Competitive Advantage in Business Strategies

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Questions and Answers

Which factor describes the phenomenon where the value of a product increases with the number of its users?

Resource Scarcity

Locked-up Supply

Innovation

Network Effects (correct)

What is a key component of Nike's sustainable competitive advantage in the athletic market?

Technological innovation (correct)

Price reductions

High advertisement frequency

Exclusive contracts

Which company is noted for creating locked-up supply in the diamond industry?

Amazon

De Beers (correct)

Nike

Tesla

What differentiates companies that can sustain competitive advantage from those that cannot?

Higher economic returns compared to industry rivals. Signup and view all the answers

Which company created the overnight package delivery service?

FedEx Signup and view all the answers

In resource-based theory, what is the primary link to a firm's competitive advantage?

Unique internal resources and capabilities Signup and view all the answers

What strategy did UPS use to compete with FedEx?

Studying FedEx's procedures and adapting them. Signup and view all the answers

What aspect of Nike's business model has been crucial for developing iconic brand partnerships?

First athlete partnerships Signup and view all the answers

Which company is associated with innovation in battery manufacturing as a part of their competitive advantage?

Tesla Signup and view all the answers

What advantage did UPS have over FedEx when they matched their overnight service?

A larger fleet of delivery trucks allowing lower costs. Signup and view all the answers

What is an example of proprietary information that can be a source of competitive advantage?

Customer purchase history Signup and view all the answers

What is a core question addressed regarding competitive advantage?

Why some companies consistently maintain competitive advantages over time. Signup and view all the answers

Which of the following is cited as an example of a company that failed to sustain competitive advantage?

Blackberry Signup and view all the answers

Which aspect is associated with the persistence of profitability in some companies?

Consistent adaptation to market changes. Signup and view all the answers

What is one key element in sustaining competitive advantage?

Developing isolating mechanisms. Signup and view all the answers

What is one way Nike assesses up-and-coming athletes?

Through their own network of scouts and partners Signup and view all the answers

What is a notable statistic about Nike's sales operations?

Nike has over 700 factories across the globe Signup and view all the answers

Which of the following is considered a competitive advantage for Nike?

Intellectual property through patents Signup and view all the answers

What is a characteristic of Nike's retail store strategy?

They lock up premier retail real estate Signup and view all the answers

How has Nike integrated technology into its products?

Through the development of mobile applications like Nike+ and FuelBand Signup and view all the answers

What is considered Nike's weakest source of competitive advantage?

Innovation in social features within apps Signup and view all the answers

What is one of Nike's goals concerning shoe production?

To consistently produce new shoes that enhance performance Signup and view all the answers

What feature allows users to share designs on the Nike platform?

NikeiD Signup and view all the answers

What has contributed to Nike's reputation for technical innovation?

Ongoing commitment to product research and development Signup and view all the answers

Which athlete was the first to partner with Nike in their athlete partnership strategy?

Steve Prefontaine Signup and view all the answers

How many factories does Nike operate worldwide?

700 Signup and view all the answers

In 2017, how many patents were issued to Nike by the U.S. Patent Office?

1,213 Signup and view all the answers

What is one of Nike’s strategies to identify potential future athletes?

Investing in scouts and partners to assess talent Signup and view all the answers

Which of the following is NOT a competitive advantage for Nike?

Manufacturing shoes in limited locations Signup and view all the answers

What technology did Nike launch as part of their Digital Sport Division?

Nike+ Signup and view all the answers

What is the average sale per store for Nike's retail locations?

$8 million Signup and view all the answers

What is the main purpose of isolating mechanisms in business?

To prevent competitors from eroding a firm's competitive advantage Signup and view all the answers

Which is NOT a condition necessary for competitive imitation?

Lack of market interest Signup and view all the answers

How do isolating mechanisms affect a firm's competitive advantage over time?

They increase the economic power of the competitive advantage Signup and view all the answers

Which of the following is an example of an impediment to imitation?

Unique patents held by a firm Signup and view all the answers

What is the first step in the competitive imitation process?

Identification of a rival's advantage Signup and view all the answers

What role does 'early mover advantage' play in sustaining competitive advantage?

It enhances the economic power of the advantage over time Signup and view all the answers

Which factor does NOT contribute to the speed at which competitive advantage is undermined?

The firm's market share Signup and view all the answers

What are barriers to imitation crucial for in terms of competitive advantage?

Keeping competitors from challenging a firm's advantage Signup and view all the answers

Study Notes

Introduction

Some companies sustain competitive advantage: Coca-Cola, Moleskine, Zara, Netflix and Amazon
Some companies fail to sustain competitive advantage: Yahoo, Terra, Compaq, Blackberry, and Nokia
Core question: Why do some companies enjoy a competitive advantage (higher economic returns than their industry rivals)?
Focus: Why do some companies sustain their competitive advantage consistently over time?

The Battle for Package Delivery Dominance (FedEx vs UPS)

FedEx created the overnight package delivery service in 1973
FedEx nearly monopolized the business for a decade
UPS launched its own overnight service in the early 1980s
UPS studied FedEx procedures for taking orders, scheduling, and delivering shipments, even following FedEx trucks to learn their methods
By 1985, UPS matched FedEx's nationwide overnight service offerings and reliability
UPS gradually won business from FedEx by taking advantage of scale economies with its existing fleet of delivery trucks
UPS delivered overnight parcels at a lower cost than FedEx and enjoyed a substantially higher profit margin
FedEx responded by developing a ground delivery service of its own.

Sustaining Competitive Advantage (i)

Innovation based on constant uniqueness and novel use of technology (Google) and design (Dyson).
Proprietary Information: knowledge (Glaxo Smith drug research), process (Tesla battery manufacturing), customer (Amazon purchase history).
Network Effects: value of product or service increases with the number of users or products (Facebook, Salesforce.com, Ebay).
Locked-up Supply: few or no alternatives exist for a product or service (De Beers Diamonds).
Nike has developed all of the sources of sustainable competitive advantage in becoming the $35 billion leader in the athletic apparel, footwear, and equipment market.

Resource-Based Theory of the Firm

Resource-based theory links competitive advantage to the firm’s unique internal resources and capabilities.

Exercise: Identifying Nike's Sources of Sustainable Competitive Advantage

Nike's goal is to continuously produce new and better shoes which aid performance and reduce or eliminate injury.
Nike shoes have a reputation for being among the most technically innovative shoes on the market.
Nike has earned its reputation through an ongoing commitment to product research, development, and evaluation.
Nike took the first athlete partnership with Steve Prefontaine and utilized it as a blueprint to incubate and amplify new products into huge brands, like the multi-billion-dollar Jordan and Tiger brands.
Nike has invested in their own network of scouts and partners who assess the global supply pipeline of up-and-coming athletes across almost every sport, which they are quick to sign as the prodigies mature to the professional ranks.
Nike sells over 1 million shoes per day, along with countless other millions of units in apparel, socks, equipment, and accessories.
Nike's manufacturing operations are impressive with over 700 factories, in over 40 countries, employing over 1 million people.
In 2017, the U.S. Patent Office issued Nike 1,213 patents.
Nike made sure to capitalize on location as a competitive advantage, locking up premier retail real estate on Michigan Avenue in Chicago, Union Square in San Francisco, and about every other prime location in the top 50 cities in the world.
Nike now has over 750 stores, with an average of over $8 million in sales per store.
Nike launched their Digital Sport Division which helped launch Nike+ which pairs sensors in Nike shoes with mobile apps, and FuelBand, which tracks your rate of activity and health statistics.

Solutions for Nike Exercise

Continuous Innovation
A Strong Brand
Locked-up Supply
Scale
Intellectual Property
Location
Network Effects

Sustaining Competitive Advantage (ii)

The speed with which competitive advantage is undermined depends on the ability of competitors to challenge (imitation or innovation).
Sustaining competitive advantage ➔ barriers to imitation
The process of competitive imitation has four conditions:
- Identification: Identify that a rival possesses a competitive advantage.
- Incentives for imitation: Have an incentive to imitate it.
- Diagnosis: Be able to diagnose the sources of your rivals’ competitive advantage.
- Resource acquisition: Be in a position to acquire the resources and capabilities necessary for imitation.
Company holding the advantage ➔ isolating mechanisms to prevent imitation.

Isolating Mechanisms

Isolating mechanisms are to firms what barriers to entry are to industries.
Two distinct types:
- Impediments to imitation: impede existing firms and potential entrants from duplicating the resources and capabilities that form the basis of the firm’s competitive advantage.
- Early mover advantage: once a firm acquires a competitive advantage, these isolating mechanisms increase the economic power of that competitive advantage over time.

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Description

This quiz focuses on the factors that contribute to a company's ability to sustain a competitive advantage over time. It examines case studies of successful companies like Coca-Cola and Netflix, as well as those that failed, such as Yahoo and Blackberry. Additionally, it analyzes the rivalry between FedEx and UPS in the package delivery sector.