The Strategic Planning Process
Sustainable Competitive Advantage
Competitive advantage is gained when a firm acquires attributes that allow it to perform at a higher level than others in the same industry.
LEARNING OBJECTIVES
Demonstrate the ideology behind a sustainable competitive advantage from a marketing perspective
KEY TAKEAWAYS
Key Points
- Firms can obtain a competitive advantage by implementing value-creating strategies, not simultaneously being implemented by any current competitor. These strategies need to be rare, valuable, and non-substitutable.
- Sustainable, competitive advantages are advantages that are not easily copied and, thus, can be maintained over a long period of time. The competition must not be able to do it right away or it is not sustainable.
- Developing a sustainable, competitive advantage requires customer loyalty, a great location, unique merchandise, proper distribution channels, good vendor relations, a reputation for customer service, and multiple sources of advantage.
Key Terms
- competitive advantage: The strategic advantage one business entity has over its rival entities within its competitive industry. Achieving competitive advantage strengthens and positions a business better within the business environment.
A sustainable competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors. These attributes can include access to natural resources or access to highly trained and skilled personnel human resources. It is an advantage (over the competition), and must have some life; the competition must not be able to do it right away, or it is not sustainable. It is an advantage that is not easily copied and, thus, can be maintained over a long period of time. Competitive advantage is a key determinant of superior performance, and ensures survival and prominent placing in the market. Superior performance is the ultimate, desired goal of a firm; competitive advantage becomes the foundation. It gives firms the ability to stay ahead of present or potential competition and ensure market leadership.
Competition: Just like athletes, a firm seek to gain a competitive advantage in order to perform better than its peers.
Resource-Based View of the Firm
In 1991, Jay Barney established four criteria that determine a firm’s competitive capabilities in the marketplace. These four criteria for judging a firm’s resources are:
- Are they valuable? ( Do they enable a firm to devise strategies that improve efficiency or effectiveness? )
- Are they rare? (If many other firms possess it, then it is not rare. )
- Are they imperfectly imitable (because of unique historical conditions, causally ambiguous, and/or are socially complex)?
- Are they non-substitutable? (If a ready substitute can be found, then this condition is not met? )
When all four of these criteria are met, then a firm can be said to have a sustainable competitive advantage. In other words, the firm will have an advantage in the marketplace which will last until the criteria are no longer met completely. As a result, the firm will be able to earn higher profits than other firms with which it competes.
Developing Sustainable Competitive Advantages
- Customer Loyalty: Customers must be committed to buying merchandise and services from a particular retailer. This can be accomplished through retail branding, positioning, and loyalty programs. A loyalty program is like a ” Target card. ” Now, when the customer uses the card as a credit card, Target can track all of their transactions and store it in their data warehouse, which keeps track of the customer’s needs and wants outside of Target. This will entice Target to offer products that they do not have in stock. Target tracks all sales done on their cards. So, Target can track customers who use their card at other retailers and compete by providing that merchandise as well.
- Location: Location is a critical factor in a consumer ‘s selection of a store. Starbucks coffee (shown here ) is an example. They will conquer one area of a city at a time and then expand in the region. They open stores close to one another to let the storefront promote the company; they do little media advertising due to their location strategy.
- Distribution and Information Systems: Walmart has killed this part of the retailing strategy. Retailers try to have the most effective and efficient way to get their products at a cheap price and sell them for a reasonable price. Distributing is extremely expensive and timely.
- Unique Merchandise: Private label brands are products developed and marketed by a retailer and available only from the retailer. For example, if you want Craftsman tools, you must go to Sears to purchase them.
- Vendor Relations: Developing strong relations with vendors may gain exclusive rights to sell merchandise to a specific region and receive popular merchandise in short supply.
- Customer Service: This takes time to establish but once it’s established, it will be hard for a competitor to a develop a comparable reputation.
- Multiple Source Advantage: Having an advantage over multiple sources is important. For example, McDonald’s is known for fast, clean, and hot food. They have cheap meals, nice facilities, and good customer service with a strong reputation for always providing fast, hot food.