Building Competitive Advantage

Requisites for delivering superior value

Having an understanding of customers is not enough today. Knowing one s competition is critical to effective marketing planning. One constantly compares 4Ps with competitors to understand potential advantage and disadvantage. This also helps in precise attacks and prepare stronger defenses.

What do companies need to know about their competition?

Who are our competitors? What are their Strategies? What are their objectives? What are their strengths and weaknesses? What are their reaction patterns?

Michael Porter on CA
Competitive advantage grows fundamentally out of the value a firm is able to create for its buyers that exceeds the firm s cost of creating it. It may take the form of prices lower than competitors for equivalent benefits or the provision of unique benefits that more than offset a premium price.

Competitive Advantage
Having a competitive advantage is necessary for a firm to compete in the market But what is more important is whether the competitive advantage is sustainable A firm must identify its position relative to the competition in the market By knowing if it is a leader, challenger, follower or nicher, it can adopt appropriate strategies to compete

Examples of SCA
For many years, Singapore Airlines were riding on its SCA of having the best in-flight service As more airlines improved their service and narrowed the gap, SIA sought other competitive advantages among which are
The most modern fleet Outstanding Service on the Ground A super entertainment system in its cabins Comfort in its First Class cabins at an unparallel level

Advantages of CA
Enables
The firm the Capability for Superior Value Delivery The capability, for capturing Above Average Rate of Return The capability, for Converting Good Products into Successful Products.

Nature and Significance of CA

A superior position relative to competition in relevant respects
Do I perform some function in a superior/distinctive way, compared to competition? Does the superiority/distinction amount to significant customer value?

The backup/support for Strategy

Nature and Sig contd .

Distinct from Strength A strength does not automatically amount to a CA, later is something more than a strength, having strength is necessary but not a sufficient condition for a firm to have CA. Only a strength that is superior/distinctive relative to competition can be a competitive advantage A strength can be counted as a CA, only if its capable of influencing in the company s favour. CA appraisal needs a sharper focus than strengthweakness analysis.

Sources of Competitive Advantage

In marketing
Market standing Market share Customer Service level Capacity to develop New products Price leadership Channel strength Marketing Communication Strength Advertising effectiveness Strength of Personnel Selling/Sales Force Productivity Product Mix and Product Lines etc

 In finance
Assets Liquidity Cash flow Costs Profitability Quality of Financial Management etc.

 In Mfg/Ops
Size or Capacity of prodn Locational advantage Prodn facilities Raw material their cost, quality and availability Automation Inventory management Flexibilty etc

In R&D
Nature, Depth and Quality of R&D Resource allocation Quality, Expertise and Experience of R&D personnel etc

 In HR
Quality, Expertise and Experience of personnel Morale and Motivation of people Personnel turnover

In corporate factors and overall resources

Corporate Image The CEO Board of Directors Quality of strategic planning Use of IT extent of use and degree of sophistication Oganisational culture etc.

Competitive Advantage Profile of Asian Paints

Marketing Factors Market leadership
Market leader with 35% market share in organized sector Closest competitor does not have even half of market share of AP For last 20 yrs, AP is a market leader

Product range
Widest product range in terms of products, shades and pack sizes

Brand power
Brands like Apex, Ace, Apcolite are quite powerful

Distribution
Over 90% accuracy in forecasting, even month to month, far superior to competitors, over 100 fastest moving SKUs monitored day to day Countrywide distribution, AP reaches all the markets where organized as well as unorganized reach 15000 dealers across the country, nearest competitors has less than 10000 Large network of regional offices, depots and sales personnel AP s average inventory level is 28 days, whereas industry standard is 51 days, at the same time the service to the customer is much higher as compared to the competitor in terms of availability of material.

Credit control
Outstanding is received within 25 days, where as for the competitors it is 40 days or above

Service First company to provide paint solutions, online solutions, world class display showrooms

Manufacturing/Operations factors Size advantage as compared to competition In house production ensures high reliability in supplies and quality assurance Four production locations spread Finance factors Leader in profits and operating margins ROI 40%, rest of the industry 22% Cash rich Corporate factors Many accolades and awards 1995 Corporate excellence award from HBSA & ET One of the India s most excellent companies by IDBI Amongst top 5 paint manufacturers in the world by KC Luyben of Amsterdam And many

Competition
Competition is the battle between businesses to win consumer acceptance and loyalty. The free-enterprise system ensures that businesses make decisions about what to produce, how to produce it, and what price to charge for the product or service. Competition is a basic premise of the free-enterprise system because it is believed that having more than one business competing for the same consumers will cause the products and/or services to be provided at a better quality and a lower cost than if there were no competitors. In other words, competition should provide the consumers with the best value for their hard-earned money.

Customer Ratings of Competitors on Key Success Factors

Market Share
Last 2 Last yr Last yr Current Last 2 Last yr

Mind Share
Last yr Current Last 2 Last yr

Heart Share
Last yr Current

A B C

50% 30% 20%

47% 34% 19%

44% 37% 19%

60% 30% 10%

58% 31% 11%

54% 35% 11%

45% 44% 11%

42% 47% 11%

39% 53% 8%

Types of Competition
Characteristics Number of competitors Perfect/Pure Competition Many Monopolistic Competition Few to many Oligopoly Very few Monopoly No direct competition Regulated by government

Ease of entry or Easy exit from industry Similarity of goods/services offered by competing firms Same

Somewhat difficult Difficult

Seemingly different Similar or different No directly but may be quite competing products similar Some Some Considerable (in true monopoly) Little (in regulated one)

Individual firm's None (set by the control over price market)

Examples

Agricultural Fast-food produce, non restaurant, tooth branded low paste, shampoo etc involvement items

Automotive Power company manufacturer, Aviation inds, Steel Inds etc.

Best Competitive Strategies

Michael Porter s competitive positioning strategies: Overall Cost Leadership Here co. works hard to achieve the lowest
production and distribution costs. Low costs make them charge lower than the competitor ad win a market share.

Differentiation Here co. concentrates on creating a highly

differentiated product line and marketing program so that it comes across as the class leader in the Industry.

Focus

Here co. focuses its effort on serving few market segments well rather than going after the entire market.

Middle of the Roaders

Do the worst. These try to be good on all strategic count and end up being not good at anything.

Michael Porter s Five Point theory

Competitive Forces
Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a market as follows: a. Industry competitors (segment rivalry): a segment is unattractive if it already contains numerous, strong or aggressive competitors. These condition will lead to frequent price wars, advertising battles, and new product introduction (expensive to compete) e.g. cellular phone market b. Substitute products: a segment is unattractive if substitutes place a limit on prices and on profits

Competitive Forces
c. Potential entrants: a segment s attractiveness varies with the height of its entry and exit barriers. The most attractive segment is entry barriers are high and exit barriers are low. But the worst case when entry barriers are low and exit barriers are high e.g. airline industry. The main points of entry barriers: higher capital investment, economies of scale, patent and licensing, strategic location, raw materials, distributors, reputation etc The main points of exit barriers: moral or legal obligation to employees, creditors, customers; less worthy of book value assets, higher vertical integration (be able to make lower operating cost and more controllable) Buyers growing bargaining power: a segment is unattractive when buyers are concentrated, product is undifferentiated, price sensitive, switching costs are low. Thus, firms must develop superior offers than competitors made. Suppliers growing bargaining power: a segment is unattractive when suppliers are concentrated, few substitutes, supplied product is an important input, switching costs are high. Thus, firms must win-win relation

d.

e.