INSTRUCTIONS: Please RESPOND to this answer from the Point of view as a student. Use credible sources and respond as if you are a manager of a marketing agency. Tell this student what your marketing agency would think of each of these answers from a Management perspective in about 4-5 paragraphs:
MT2 – Some aspects of the Threats to Successful Competitive Positioning to be considered are: How the drivers of Differential Advantage are threatened in both Low Cost and Differential strategies (HINT: use Exhibit 5.8, page 149). What threats (risks) affect firms pursuing a Focus and Integrated position?
According to Huebsch (n.d) “Sometimes, a company can improve its net profits by making a product different rather than becoming a cost leader — selling items for the lowest price on the market. Even if a company attains cost leadership, it may not hold onto that lead for long. In general, smaller firms try to compete with larger firms on differentiation rather than cost leadership.
Any company that tries to beat competitors by offering a product for a lower price employs the cost leadership strategy. For example, Sears was once a cost leader with a powerful mail-order business, then stores like Kmart took the lead with the big-box model, and Wal-Mart has since become one of the most successful cost leaders of all time. In 2010, for instance, Wal-Mart racked up over $400 billion in sales. Instead of offering just selected items at a low price to bring in customers, Wal-Mart uses its massive buying power to force supplier companies to become more efficient and sell products at a low price all the time.
Charging a lower price but selling a larger volume of a good allows a company to maintain its profits and expand its market share. Some consumers shop only at stores that offer the lowest price, which means industries like groceries and gasoline often have price wars. The winner in a price war enjoys protection from rivals because competitors whittle away their profits attempting to offer the new lowest price. The cost leadership strategy also makes it difficult for new companies to enter the market because of thin profit margins.
Threats to Low-Cost Positions: According to Carpenter and Sanders (2008) “First the firm may face threats on the technological front. In particular, the resource that makes it possible for a firm to compete on the basis of cost – often a certain technology can be imitated. Efficient production and process technologies can move from firm to firm by number of means.” Technology helps a company with cost reduction because technology can reduce labor cost and also wasteful spending. In my company, we use the updated technology for our financing needs. Recently we purchased SAP which is robust software to stay ahead of the competition.
Threats to Differentiation Positions: Differentiation of products in the marketplace helps a firm have a competitive advantage. According to Carpenter and Sanders (2008) “The intent to provide a differentiated product does not necessarily result in competitive advantage and enhanced profitability. A number of factors can sabotage a differentiation strategy. The cost of differentiation has no direct effect on customer’s willingness to pay, and in most industries, cost plus pricing is not an option. The drivers of differentiation are premium brand image, customization, unique styling, speed, convenient access, unusually high quality. The threats are failing to increase buyers’ willingness to pay higher prices, underestimating costs of differentiation, over fulfilling buyers’ needs and lower cost imitation”. In my company we are always faced with lower cost imitation, since the manufacturing is done in China, the design and features can be easily imitated by another supplier and they can see the design to another manufacturer.
Threats to Focus Positions: According to Carpenter and Sanders (2008) “A firm relying on a focus strategy may lose its advantages by attempting to grow and consequently attempt to meet the needs of too many customers. If that happens, a competitor or new entrant may target the needs of the original focused group customers”. It is important for a firm to keep changing its marketing strategy and keep updating its customer base and focus group base. As time goes by, another market emerges with different likes and dislikes. To be competitive, my CEO reads the latest technological trends in the electronic industry and tries to implement that in our R&D department.
Huebsch, R (n.d), Cost Leadership and Competitive Advantage, Retrieved from http://smallbusiness.chron.com/cost-leadership-competitive-advantage-35159.html
Carpenter & Sanders (2008). Strategic management: A dynamic perspective–integrated StratSim simulation experience. Print Edition.