Starter Activity What does the term ‘competitive advantage’ mean? How can you measure a competitive advantage? What competitive advantages does Merlin have?

Understanding Competitive Advantage

Competitive Advantage Competitive advantages provide an edge over rivals and an ability to generate greater value for a firm and its shareholders. The more sustainable the competitive advantage, the more difficult it is for competitors to gain their own advantage Innovation? Invention?

Invention Levi Roots - http://www.bbc.co.uk/dragonsden/entrepreneurs/leviroots.shtml

Innovation Finance People Production Marketing

Some are successful and some are not. Innovation Billions of new businesses, products and services are thought up every year. Some are successful and some are not. Do you remember …….. Coca Cola first sold in 1886 Kellogg’s Cornflakes first sold in 1906 The Dyson Vacuum Cleaner first sold in 1986 Innocent Smoothies first sold in 1998 The Nintendo Wii first sold in 2006

Think Task - Bottled Water for Pets People tend to pamper their pets, so it's not far-fetched to believe consumers might serve bottled water to their cats and dogs. At least that's what the makers of Thirsty Cat! and Thirsty Dog! must have believed. But despite the fact that the water came in such delicious flavours as Crispy Beef and Tangy Fish, it never seemed to catch on. Why do you think this product wasn’t successful?

Unsuccessful research and development There is no guaranteed return on invention and innovation. WHY? No demand? Too difficult to produce on a large scale? Cost? Return would be too low? Long term invested needed? Therefore often only very large firms have the resources to invest in R&D and the development of new inventions/innovations.

Protecting new ideas Patents- license for a set period, for the sole right to exclude others from making, using, or selling an invention Registered designs- The look of your design includes the: appearance. physical shape. configuration (or how different parts of a design are arranged together) Trademarks- A trademark identifies the brand owner of a particular product or service.

Benefits of Successful Innovation Monopoly High price Reputation

Porter’s generic strategies

Your choice Which do you prefer when you fly? A cheap, no-frills airline A more expensive operator with fantastic service levels and maximum comfort A small company which focuses on just a few routes Why do all of these choices exist?/ why do we have so many options?

Your choice The answer is that each of these airlines has chosen a different way of achieving competitive advantage in a crowded marketplace. The no-frills operators have opted to cut costs to a minimum and pass their savings on to customers in lower prices. This helps them grab market share and ensure their planes are as full as possible, further driving down cost. The luxury airlines, on the other hand, focus their efforts on making their service as wonderful as possible, and the higher prices they can command as a result make up for their higher costs. Meanwhile, smaller airlines try to make the most of their detailed knowledge of just a few routes to provide better or cheaper services than their larger, international rivals. These three approaches are examples of "generic strategies," because they can be applied to products or services in all industries, and to organizations of all sizes.

Porter’s Model Michael Porter in 1985 in his book, "Competitive Advantage: Creating and Sustaining Superior Performance." Porter called the generic strategies "Cost Leadership" (no frills) "Differentiation" (creating uniquely desirable products and services) "Focus" (offering a specialized service in a niche market). He then subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation Focus."

Cost Leadership Involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low-cost producers who may undercut your prices and therefore block your attempts to increase market share. How to gain this competitive advantage: Access to the capital needed to invest in technology that will bring costs down. Very efficient logistics. A low-cost base (labour, materials, facilities), and a way of sustainably cutting costs below those of other competitors.

Differentiation Involves making your products or services different from and more attractive than those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support, and also brand image that your customers value. To make a success of a Differentiation strategy, organizations need: Good research, development and innovation. The ability to deliver high-quality products or services. Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.

Cost Focus In cost focus a firm seeks to gain a cost advantage: Reduce costs of existing products/ services Reduce size?

Differentiation Focus In differentiation focus a business aims to make it’s products different by expanding or cashing in on a core brand and expanding the range using the brand name. You have to build a strong brand to achieve this “Cash Cow”

These policies could cover aspects of marketing, operations and human resources.