Wednesday, April 9, 2008

Competitive Advantage

Competitive advantage is another model from Porter, which is to gain customers’ value or generate greater sales over their competitors. There can be many types of competitive advantages including the firm’s cost structure, niche dominance, market share, and product differentiation. The more sustainable the competitive advantages, the more difficult it is for competitor to counteract the advantage.


There are two main ways that a firm can secure competitive advantage. The first one is Cost Leadership. That means a firm has an ability to sell its goods, generate larger margin on sales, or provides services at a lower price than its competitor. To win a cost leadership in an industry, the actual costs of the products or services have to be low. Two good examples are Jet Blue and Wal-Mart. A component to Jet Blue’s success is the ability to keep costs down. After completion of flights, even the pilots help clean the planes. In addition, all flight tickets from Jet Blue are electronic so there is no paper wasted. This saves the company thousands dollars on paper and labor hours. Therefore, the price of the ticket remains low compared to the other airline flying the same route. Round-trip tickets range anywhere from $98-$498.


Another good example to illustrate cost leadership as a type of competitive advantage is Wal-Mart. Their slogan is, “Always the Lowest Price.” Wal-Mart has very successful in improving the revenues and markets shares and eliminating the competitors by selling at lowest prices. It has become the largest retailer in the world. They have vast distribution centers loaded with automated equipment and whiz bang technology, employ thousands of people, and own a fleet of trucks. Wal-Mart doesn’t order products for a short period of time; rather, they order quantities a region full of stores will need for a long period of time. Most of the products were imported from Asian countries. This lowers the costs of good sold.


Second type of competitive advantage is product differentiation. It is not easy to get into the cell phone industry because there are already many competitors. However, iPhone is succeeding even if it is expensive. There are some features that are unique. First, it has a multi-touch screen with virtual keyboard and buttons. When text messaging or writing an email, it automatic check and correct the spelling. Furthermore, similar to iPods, it has a built-in rechargeable battery that is not intended to be user-replaceable. Lastly, there are many applications on this phone, such as, text, calendar, photos, music, camera, YouTube, map, weather, calculator, and more. There are many cell phones on the market has some of these features, but iPhone has all the features in one phone. That’s the reason it succeeded. According to Apple Inc. Q3 2007 Unaudited Summary Data, Apple stores sold 270,000 iPhones in the first 30 hours on launch weekend. And in the first quarter of 2008, Apple already sold 2.315 millions of them.