Competitive Positioning and Competitive Advantages - Coursework Example

Competitive Positioning and Competitive Advantages Contents Contents 2 Introduction 3 2. Discussion 3 2 Conceptual Framework of Competitive Positioning 3 2.2. Theoretical Approach of Competitive Positioning 5 2.2.1. Porter’s Five Force Model 5 2.3. Conceptual Framework of Competitive Advantages 9 2.3.1. Porter’s Generic Strategy of Competitive Advantage 9 2.3.2. Ansoff’s Matrix for Gaining Competitive Advantages 11 2.3.3. The Blue Ocean Strategy 12 3. Conclusion 13 4. Reference List 14 5. Bibliography 16 1. Introduction In this era of globalization and international trade, the degree of competition among business entities in international standard has become so strong that each entity has to perform marketing activities in order to maintain its competitive position into the marketplace. The best way to maintain such competitive position is to identify and maintain competitive advantages of other firms present in the business environment. Competitive positioning may be defined as how a firm can differentiate its products, services and values from all other firms available in the similar category. Competitive positioning shows a company’s capability to recognize competitive landscape, putting its stake in the ground and winning mindshare in the marketplace. A sound positioning strategy is influenced by the size of the market, level of competition prevailing in the market, prospective customer segment, evaluation of internal and external environments and the degree of value creation proposition of the company (Burke, 2011). Competitive advantage is gained when a firm has been able to develop distinct attributes in terms of offering greater value of products, lowering the price level, employing skilled human resources or using certain technology in production process etc. that isolate the firm from its competitors and enables it to enjoy a better industry position (Cole, 2003). Having sufficient competitive advantages, a firm can easily outnumber its competitors and enjoy better identification and customer loyalty in the market. This paper will concentrate on the theory and practices of competitive positioning and competitive advantages in global marketplaces to experience how optimum use of such marketing strategies can aid a company to ensure its sustainability and progression over a period of time. 2. Discussion 2.1. Conceptual Framework of Competitive Positioning Competitive positioning is a key aspect of today’s business scenario. In global marketplace, business growth strategy is formulated in each company aligning with competitive positioning strategy. According to statistics, in America, more than 5, 65,000 businesses get launched every year, keeping apart the corporate giants. This signifies the prevalence of sever competition in the global economy. Hence, competitive positioning provides the scope of differentiation. Broadly, such differentiation can be commenced through three different ways (Cullen, 2011). These are: 2.1.1. Brand Positioning Strategy Brand is the interface of a product and the company as well. Hence, sufficient competitive advantage can be gained by a company if its branding positioning strategy can be justified. However, building a brand is really different from building business. An ideal brand should be able to successfully communicate the inherent value of the associated product and it should also reflect the true quality of business. For a positive positioning of a brand, the primary objective should be identification of values. Once, the core values are derived then the brand is ready to communicate it among the target audience (Kotler and Armstrong, 2008). At this stage of brand positioning, the company should take into account the values advocated by its competitors as well so that it can differentiate its competencies as against its competitors value and accordingly communicate it among the desired consumer segment through advertisements and other promotional activities. For instance, core value written in the mission statement of Amazon.com i.e. to create “Earth’s most customer-centric company” is reflected in the company’s brand image and helps the customers to perceive the underlying values of the services provided by the company (Eisenhardt and Sull, 2002). 2.1.2. Product Positioning Strategy Product positioning shows the firm’s attempt to create a distinct impression of the product in customer’s mind. However, positioning of product and brand goes hand in hand, as a well-established product in a definite market segment may enhance brand acceptability and similarly, brand loyalty may accelerate sale of a comparatively inferior product. Therefore, success of a brand relies on positioning a product (Grant, 2010). Before positioning a product, the strategic analysts must consider the degree of differentiation of the product from its competitor’s product, consumer benefits out of using the product, whether the product is being able to fulfil the consumers’ need and accordingly pose the product through highlighting its unique selling proposition (USP). 2.1.3. Positioning of Pricing Strategy According to the Marketing Mix theory, pricing strategies can be of different types such as premium pricing, price skimming, value based pricing, target pricing and many more. However, adoption of the relevant pricing strategy becomes successful depending on the positioning of the product or brand. This is the final step for achieving competitive positioning (Glowik and Smyczek, 2011). However, the main deciding factors of pricing positioning may be attributed as the brand heritage. For Premium brands such as Apple and Gucci, price levels are kept artificially high so that premium consumer segment can derive the value of the products based on the pricing of such products. It is also perceived that the more expensive a product, the better the quality is. Hence, pricing is also posed in a manner that will make the competitor’s product appear to be inferior. Evidences are also there that when a product enters the market at the initial stage of the industry itself, it enjoys a power to dictate the market price. However, the most important phenomenon in positioning of pricing is to place a pricing strategy of a product keeping in mind the target consumers, their purchasing power and affordability. Product category should also be examined to understand whether price sensitiveness of the category leads to reduce demand of the product as a result of a minor increase in price level as compared to the competitors’ price level (Hitt, 2009). 2.2. Theoretical Approach of Competitive Positioning Many models and theories have been developed regarding the concept of Competitive Positioning. Among all these, Porter’s Five Force Model and Porter’s Generic Strategies hold distinction in competitive business scenario. 2.2.1. Porter’s Five Force Model Porter’s Five Force Model is a powerful strategic tool to evaluate current industry position and the command of the industry to attract more participants. Since inception, the model gained considerable attention because of its power to analyze the macroeconomic variables prevailing in the economy and their capability to influence the market (Dälken, 2014). With rapid globalization, deregulation of economies and technological advancement such as rapid spread of information technology, the concept of old economy has fundamentally changed, altering the structure of the industry as well. Such industry specific advancements raised a number of questions on the validity of Five Forces suggested by Porter. However, no scholar could ignore the importance of these forces in today’s context as well. In the next segment, the five forces of the model will be analyzed from a critical point of view. Figure 1: Porter’s Five Force Model (Frăsineanu, 2012) Threats from New Entrants An industry experiences threats from new entrants when the high return prospect of the industry attracts more and more firms to establish and expand their business in order to enjoy positive profit as a result of operating in such high yield industry (Frăsineanu, 2012). In such industries, the potential threats are experienced by the existing firms who will have to incur a loss of market share as more number of firms tends to operate in the confined industry size as a result of new entrants. However, possibility of such threats are criticised by stating that it takes considerable time for a firm to establish its business in the industry and earn positive profit after covering the fixed costs. The firm will require substantial resources to gain market share as well. In fact, most of the industries are characterised by high barriers to entry due to lack of economies of scale of production, product differentiation, strict governmental policies, cost disadvantages and interrupted flow of capital requirement of the new firms. Hence, even if an industry experiences threats from new entrants, it is very exceptional that a new firm can create competitive pressure on existing firms operating successfully in industry segment (Sumer and Bayraktar, 2012). Threat of Substitute Products The existence of products in similar categories i.e. availability of substitute products lead to generate threat for a producer as in this scenario, consumers have a choice to switch to the alternative product available in the market even if the producer introduces minor change in the price level. For instance, in the non alcoholic beverage market, existence of Pepsi Co and Coca Cola indicates consumers’ propensity to switch to one brand as an effect of pricing and advertising strategy of the other brand. The core concept of substitute product is the products that can satisfy identical consumer needs. As the consumers are generally highly influenced by the marketing strategies conducted by the brand rather than the quality and durability of the product, this force suggested by Porter is still relevant in the modern industry perspective. However, the switching cost involved in the substitution process must be calculated before moving towards an alternative product. Bargaining Power of Buyers The bargaining power of customers demonstrates the ability of the customers to control price and force the firm to keep its price at a competitive level. This also shows customers’ sensitivity towards price change and their ability to control such price fluctuations (Hooley, Piercy and Nicoulaud, 2012). If the buyers gain a high bargaining power they will push the price level downward and will expect a better quality product or services at a lower rate. Such high bargaining power diminishes the overall industry profit. In this situation, all the existing firms will tend to produce substitute products to limit the industry profit by selling the substitutes at a cap price set by the industry. Bargaining Power of Suppliers Strong bargaining power of suppliers is the reverse side of strong bargaining power of buyers. Bargaining power of suppliers is reflected in the criticality of raw material used in production process and suppliers’ uniqueness for using such raw materials. High bargaining power of supplier leads to enhance the price level of final goods as cost of production increases. As a result, sale of the product becomes limited if it is not a necessary good which in turn also limits the industry sales and profit level. In this context, one thing should be mentioned that if the producer’s raw material is easily available and there are large number of suppliers exists in the market for supplying such materials, the industry experiences very low bargaining power of suppliers. In contrast, if the source of raw material is scarce and there exists very few suppliers who can ensure the producer of uninterrupted supply in required amount, the bargaining power of suppliers tends to become very high. Competitive Rivalry Competitive rivalry prevails in the industry with an incentive to capture more of market share and enjoy larger chunk of profit. A certain degree of competitive rivalry is important for the industry as such competition leads to keep the price level at a competitive level without compromising on the quality of the products. However, in order to sustain cut throat competition, various measures of promotion and endorsements have been performed by the firms such as advertisements, discounts etc. Hence, a very high level of competition is also unhealthy for the industry as such competition leads to lowering of price level forcefully, deceptive marketing and other ways of unethical trade practices. Although most of the forces in Porter’s model prove its validity in the changing global business environment as well, critiques have identified certain factors that may impede the feasibility of this analytical model. The most important consideration in this regard is that Porter’s five forces completely neglect the environmental aspects, both internal and external, in the time of assessing the industry condition. This model of Porter’s is based on a static framework that ignores the business dynamics i.e. the incessantly changing mode of competition, bargaining powers, demand and supply. Hence, while employing this strategic tool to analyse the competitive position of a firm into today’s complex industry, the time dimension, changing environmental trends and policy regulations should be taken into consideration in order to obtain a true picture of competitive positions of the industry (Kim, Nam and Stimpert, 2004). 2.3. Conceptual Framework of Competitive Advantages Gaining competitive advantage holds huge significance for ensuring long run sustainability of a firm as no firm can exist in this era of fierce competition, without having certain competitive advantages over its competitors. A firm may have competitive advantages based on its resources, competencies, differentiation and cost leadership. The justification of competitive advantage is fabricated based on a number of theoretical models. 2.3.1. Porter’s Generic Strategy of Competitive Advantage Porter’s Generic Strategy shows that how a company can earn competitive advantages in its preferred market scope. The strategy consists of three generic aspects such as cost strategy, differentiation strategy and focus strategy. Apart from that, hybrid strategy is also practiced in order to achieve competitive advantage. Critical analysis of these generic strategies reveals that: Cost Strategy Cost Strategy aims at reduction of cost level. This strategy can be broadly categorised into two segments such as cost leadership and cash flow maximization. Cost leadership strategy seeks to reduce cost through incorporating Porter’s value chain model in its business process. Such strategy helps the firm to acquire the lowest cost structure possible, taking into account the standard of product and services (Johnson, Scoles and Whittington, 2005). Cash flow maximization strategy is applicable for declining industries or industries that has reached its maturity level. Such strategy is directed to enhance cash flow in short run through reduction of cost. Figure 2: Porter’s Generic Strategy (Simerson, 2011) Differentiation Strategy A firm can definitely gain competitive advantage through market differentiation i.e. carrying out marketing activities in the most innovative way in order to attract large number of consumers and through innovation differentiation that leads to continuous innovation in production process to manufacture technology and quality oriented products (Simerson, 2011). Focus Strategy This strategy emphasises the firm to concentrate on a narrow segment of the industry and address the limited number of customers properly. Focus- low cost strategy leads to manufacture of products for a constricted segment at a low cost than its competitors and gain competitive advantage and focus differentiation aims at manufacturing unique goods that will satisfy the need of a limited number of customers (Zekiri and Nedelea, 2011). This main purpose of this strategy is to lowering the level of cost than its competitors so that efficiency can be introduced through producing at a larger scale and standardizing the products. Hence, this strategy becomes successful when the producer tends to infuse some essential characteristics into his products or if the firm has a bigger participation in market. However, such strategy can be challenging, for a firm wants to engage into price war with its competitors as continuous lowering of price level and cost consideration may drive the firm go out of business due to operational inefficiency. Apart from that, such strategic decision may create provision for unhealthy trade practices such as lowering cost by using cheap labour and imitating competitors production or distribution process. Using cheap labour degrades the quality of the product to a great extent which in turn may change the customer preference towards the firm’s product (Powers and Hahn, 2004). 2.3.2. Ansoff’s Matrix for Gaining Competitive Advantages Figure 3: Ansoff’s Matrix (Kumar, Subramanian and Strandholm, 2001) Asnoff’s Matrix deals with strategies that enable companies to grow and gain competitive advantages over a period of time. The four considerations of this approach are market penetration, market development, product development and diversification. Market penetration is the first stage in which firms offer their existing products and services to a specific market segment in order to capture market share. In market development, firms tend to expand their market share and also try to penetrate into new market segment by understanding their competitive advantages. As soon as the firm is ready for market development, product development and diversification become utmost important as necessity of supplying a wide range of product arises to satisfy market demand and accelerate growth. This theory also helps the firms to exploit their production capacity to take a position against competitors, to develop and employ innovative technologies. Diversification leads the companies to evaluate whether the present resources are sufficient to align with latest technology oriented production process and whether the company’s finances and other resources will be beneficial through merging with another potential company (Kumar, Subramanian and Strandholm, 2001). These segmentations as recommended by Ansoff’s Matrix can be obtained only if the firms are been able to derive the factor constituting competitive advantages for the firm and uniformly exercising such advantages will aid the firms for further product and market expansion. 2.3.3. The Blue Ocean Strategy Figure 4: Blue Ocean Flowchart (Prajogo, 2007) Blue Ocean is a comparatively contemporary strategy of competitive advantage which remains the characteristics of business life. Analyzing 30 years’ past data, it can be experienced that industries such as mobile phone manufacturing, petrochemical, management consulting, biotechnology, online merchandising etc did not have any trace of existence. Similarly, 30years down the line, many innovative industries will take place into the global business place in order to further smoothen the present lifestyle (Prajogo, 2007). As it is said that history predicts the future, evidences will also be prominent that there will be a large number of such huge industry expansion in future as well and such industry expansion will ignite severe competition. Therefore, the main essence of Blue Ocean Strategy is to use the firm’s competitive advantages in such a way that will aid to minimize the possibilities of such competition. In fact, this strategy facilitates the provision for pursuing a company’s own marketing plan without giving importance to the marketing strategy of the competitor’s plan. Such theory will only hold good in realistic world, if each company will understand its competitive advantages and concentrates on producing that good in which the company enjoys competitive advantages. The strategy relies on four basic principles such as create, increase, decrease and eliminate. This competitive strategy holds immense importance in today’s industrial aspect but the novelty of the strategy involves minimal application in reality (Onkvisit and Shaw, 2004). 3. Conclusion After analyzing the competitive positioning and competitive advantages from the scholar’s perspective, it can be inferred that the more value a company tends to create by positioning its product, brand and price level, the more competitive the company will be in the market place. Competitive advantages can be achieved if the product and services of the firm is optimally positioned; aiding the firm to generate more return by using a cost effective production process. Such effective production and distribution process is achieved by focusing on strategic models and incorporating these models into business process. Eventually, strategic models combined with most innovative technological path will lead a company to achieve a more sustainable position in the competitive economy and facilitate it to run its long term business operations through continuous alteration and progression of competitive positioning and advantages, according to the industry needs. 4. Reference List Burke, S. J., 2011. Competitive positioning strength: market measurement. Journal of Strategic Marketing, 19(5), pp. 421-428. Cole, G.A., 2003. Strategic Management. Singapore: Cengage Learning EMEA. Cullen, P., 2011. Strategic international management (5th Ed.). Sidney: South-Western Cengage Learning. Dälken, F., 2014. Are Porter’s Five Competitive Forces still Applicable? A Critical Examination concerning the Relevance for Today’s Business. [PDf] Retrieved from: [Accessed 16 January 2015] Eisenhardt, K.M. and Sull, D.N., 2002. 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