Michael Porter, a Harvard University graduate, wrote a book in 1985 named – Competitive Advantage: Creating and Sustaining Superior Performance, which identified three strategies which businesses can use to tackle competition and create a sustainable competitive advantage.According to him, these three generic strategies are: Cost Leadership: It is a strategy … In Porter's view, strategic management should be concerned with building and sustaining competitive advantage. If the achieved selling price can at least equal (o… It has started using robots for its warehousing purpose. Each one of these pursuits can potentially make contributions to an organisation’s relative cost position and build a basis for differentiation. If the company has lower costs, then it can still increase the price of the product and get higher margins. A company which can keep costs lower can have a great advantage over competitors who have higher costs and therefore the prices of their products and services will be higher. Strategic Planning: Overview, Significance & OutcomesÂ, The Strategic Planning Process: A Fundamental View. There are many factors which can help in reducing the cost of a firm. These 2 companies dominate the FMCG market due to one reason – Economies of scale. A company which can keep costs lower can have a great advantage over competitors who have higher costs and therefore the prices of their products and services will be higher. It means a business strives to be distinctive in its industry along a number of proportions that are extensively sought after by buyers. Advantages of competitive pricing Retailers will have control over their position You can learn about the competitors’ strategies by collecting their pricing information. The company is able to utilize economies of scale and produce products at a low cost and as a result, offer products at a lower selling price than that of its competitors. Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation. A company which wants to achieve cost advantage will always be focused on development and innovation. It means an organisation sets out to grow to be the low cost maker in its business sector. The term hit the mainstream in 1985, when Harvard University graduate Michael Porter published a book aptly titled “Competitive Advantage.” In the book, he discussed two main ways to gain a competitive advantage: lowering your cost and differentiating your offering from competitors (which we’ll get into shortly). The Business environment plays a major role in cost advantage. Call centres and KPI’s thrive on the efficiency of their processes. Components of Marketing Mix Modelling, What Is Customer Success? Cost advantage is one of three ways a company can create a competitive advantage, with the other two being an offer advantage (adding value to a product or service through unique features) and a niche advantage (serving a specific segment of the market better than anyone else). In addition, low pricing done consistently can build brand loyalty be a huge competitive advantage (i.e. This will help you to make informed business decisions or strengthen your existing business strategy To see this page as it is meant to appear, please enable your Javascript! Cost Competitive Advantage The first type of competitive advantage is cost competitive advantage, which means a company is able to provides/offers products or services to its customers for less than competitor’s price. Louis Vuitton: Louis Vuitton’s advantage relies on both differentiation and a differentiation-focus strategy. Cost advantage is one of three ways a company can create a competitive advantage, with the other two being an offer advantage (adding value to a product or service through unique features) and a niche advantage (serving a specific segment of the market better than anyone else). Similarly, they are coming up with various AI an algorithm which is helping the company with automation, thereby reducing costs. If we look at various consumer durable appliances, they have reduced in costs over the years. 2) Companies should not ignore marketing expenses. Lower costs of transportation and distribution due to multiple products being distributed to the same retailer. 1 Introduction. McDonald’s: McDonald’s main competitive advantage relies on a cost leadership strategy. cost models, P-A-F model, Manufacturing Industries. Competition is fierce. One of these competitive advantages is the Cost advantage. It means an organisation sets out to grow to be the low cost maker in its business sector. – Learn About... Here’s How EU Plans To Tackle Fraudulent Practices In Food Chain, India, Brazil To Enhance Effectiveness In Investigation and Prosecution of Crime, Here’s TOP 10 World’s Biggest Stock Markets List. Here’s how you can gain a competitive advantage by reducing your costs significantly in 2017. Companies can design the product such that the cost is reduced. Examples include Solar and green energy products where the government wants such companies to produce products and provides subsidies because the cost of manufacturing is high. Required fields are marked *, Copyright © 2020 Marketing91 All Rights Reserved, What is Marketing Mix Modelling? Because inflation affects each company in an industry differently, the first step is to diagnose your changing cost This means higher work times at lower costs. For example – Firm A has a product which is equivalent in cost to Firm B. 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