How Cost Drivers Create a Competitive Advantage for Their Companies - Assignment Example

? Discussion Questions and Essay al Affiliation Discussion Questions and Essay Responses to Discussion Questions Chapter 10: Discussion Question 7 Actually, the two department stores definitely compete with each other since, as indicated, they offer similar merchandise to their customers; especially when they are located within the same geographical space. Otherwise, if these two department stores are located in extensively far off areas, then, they could not be considered competitors. There could be customers who choose to do shopping between these two stores, especially when the customer prefers to purchase a product with significantly low price (which could be found in one of the stores; yet, need some customer assistance regarding purchasing another product, which could be availed in the other store. Therefore, one strongly believes that it is possible that there are customers who visit these two stores, as evident from the example indicated herein. Chapter 12: Discussion Question 9 For instance, if one would like to establish a new restaurant, the restaurant or food service industry should be evaluated in terms current status and condition of the market. As such an external analysis should be made of the market’s customers, competitors, suppliers, and potential partners (Spulber, 2009). In addition, the potential entrant must be able to assess and comprehensibly evaluate current competitors that are firmly entrenched in the market, their core competencies, strategies applied, and the clientele that they specifically cater to. Therefore, the strategies that must be designed to effectively compete with incumbent firms are as follows: (1) determine the strengths and weaknesses of these competitors. As emphasized, “companies should concentrate their strength against the weaknesses of their competitors” (Spulber, 2009, p. 372); and (2) determine the strategies implemented by the competitors and design specific strategies that would highlight core competencies and advantages. As disclosed, if the incumbent firms have already manifested extreme strength or market share in the industry, as potential entrant, one could pursue an indirect entry strategy through a determination of the value required to be offered to underserved markets. Likewise, if the incumbent firms exhibit cost advantages, the potential entrant could design strategies which include “process innovation, increased efficiency, outsourcing, and contracts with customers” (Spulber, 2009, p. 372). In addition, the potential entrant could also apply entry strategies to address differentiation advantages through focusing on product innovation and tailoring the services or products offered to the needs, demands, and preferences of customers. Also, the potential entrant could apply entry strategies which address transaction advantages of competitors through “innovation in transaction technology, development of new forms of transactions, and creation of new combinations of buyers and sellers” (Spulber, 2009, p. 372), as deemed necessary. Therefore, expected challenges that the potential entrant could face include: immediate response and reaction from the competitors; being recognized in the market through the application of strategies involving the 4Ps; as well as in designing the most appropriate and effective entry strategy according to the core competencies, advantages, and strengths which would cater to the needs, demands, and preferences of the clientele. As such, selection of the most appropriate entry strategy would actually depend on the positioning of the potential entrant; meaning, to which particular market segment they aim to serve. This would specifically determine the competitors or incumbent which the potential entrant should assess; and apply the most needed entry strategy depending on the core competencies and advantages exhibited by these competitors. 2. Essay: What are the key cost drivers and determinants of cost advantage needed by managers when using a price leadership strategy? Students should be able to describe cost efficiencies, economies of scope, and innovation and their relationship to price leadership. The key cost drivers and determinants of cost advantage needed by managers when using a price leadership strategy include “the firm’s technical knowledge and investment in equipment and training” (Spulber, 2009, p. 261). As such, one of the cost drivers: cost efficiency requires the efficient use of the company’s resources to produce the products or services offered to the clientele at the lowest cost possible. For instance, an organization could capitalize on economies of scope through “spreading fixed costs over multiple products” (Spulber, 2009, p. 272). Likewise, through creative skills and innovation strategies, organizations could surpass the advantages and values offered to the clients through the added value and enhanced image resulting from the innovative strategy. These provide opportunities to manifest price leadership. Explanation on What a Price Leadership Strategy Is As emphasized by Spulber (2009), “price leadership is based on achieving a cost advantage…(which) requires attention to the total cost of the firm’s activities as well as the stream of costs over time, rather than a focus on specific, short-term costs” (p.261). Likewise, it was also explicitly noted that price leadership strategy “allows the company to attract customers with greater value, to offer greater surplus to suppliers, and to capture additional value” (Spulber, 2009, p. 261). In short, a price leadership strategy enables the organization to produce products or services with the most efficient use of resources which make it possible for them to offer these products to consumers at the lowest possible price, without compromising the quality. Identification of Three Important Cost Drivers and Four Determinants of Cost Advantage The three important cost drivers which were noted are: (1) technical efficiency, which was defined as “performance in terms of engineering, information technology, operations management, and other criteria” (Spulber, 2009, p. 263); (2) cost efficiency, which requires the selection of the most appropriate mix of resources: natural, capital equipment, labor; and (3) learning and knowledge of how the company continues to operate within a defined time frame. The four determinants of cost advantage are: scale (size of capacity), scope (product variety), span (production sequence), and speed (rate of innovation) (Spulber, 2009, p. 261). Example of How Identified Cost Drivers Create a Competitive Advantage for their Companies The identified cost drivers can create a competitive advantage for the company through enabling the organization to select options for the most efficient cost possible in the mix of resources (raw materials, capital equipment, labor) to product the products (cost efficiency). For instance, in producing a pair of shoes, the organization must be able to source raw materials from suppliers in the lowest cost possible (maybe through purchasing parts in bulk or volume; or availing of volume discounts). They could also opt to outsource production in countries where labor is significantly low (Asian countries, as compared to the U.S.) (technical efficiency). And finally, the company could continually learn and increase knowledge on the latest designs, customer preferences in shoes, and new raw materials which could increase the core competencies and competitive advantage of the organization towards the production and subsequent marketing of their product. All of these strategies should always be designed after due assessment of the strategies applied by their competitors in the same market segment. Reference Spulber, D. (2009). Economics and Management of Competitive Strategy. World Scientific Publishing Co. Pte. Ltd. Read More