The Competitive Advantage to a Company: Perspectives and Backgrounds - Literature review Example

Introduction Business strategy fundamentally revolves around being competitive. Every organisation adopts a different strategy suitable to its internal and external environment. Each strategy is about strategic positions that are unique by themselves and set the organisation apart from its rivals. In business, as in life, nothing is static. Change is the only constant and this requires change in strategies to adapt to the external environment besides drawing upon and improving the internal resources to brace up to this challenge. When an organisation expands globally it usually attempts to continue with its winning strategy developed back at home. However environments differ in regions and countries and uniformity in strategy may or may not be successful. The final objective however is obtaining and sustaining competitive advantage in each market. This can call for different strategies, both in management and marketing. It is also true that development and use of the core competencies of the firm result in sustainable competitive advantage that companies seek in various ways. This needs to be developed and maintained while developing strategies. Another reason for different strategies is the behavioural aspect of consumers. Consumers of different regions are different due to cultural and lingual differences. Their perceptions vary from region to region and strategy must be changed in deference to their wishes and needs. It is argued in this paper that uniform strategies by an organisation across the globe will adversely affect its competitive position, hence strategies need to be different on the above three counts. This will be proved with actual examples of a variety of companies that have either prospered or perished due to their strategy. Literature Review A Competitive Advantage To be competitive and to remain so is the fundamental objective of a firm as described by Porter (1985, 1996) who has described several strategies over a long period of his academic pursuit citing Competitive Advantage to be the driver both at home and abroad. Porter has described three generic strategies; cost leadership, differentiation and focus that are the foundations of competitive advantage or difference. A cost leader lowers cost through different activities while a differentiator asks for a premium due to the unique features of its product or service. The two can combine to form another generic strategy that offers unique feature while remaining a cost leader. The third strategy of focus is aimed at serving a niche segment limiting to serve a segment with its needs giving up other opportunities. It is evident that in different environments the same company has to adopt different strategies in order to be competitive. Ansoff et al (1976) state that, amongst other things, responsiveness to the problems is what strategy is all about. Minzberg et al (1998) offer another concept of strategy which is that it acts as a mediation force between the organization and the environment. Dunning (1993, 2000) has been another prolific writer who created a paradigm in suggesting that firms invest externally when they develop and exploit their OLI (ownership, locational and internalization) advantages. On the other hand Mintzberg and Waters (1985) have described five kinds of strategies deployed by leaders. They have named their models as, emergent, intended, deliberate, realized and unrealized. Later Mintzberg (1987) writing by himself expounded the 5Ps of Positioning strategy as an insight to how business strategy often works. On the other hand, Hamel and Prahalad (1996) have argued that core competencies are the route to future developments and that they define the inventive and transformational aspect of business today that looks for future positioning. Despite the variety of opinions by academicians in real life and in the international arena only those companies have survived who have factorised the local flavour in their strategies. Coke is a prime example. This company is acclaimed to have the best brand image in the world. Its product is uniform all over the world. However the uniformity ends here. The promotion of Coke is strictly attuned to local environments. Since it is a brand that is associated with the common man, an icon is considered as essential as the common man looks to an icon to identify himself with as his aspired role model. It is found that Coke uses different celebrities as its brand ambassador in different countries. Its brand ambassador in the Middle East is the singer/actor Tamir Hosny and in India it is the cricketer Gautam Gambhir. All positioning is directed to entice the consumer. The uniqueness appeals to the customer. But for this it must fulfil the customer’s needs or wants. Hence strategies are to be consumer oriented. Positioning demands some sacrifices. Organisations have to make choices in order to position themselves and positioning comes out of best set of activities suited to produce those results that satisfy the consumer. These activities have to be performed in a different way to produce unique results enabling the organisation to position itself or its products for a destined set of consumers. The Product Life Cycle theory by Raymond Vernon in 1960 concluded that there are four stages of lifecycle of a product and international trade is related to them. In the first innovation stage the product is manufactured/produced in its home country; in the second when it reaches its growth level it is produced in another developed country; when it is in maturity it is produced in a developing country and in the last stage where it reaches the declining stage of its life it may be produced just anywhere. In each case the product promotion and pricing will differ. This is because the product is reaching a peak and then a decline until it becomes redundant. Under this theory too the strategy has to be different at each stage. This further reconfirms that uniformity is just not workable if the product has to be sold in different stages, in different conditions and different markets. B Impact of Marketing on Strategy Marketing is the crux of business as this activity brings in revenue and profits on which the company survives. The traditional marketing concepts relying on the 7Ps of Boom and Bitner (1981), 4Cs of Achrol and Kotler (1999) and 30Rs of Gummesson (1996), are no longer producing the results that were expected of them. In fact Gummesson (1994) has the audacity to say that these models were manipulative and exploitative in nature. Today the marketing strategists are progressively more worried about increasing their customers in the face of stiff competition. Their rivals in the global market offer many similarities in the goods and services and it is often impossible to retain customers. Customer loyalty is no longer guaranteed as companies adopt several marketing ploys to snatch customers from each other, especially in matured and saturated markets. Many companies offer schemes aimed at promoting loyalty but in reality they are no more than promotions that are short term and aimed at encouraging customers to switch brands (Palmer 1998) and therefore are likely to be used by rivals and end up promoting promiscuousness. It is increasingly understood in business that while loyalty is on the wane but it is generally desirable to retain customers and the effort to get them should not end at one transaction only. It has been suggested after research that if 5% of existing customers are retained the net present value of customers increases between 25-85%, (Ahmad and Buttle, 2001). In effect, the small percentage has a multiplier effect on sales realization. This extra value of additional sales does not represent just the direct sales to them but is also the result of cross sales of other products as well as up-gradations and other services that go along with it. (Selnes, 1995). Customer Retention (CR) has been defined as the continuation of the business relationship created between a supplier and a customer (Gerpott et al, 2001). Marketing strategies are now paying more attention to building on this relationship. From a short-term goal of a single transaction, the focus has shifted to building a long-term relationship. It has been rightly concluded that it is less costly to retain an existing customer than to entice an entirely new one. The new marketing strategies take into consideration the method of finding and measuring customer base for its CR value. It has been suggested by DeSouza (1992) that a company should consider the following steps to measure customer retention; interview former customers, analyze complaint and service data, and identify switching barriers. The foundation of Strategic Behavior Theory is that firms take specific actions, like developing objectives, implementing goals, formulating strategies and using tactics, to augment their competitive position against rivals and thereby capitalize on firm performance (Kogut 1998). Strategic Behavior Theory is also consistent with the strategic choice perspective (Child, 1972) in that it accepts that while a firms choice of strategies and tactics are guided by the external environment, they are not completely determined by it. The theory further explains that a firm’s choice of behaviour is related more to its strategies and goals and not so much to transaction costs. As a consequence firms try to build competitive advantage against their rivals by developing those strategies that put them in favourable positions (Porter 1996). Therefore the company strategy is to develop a relationship with the customer to acquire his loyalty by offering him satisfaction. It has been widely understood that the test of successful marketing is customer satisfaction. Organisations that can increase the satisfaction level of their customers can expect profitability in the longer run (Felton 1959; Houston 1986). In fact it has been stated that satisfaction sustains loyalty (Javalgi & Moberg 1997). C Impact of Prices on Strategy When a company sets a standard universal price for a product that is sold globally many synergies are created in terms of similarities in promotions and marketing efforts. This has been well explained by Hollensen (2001). He stated that selling one standard product or set of standard products that are also sold in the Home market help in saving money on market research and product development. However this impedes local marketing efforts by having well designed Promotion Policies that will fail cater to local cultural requirements and satisfy the local customers of that market. By addressing local issues with international Products the image of the company can be stabilised which will serve the eventual cause of competitive advantage. Although standardization brings in homogeneity across markets as well as customer satisfaction and cost savings in many ways, it has been argued that it also causes loss of economies of scale and offers a low-cost competitive position in the global market (Cavusgil et al., 1993). However this is a very simplistic view and as explained elsewhere an adaptive view of pricing which takes local factors into account is more practical (Wind 1986). Regulation of Tariffs, Taxes and Duties all affect the prices in a given country (Cavusgil et al., 1993). In reality no single strategy is suitable in any given condition and Global marketing decisions on Price, Promotion and Distribution depends entirely upon the local environment (Jain 1989). Price therefore does not play much of a role and it depends on how promotion is handled. Brand equity is big on the agenda and companies are known to spend millions to build their image. The beauty of the brand is immediate recall and high calibre and high performance companies often enjoy a larger valuation of their brand than the value of their entire stockholding. Brand management has become a core activity pursued by managers who now understand how brand equity affects buyer behaviour and its influence on corporate valuation (Aaker 1991; Keller 1998, 2002). Marketing strategy is vital for promoting and selling products or services but different markets demand dissimilar approaches as the environment is not the same everywhere. The marketing strategy has to be customer centric and related to their behaviour. Customers again are influenced by their local conditions and their psychological behaviour will determine the demand pattern. Companies however have a product centric approach and they tend to replicate a successful marketing policy at all the selling points to capitalise on a central theme as well as to cut additional costs required for changing the marketing plan. It has been explained that branding is the most useful exercise in marketing as it brings about instant recall. When this is coupled with a celebrity that has great fan following it will ensure that brand recall will bring in the desired revenues. Therefore what should be common in a marketing plan on a global basis is use of celebrity endorsements, but care is to be taken in selecting celebrities that have a following in specific geographies. In such cases the contents of the advertising may remain common. The example of Coke again is most suitable. It appoints different brand ambassadors for its product in different countries; those that have appeal for local consumers. Thus it has a cricketing icon in India and a baseball icon in the US. The product and the advertising are almost same. International Promotions require targeting a specific market and catering to the need of such customers needs a different approach. It is true that often the product or service is same and the company would like to use the same promotional material as in the home country as this will result in substantial savings. But this can cause both embarrassment and loss of market. This happened with a car model named Nova by GM. This was popular in the US but it failed entirely as in Spanish Nova meant NO-GO. This required a change in substance in marketing the product that the company failed to realize will not suit another market. Therefore standardization to a point is acceptable like offering the same qualitative disruptions but the marketing pitch has to be attuned to local flavours to be effective. Conclusions From the above arguments it is very clear that uniform strategies across the glob do not provide the competitive advantage to a company. For a competitive edge the company has to strategise according to local needs and aspirations of the consumers. This is borne out in the literature review and explained comprehensively. As a result uniform marketing and pricing strategies too will fail in the international environment. The consumer is King hence all strategies must necessarily be made in accordance to the likes and dislikes of the consumer. Since consumers differ in perspectives and backgrounds, uniformity is decidedly not workable. Internationally production is increasingly dominated by companies looking for greater market share. They make strategic decisions for their target markets that have important implications for business, home and host country employment, transfer of knowledge and technological improvements. In turn their choices are affected by domestic and international trade policies in ways that are not covered by in traditional trade models that focus on competitive markets and the role of comparative advantage. They intentionally chose different strategies, foregoing the uniformity in product, to cater to the specific requirements of the regions they decide to expand into. They realize that failure to adapt will mean failure. Bibliography Aaker, David (1991), Managing Brand Equity. New York: The Free Press. Achrol, Ravi S. and Phillip Kotler (1999), "Marketing in thé Network Economy," Journal of Marketing, Vol. 63, No. 4, pp. 146-163. Ansoff, H.I., Declerck, R.P., Hayes, R.L. (1976), From Dtrategic Planning to Strategic Management, John Wiley, New York, N.Y., Ahmad, R., Buttle, F. (2001), “Retaining business customers through adaptation and bonding: a case study of HDoX”, Journal of Business and Industrial Marketing, Vol 16, No 7, pp. 553-573 Booms, B.H. and Bitner, M.J. 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