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COMPETITIVE ADVANTAGE - Coggle Diagram
COMPETITIVE ADVANTAGE
Generic Strategies (Michael Porter)
Three main paths:
Cost Leadership: Be the lowest-cost producer.
Differentiation: Offer unique products/services.
Focus: Serve a specific market segment extremely well.
Each requires different capabilities:
Cost: Process efficiency, cost control.
Differentiation: Creativity, R&D, uniqueness.
Value Creation & Cost Reduction
Must always aim to create customer value.
Two main tools to reduce costs:
Value Chain:
List of all activities from input to customer service.
Identify most expensive activities.
Prioritize improvements there first.
Benchmarking:
Find the best in a specific activity (not necessarily in same industry).
Imitate best practices (e.g., Amazon for delivery).
Competitive Advantage
Offering something different from competitors.
Requires a sustainable strategy:
Long-term usability to recover investment.
Must be protected (e.g., patents, contracts, legal barriers).
Sources of Competitive Advantage
Comes from the company’s strengths.
Just like individuals (Managing Oneself), companies must:
Identify unique strengths.
Match strengths with external opportunities.
Ensure alignment with customer preferences.
Customer-Centric Value
Not all benefits = profits.
Value may be in:
Time savings
Customer experience
Environmental friendliness
Companies must translate value into pricing.
Setting the Right Price (Value-Based Pricing)
Wrong pricing methods:
Cost + margin = price (lazy method).
Copying competitors' price (illogical if strategy is different).
Correct method:
Use focus groups to understand what customers are willing to pay for each value element.
E.g., Starbucks offers more than coffee (ambience, comfort, music).
Set price based on perceived value, then work backwards.
Sustainability of Strategy
Depends on how well the strategy is legally protected.
Weak protection → price erosion, imitation.
Examples: IKEA, Walmart, Southwest Airlines → cost reduction by design/location/materials.
Must set value-based price, define margin, then set a cost goal (e.g., Hewlett-Packard).