CREATING

COMPETITIVE
ADVANTAGE
BSME 33-C1
Gamayot, Kyle Vincent G.
 Innovation
• Firms create competitive advantage by perceiving or discovering new and
better ways to compete in an industry and bringing them to market, which is
ultimately an act of innovation.
  Innovation
• Innovation here is defined broadly, to
include both improvements in technology
and better methods or ways of doing things.
• It can be manifested in product changes,
process changes, new approaches to
marketing, new forms of distribution, and
new conceptions of scope.
• Innovators not only respond to possibilities
for change, but force it to proceed faster.
  Innovation
• Much innovation, in practice, is rather mundane and incremental rather than
radical. It depends more on a cumulation of small insights and advances than
on major technological breakthroughs.
• It often involves ideas that are not “new” but have never been vigorously
pursued.
• It results from organizational learning as much as from formal R&D. It always
involves investment in developing skills and knowledge, and usually in
physical assets and marketing effort.
 Innovation & Creating Competitive
Advantage
• Innovations shift competitive advantage when rivals either fail to perceive the
new way of competing or are unwilling or unable to respond.
• This can be the result of many causes, among them complacency, inertia,
inflexible or specialized assets, or mixed motives.
• Without a new approach to competing, however, the challenger will rarely
succeed. Unless the innovator alters the nature of competition, retaliation by
established leaders will usually be vigorous and effective.
 Innovation & Creating Competitive
Advantage
• For example, Swiss watch
producers had mixed motives in
responding to Timex’s (United
States) inexpensive, disposable
watch, for fear of undermining
the Swiss image of quality and
precision. They also had
production facilities totally
unsuited to mass-producing
low-priced watches.
 Causes of Innovation That Shift
Competitive Advantage
• New technologies.
• New or shifting buyer needs.
• The emergence of a new industry segment
• Shifting input costs or availability
• Changes in government regulations
 New technologies
• Technological change can create new possibilities for the design of a product, the way it is
marketed, produced, or delivered, and the ancillary services provided. It is the most common
precursor of strategic innovation. Industries are born when technological change makes a new
product feasible.
 New technologies
• Germany first became the leader in medical imaging products, for
example, after the discovery of X-rays in Germany.
• Leadership is most likely to change in industries when a non-
incremental technological change makes obsolete or nullifies the
knowledge and assets of existing leaders.
• For example, Japanese firms have gained a position in medical
imaging (vis-à-vis German and American firms) due to the
emergence of new electronics- based technologies that substitute for
traditional X- rays in some applications.
• Incremental innovation is a series of small improvements or upgrades
made to a company's existing products, services, processes or
methods.
 New or shifting buyer needs
• Competitive advantage is often created or shifts when buyers develop new
needs or their priorities change significantly.
• Established competitors may fail to perceive the new needs or be unable to
respond because meeting them demands a new value chain.
• American fast-food firms gained advantage internationally, for example, as
buyers in many nations came to value convenience and consistency, and local
restaurants were slow to adapt. The operation of a fast-food chain is radically
different from that of a traditional restaurant.
  The emergence of a new industry
segment
• The opportunity for creating advantage arises when a new distinct segment of an industry emerges or a
new way is conceived to regroup existing segments.
• The possibilities encompass not only new customer segments but also new ways of producing particular
items in the product line or new ways to reach a particular group of customers.
 Shifting input costs or availability
• Competitive advantage frequently changes when a significant change occurs in
the absolute or relative costs of inputs such as labor, raw materials, energy,
transportation, communications, media, or machinery.
• This may reflect new conditions in supplier industries, or perhaps the
possibility of using a new or different type or quality of input.
• A firm gains competitive advantage by optimizing based on the new conditions
while competitors are saddled with assets and approaches tailored to the old
ones.
 MOVING EARLY TO EXPLOIT
STRUCTURAL CHANGE
• Early movers gain advantages such as being first to reap economies of scale,
reducing costs through cumulative learning, establishing brand names and
customer relationships without direct competition, getting their pick of
distribution channels, and obtaining the best locations for facilities or the best
sources of raw materials or other inputs.
• Moving early can allow a firm to translate an innovation into advantages of
other sorts that may well be more sustainable. The innovation itself may be
copied but the other competitive advantages often remain.
 MOVING EARLY TO EXPLOIT
STRUCTURAL CHANGE
• Early movers gain the greatest competitive advantage in those industries where
economies of scale are significant and where customers are most conservative
about switching suppliers.
• Here, entrenched positions are the most difficult to challenge. The longevity of
early mover advantages depends on whether there are subsequent industry
structural changes that nullify them.
 First mover
• A prime example of a successful first mover is
Coca-Cola, or Coke. Coke was invented in 1896 by
John S. Pemberton. When Caleb Bradham invented
Pepsi- Cola thirteen years later, Coke was already
selling a million gallons per year. For over a
hundred years, Pepsi has been trying to play catch-
up in the cola beverage market, but first mover
Coca- Cola continues to dominate the market.
 First Mover: Advantages
• First movers bear the economic burden of developing a new market that followers into the
market can exploit.
• Followers into the market can learn from the mistakes of the first movers, allowing them to
reduce their risk and avoid making costly mistakes.
• Followers may be able to examine the processes of the first movers and modify them for
greater efficiency and cost reduction.
 First Mover: disadvantages
• Followers can utilize newer technologies that become available, while first
movers may be heavily invested in older technologies.
• First movers sometimes rigidly adhere to their original path, even when it isn't
working, which opens the door for followers to move in with a revised version
of the product that better serves the market's needs.
• First movers may be driven by a fear of missed opportunities, leading them to
launch a new product or service before the market is ready
 Competitive Advantage

• Competitive advantage refers to the ways that a company can produce goods
or deliver services better than its competitors. It allows a company to achieve
superior margins and generate value for the company and its shareholders.
• A competitive advantage is something that cannot be easily replicated and is
exclusive to a company or business. This value is created internally and is
what sets the business apart from its competition.
 Competitor Analysis
• A competitor analysis, also referred to as a competitive analysis, is the process of identifying
competitors in your industry and researching their different marketing strategies. You can use
this information as a point of comparison to identify your company's strengths and weaknesses
relative to each competitor.
• Firms face a wide range of competition
• Be careful to avoid competitor myopia
• Methods of identifying competitors
• Industry point-of-view
• Market point-of-view
 Basic Competitive Strategies
1. Cost leadership strategy
• A cost leadership strategy keeps prices for products and services lower than competitors to encourage
customers to purchase the lower-priced products to save money. Businesses use a cost leadership strategy
in industries with high price elasticity, such as energy and transportation. This strategy is most effective
for companies that can produce a large volume of products for low costs. These businesses often have
large-scale production methods, high-capacity utilization and various distribution channels with which to
work.
• Example: Archibald Products is an online retailer of various household goods and uses a cost leadership
strategy to maintain lower shipping costs for their customers and competitive production costs. The
company purchases large quantities of the products it sells so that it can distribute them quickly to
customers. It also keeps its overhead costs low by training a few employees to handle every step of the
distribution process so that it can order large quantities and compete with other online retailers.
 Basic Competitive Strategies
2. Differentiation leadership strategy
• Businesses may use the differentiation leadership strategy to differentiate their products from competitors
by emphasizing specific features of their products. This strategy might involve the design or function of a
product. A company that's been in operation for a while may use this strategy to show that an original
offering is better than newer products. Alternatively, a newer company may use this strategy to show that
a new invention is more beneficial than existing offerings. The goal is to appeal to more customers
through unique features and quality while keeping competitors from obtaining a larger market share for
products.
• Example: Lowdo is a search engine that uses a product differentiation strategy to appeal to certain
customers through its products and services. For Lowdo searches to be successful, it uses tailored,
personalized search filtering based on its customers' needs. This allows the company to keep its
customers loyal and prevent them from using other search engines.
 Basic Competitive Strategies
3. Cost focus strategy
• The cost focus strategy is similar to the cost leadership strategy, but the cost focus strategy involves
catering to a specific market. This strategy still involves trying to offer the lowest price, but it attempts to
target a unique market segment with specific preferences and needs. When a company implements a cost
focus strategy, it can establish brand awareness more easily within a specific geographic market.
• Example: Wrando is a clothing store that uses a cost focus strategy to generate sales by advertising to
working parents with young children. It sells affordable clothing for parents and young children. The
company experiences success because it lowers its costs by purchasing clothing items from
manufacturers in large quantities and outsourcing its distribution process so that it can keep all its
employees dedicated to serving customers at its stores. Parents can shop for themselves and their
children in one location, and they can access affordable clothing that other department stores in the area
may sell for higher prices.
 Basic Competitive Strategies
4. Differentiation focus strategy
• The differentiation focus strategy is similar to the differentiation leadership strategy in that both attempt
to highlight unique product attributes and features. The difference between them is that while the
differentiation leadership strategy may involve appealing to a broader market, the differentiation focus
strategy involves appealing to a specific market segment. This strategy typically doesn't prioritize the
price of a company's offerings, as it attempts to highlight how a company's offerings are unique
compared to those of its competitors.
• Example: Windy Skies Resorts is an island resort that has hotels, swimming pools and adventure
activities like zip lines. It decides to implement the differentiation focus strategy by advertising how it
serves adult couples without children. This advertising strategy helps it distinguish itself from other
resorts in the area that cater to large families. At Windy Skies Resorts, adult couples can enjoy their stays
and make friends with other couples. They can enjoy their vacations without having to worry about a
loud, noisy environment disrupting their relaxation.
Factors to consider when choosing a competitive strategy

• Deciding on which competitive strategy for a company to implement may require experimentation and
careful thought. Here are some factors to consider when choosing a competitive strategy:
• The business' size: A smaller business may prefer one of the differentiation strategies to appeal to more 
localized niches.
• The resources a company has available: You can consider recommending one of the cost strategies to a
business that has ample resources to produce large quantities of products.
• The existing reputation of a company: A company with a long-established reputation may consider
implementing one of the differentiation strategies as it attempts to expand into different markets.
 Competitive Position
• Competitive positioning is about defining how you’ll “differentiate” your offering and create value for
your market. It’s about carving out a spot in the competitive landscape, putting your stake in the ground,
and winning mindshare in the marketplace – being known for a certain “something.”
A good positioning strategy is influenced by:
• Market profile: Size, competitors, stage of growth
• Customer segments: Groups of prospects with similar wants & needs
• Competitive analysis: Strengths, weaknesses, opportunities and threats in the landscape
• Method for delivering value: How you deliver value to your market at the highest level
 Competitive Position
• When your market clearly sees how your offering is different from that of your competition,
it’s easier to influence the market and win mindshare. Without brand differentiation, it takes
more time and budget to entice the market to engage with you; as a result, many companies
end up competing on price – a tough position to sustain over the long term.
• One of the key elements that many small to mid-size companies overlook is how they provide
value at the highest level. There are three essential methods for delivering value: operational
excellence, product leadership and customer intimacy.
 Competitive Position
Here is a hypothetical example of each type of value.
Competitive Positioning Key Concepts
& Steps
• Before you begin
• Your competitive positioning strategy is the foundation of your entire business – it’s the first thing you
should pin down if you’re launching a new company or product. It’s also important when you’re
expanding or looking for a new edge.
• Profile your market
• Document the size of your market, and identify your major competitors and how they’re positioned.
• Determine whether your market is in the introductory, growth, mature, or declining stage of its life. This
“lifecycle stage” affects your entire marketing strategy.
Competitive Positioning Key Concepts
& Steps
• Segment your market
• Understand the problems that your market faces. Talk with prospects and customers, or conduct 
market research if you have the time, budget and opportunity. Uncover their true wants and needs –
you’ll learn a great deal about what you can deliver to solve their problems and beat your competitors.
• Group your prospects into “segments” or “personas” that have similar problems and can use your
offering in similar ways. By grouping prospects into segments or personas, you can efficiently market to
each group.
Competitive Positioning Key Concepts
& Steps
• Define how you deliver value
• At the highest level, there are three core types of value that a company can deliver: operational efficiency
(the lowest price), product leadership (the best product), or customer intimacy (the best solution &
service). Determine which one you’re best equipped to deliver; your decision is your method for
delivering value.
• Evaluate your competition
• List your competitors. Include any that can solve your customers’ problems, even if the competitors’
solutions are much different from yours – they’re still your competition.
• Rate yourself and your direct competitors based on operational efficiency (price), product leadership and
customer intimacy. It’s easy to think you’re the best, so be as impartial as you can be.
Competitive Positioning Key Concepts
& Steps
• Stake a position
• Identify areas where your competition is vulnerable.
• Determine whether you can focus on those vulnerable areas – they’re major opportunities.
• Make a decision on how to position your offering or company.
• Select the mindshare you want to own, and record your strategy
• Review the components of your market and evaluate what you want to be known for in the future.
Condense all your research and analysis into the “one thing” that you want to be known for, and design
your long-term strategy to achieve it.
 After Competitive Positioning
• Once you have a competitive positioning strategy, develop a 
brand strategy to help you communicate your positioning and
solidify your value every time you touch your market. Together,
these two strategies are the essential building blocks for your
business.