Importance of competitive advantage
Corporate strategy must analyse both WHERE and HOW a firm should compete
- What industry?
- Which segment?
- Cost or differentiation advantage?
- Price of non-price competition?
- To lead or to follow?
Segmentation analysis
5 forces analysis may show unprofitable, but if we do segmentation analysis to focus on specific parts, they may
be profitable
,Customer specialisation – aimed at small number customer groups, e.g. ages 20.
Product specialisation – single product variable but to a range of customer groups. Customers from all
income/age ranges can purchase it, e.g. krispy kreme donuts
Profitable niche – selling to single/small group of customers and product time. E.g. mont blanc pens
Broad/narrow scope – targeting single group of customers or all available consumes + cost/differentiation
advantage?, is cost efficiency important (what is elasticity of demand), charge little as possible to be profitable?
Or consumers not price sensitivity but do demand functionality so differentiation advantage
, Undercutting is a share strategy –
lowering prices to build market
share.
Matching prices is a margin
strategy -> enjoying higher
profitability
Focus – niche, e.g. mont blanc
Cost -> undercut -> increase demand, build market share. pen. Differentiation advantage
Cost -> match prices -> benefit from larger profit margin
Differentiation -> match prices -> build market share (as differentiation is costly)
Differentiation -> charge premium -> margin strategy -> higher profit
Applying segmentation analysis
Exploiting a competitive advantage through pricing
,
Corporate strategy must analyse both WHERE and HOW a firm should compete
- What industry?
- Which segment?
- Cost or differentiation advantage?
- Price of non-price competition?
- To lead or to follow?
Segmentation analysis
5 forces analysis may show unprofitable, but if we do segmentation analysis to focus on specific parts, they may
be profitable
,Customer specialisation – aimed at small number customer groups, e.g. ages 20.
Product specialisation – single product variable but to a range of customer groups. Customers from all
income/age ranges can purchase it, e.g. krispy kreme donuts
Profitable niche – selling to single/small group of customers and product time. E.g. mont blanc pens
Broad/narrow scope – targeting single group of customers or all available consumes + cost/differentiation
advantage?, is cost efficiency important (what is elasticity of demand), charge little as possible to be profitable?
Or consumers not price sensitivity but do demand functionality so differentiation advantage
, Undercutting is a share strategy –
lowering prices to build market
share.
Matching prices is a margin
strategy -> enjoying higher
profitability
Focus – niche, e.g. mont blanc
Cost -> undercut -> increase demand, build market share. pen. Differentiation advantage
Cost -> match prices -> benefit from larger profit margin
Differentiation -> match prices -> build market share (as differentiation is costly)
Differentiation -> charge premium -> margin strategy -> higher profit
Applying segmentation analysis
Exploiting a competitive advantage through pricing
,
