that many buyers in an
industry perceive as important and uniquely positions itself
to meet those needs.
• The firm is rewarded for its uniqueness with a premium
price.
• Differentiation can be based on the product itself, the
delivery system by which it is sold, the marketing approach
or other valued factors.
• Firms that achieve and sustain differentiation will be above-
Generic Competitive Strategies

13. • The firm must reduce costs in all areas that do not affect
differentiation.
• In contrast to cost leadership, there can be more than one
differentiator in an industry if there are a number of
attributes widely valued by buyers.
Focus
• The third generic strategy is focus. This strategy is quiet
different from the others because it rests on the choice of a
narrow competitive scope within an industry.
• The focuser selects a segment or group of segments in the
industry and tailors its strategy to serving them to the
exclusion of others.
• By optimizing its strategy for a target segment, the firm
achieves a competitive advantage even though it may not
Generic Competitive Strategies

14. • The focus strategy has two variants:
• Cost focus & Differentiation focus
• In a cost focus, a firm seeks a cost advantage in its target
segment.
• Conversely, a firm vying for a differentiation focus seeks
differentiation in its target segment.
• The target segment must either have buyers with unusual
needs or else the production and delivery system that best
serves the target segment must differ from that of other
industry segments.
• Cost focus exploits differences in cost behavior in some
segments, whereas differentiation focus exploits the special
needs of buyers in certain segments.
• A firm that engages in each generic strategy but fails to
Generic Competitive Strategies

15. Cost leadership
Cost leadership is not sustained;
• Competitors imitate
• Technology changes
• Other bases for cost leadership erode
Differentiation
Differentiation is not sustained;
• Competitors imitate
• Bases for differentiation then becomes less important to
buyers
Risks of Generic Strategies

16. Focus
The focus strategy is imitated;
• The target segment becomes structurally unattractive
• Demand disappears
• Broadly-targeted competitors overwhelm the segment
• Differences from one segment to another narrows
• For the associated risks, some scholars and industries have
began to advocate for transient advantages.
Risks of Generic Strategies

17. Marketing Insight
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