Competitive Advantage and Strategy

• Aligning internal and external factors achieves competitive advantage, which is the definition of strategy.

Key Strategic Questions

• What industry, market, and geographic areas should the firm operate in?
• What unique value will the company offer via cost or differentiation leadership?
• What tangible and intangible assets are required for strategic success?
• How will the company sustain a competitive advantage by adapting and creating barriers for others?

Examples of Key Strategic Questions

• Amazon is expanding into healthcare and grocery markets.
• Apple offers premium pricing, while Walmart competes on low prices.
• Tesla requires battery production facilities and software expertise.
• Netflix invests in original content.

Competitive Advantage

• A firm's consistent ability to earn above-average profits.

Sustaining Competitive Advantage

• Requires barriers to imitation protecting unique resources and capabilities.
• Firms must make strategic choices that differentiate them via trade-offs and complexity.
• Staying ahead requires ongoing investment in R&D, reputation, and efficiency/operations by leveraging continuous innovation.

TechWear Case Study

• TechWear designs and sells high-tech clothing embedded with sensors to track body metrics.
• TechWear is partnering with professional athletes and gyms in the fitness industry.
• TechWear needs to assess its competitive position using Porter's Five Forces as competition grows.

Competitive Rivalry:

• Nike and Under Armour have entered the smart clothing market.
• Crucial for the company is differentiation in technology and partnerships.

Threat of New Entrants:

• High R&D costs create entry barriers, but growing demand attracts startups.
• Strong brand positioning deters competitors.

Bargaining Power of Suppliers:

• Specialized sensor technology suppliers can yield power due to limited options.
• Vertical integration or supplier partnerships can mitigate risks.

Bargaining Power of Buyers:

• Customers have many fitness technology options.
• Creation of brand loyalty via innovation is crucial.

Threat of Substitutes:

• Wearable fitness trackers offer similar monitoring functions.
• Key to stay ahead is differentiation through unique features and convenience.

Strategic Implications

• Focus on brand loyalty by enhancing customer experience.
• Invest in R&D to stay ahead of competitors.
• Explore exclusive partnerships to strengthen market position.

External Analysis Value

• It identifies opportunities and threats.

Porter's Five Forces

• Competitive Rivalry: Competition among firms, which reduces profitability with high rivalry cases.
• Threat of New Entrants: High barriers prevent new firms from entering easily.
• Bargaining Power of Suppliers: Suppliers can drive up costs when they have excessive power.
• Bargaining Power of Buyers: Strong buyers demand lower prices and better quality.
• Threat of Substitutes: Risk that alternative products can replace existing ones.

General Environment (PEST Analysis)

• Political: Government regulations, policies, and trade laws.
• Economic: Interest rates, inflation, unemployment, and economic cycles.
• Social: Cultural trends, demographics, and consumer behaviors.
• Technological: Advancements in innovation, automation, and industry disruptions.

Resource-Based View (RBV)

• Competitive advantage comes from unique resources and capabilities.
• Tangible Resources: Physical assets like factories, machinery, and cash reserves.
• Intangible Resources: Brand reputation, patents, and corporate culture.
• Capabilities: How a firm integrates and applies resources effectively (e.g., Amazon's logistics and supply chain capabilities).

VRIO Framework

• Valuable: Provides value to customers and enhances competitiveness - Coca-Cola's secret formula provides unique value.
• Rare: Resources not widely possessed by competitors - Google's search algorithm is proprietary and difficult to replicate
• Inimitable: Difficult or costly for competitors to replicate - Rolex's brand reputation takes decades to build.
• Organized to capture value: The firm has systems in place to exploit the resource - Apple's integration of hardware, software, and services ensures sustained profits.

Value Chain Analysis

• Identifies key activities that add value within a firm.
• Primary Activities: Inbound logistics, operations, outbound logistics, marketing & sales, and service - Nike's marketing and branding drive customer demand.
• Support Activities: Procurement, technology development, human resources, and firm infrastructure - Tesla's investment in research and development leads to innovation in electric vehicles.

Competitive Advantage Pyramid

• Base Level: Resources and capabilities.
• Middle Level: Distinctive competencies.
• Top Level: Competitive advantage.
• Purpose: Helps assess strategic positioning and strengths.

Five Sources of Cost Advantage

• Economies of Scale: Lower costs due to high production volume - Amazon's large-scale operations reduce per-unit shipping costs.
• Learning & Experience Effects: Efficiency improvements over time - Toyota's Just-In-Time production improves efficiency over time.
• Lower Input Costs: Bargaining power over suppliers or access to cheaper resources - McDonald's bulk purchasing of ingredients lowers costs.
• Proprietary Knowledge: Exclusive technology or processes that reduce costs - Intel's semiconductor manufacturing techniques.
• Different Business Models: Innovative ways to deliver value at lower costs - Netflix's subscription-based streaming model vs. traditional cable TV.
• Understanding the Scale Curve: Describes how costs per unit decline as production increases.
• Strategic Implications: Cost leaders focus on efficiency to gain competitive advantage.

Four Ways to Differentiate:

• Superior Product Features - Unique attributes that provide greater functionality.
• Quality & Reliability - Products that last longer or perform better.
• Convenience - Easier access, faster delivery, or improved usability.
• Brand Image - Perceived emotional or social value associated with a product.

Customer Segmentation Analysis

• Identifies distinct customer groups based on preferences.
• Segments customers by demographics, geography, behavior, and psychographics.
• Hilton Hotels offers different brands (Waldorf Astoria for luxury, Hampton Inn for budget travelers).

Consumption Chain Analysis

• Examines the entire customer journey from awareness to disposal.
• Analyzes all steps from product awareness to disposal.
• Starbucks examines customer experience from mobile ordering to in-store pickup to loyalty programs.