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Underlying the 8.9 percent earnings drop, Home Depot¶s revenue fell 8 percent to $16.36 billion due to same store sales decline of 6.9 percent at stores open at least a year ² a key measurement for retailers because it excludes the effect of store expansions or closings. The average checkout receipt also fell 7.1 percent to $51.89, but better than the 8.2 percent fall for the year to date and better than Lowe¶s 7.5% decrease at its stores. Despite these weaknesses, Home Depot continues to invest in its infrastructure, including opening regional distribution centers to reduce shipping expenses, keep merchandise in stock, and optimize inventory, implementing new performance tracking software, improving stores and customer service to make them more appealing, and investing in consumer-research to help it captures more business from professional contractors ² a group that makes up just 3% of its customer base but represents more than a quarter of sales. Home Depot and other home-improvement retailers have faced sales declines as consumers are reluctant to spend money on do-it-yourself projects and worry over their jobs and home values. However, the U.S. housing market appears to be stabilizing after almost three-year decline. The CEO, Frank Blake said, ³There is still a great deal of pressure in the housing and home improvement markets, though there are some positive signs of stabilization.´ Lowe¶s also indicated that it¶s seeing some improvement, and said some of the worst-hit markets, such as, Florida, California, and areas of the Southwest had improved. An encouraging sign since Home Depot captures a bigger percentage of sales from those regions. Overall, Home Depot raised its full-year earnings outlook as lower costs helped it top thirdquarter expectations. For the full year, Home Depot now expects earnings per share from continuing operations of about $1.55. That would be a 9.5 percent increase from last year, better than the company¶s previous expected range of flat to up 7 percent. The company didn¶t raise its forecast of a sales decline of 9 percent. Although it¶s too early to tell if the improvement is due in part to the economic recovery, it¶s certain that Home Depot is outmaneuvering Lowe¶s in this tough economic climate.
Many firms strive for a competitive advantage, but few truly understand what it is or how to achieve and keep it. A competitive advantage can be gained by offering the consumer a greater value than the competitors, such as by offering lower prices or providing quality services or other benefits that justify a higher price. The strongest competitive advantage is a strategy that that cannot be imitated by other companies. Competitive advantage can be also viewed as any activity that creates superior value above its rivals. A company wants the gap between perceived value and cost of the product to be greater than the competition. Michael Porter defines three generic strategies that firm's may use to gain competitive advantage: cost leadership, differentiation, and focus. A firm utilizing a cost leadership strategy seeks to be the low-cost producer relative to its competitors. A differentiation strategy requires that the firm possess a "non-price" attribute that distinguishes the firm as superior to its peers. Firms following a focus approach direct their attention to narrow product lines, buyer segments, or geographic markets. "Focused" firms will use cost or differentiation to gain advantage, but only within a narrow target market.
more efficient companies. Inputs can be reduced in many ways. outputs are increased. holding outputs constant. are able to be more efficient because they can achieve economies of scale that others are not able to reach. he can go to the larger producer and be confident that the larger producer has something to offer. including features. if a machine regularly breaks down and is out of order for two hours a day. design. it would increase efficiency. If a consumer is not sure of the exact product he needs. reliability. overhead. PRODUCT DIFFERENTIATION Product differentiation is achieved by offering a valued variation of the physical product. authors Gary Armstrong and Philip Kotler note that differentiation can occur by manipulating many characteristics. If a method can be devised to decrease waste. Efficiency is enhanced if. or labor that is assigned to the product or service. Larger companies can cater to a larger population because of sheer size. and notebook paper. finding a way to eliminate this downtime would increase the number of outputs. Labor inputs can be reduced if employees are better trained so that time spent on each individual output is decreased. on the other hand. It is often argued that large companies. lumber. Differentiation allows a company to target specific populations. restaurants. For example. . or reparability. while smaller companies have fewer resources and must specialize or fall victim to larger. and their products may help to satisfy many different needs.COST ADVANTAGE RESULTING FROM EFFICIENCY Efficiency is the ratio of inputs to outputs. The consumer might believe that the smaller producer may be too specialized. efficiency will increase. The ability to differentiate a product varies greatly along a continuum depending on the specific product. Outputs can be increased by increasing the number of units a machine can produce in given period of time. Large companies usually offer more products in each product line. a bottling plant might determine that 10 gallons of liquid are spilled every day as a result of the bottling process. consistency. Some products. The outputs can be measured as the number of products produced or services performed. Appliances. Decreasing downtime can also increase outputs. inputs are reduced. If the amount of lost liquid can be reduced. automobiles. by definition. Decreasing waste can decrease materials needed. The firm that can achieve the highest efficiency for the same service or product can widen the gap between cost and perceived value and may have greater profit margins. durability. In Principles of Marketing (1999). or if holding inputs constant. There are many ways a company can increase efficiency. such as beef. and even batteries can all be customized and highly differentiated to meet various consumer needs. For instance. style. Inputs can be any materials. There are some products that do not lend themselves to much differentiation. can be highly differentiated. performance.
Herb Kelleher." Many chain restaurants differentiate themselves with consistency and style. But the hardest thing for someone to emulate is the spirit of your people. beliefs. Dell and Gateway claim to provide excellent technical support services to handle any glitches that may occur once a consumer has bought their product. attitudes. In the auto industry. you can rent the ticket counter space. Maytag has differentiated itself by presenting "Old reliable. Mary Kay cosmetics offers skin-care and glamour cosmetics that are very similar to those offered by many other cosmetic companies. Planet Hollywood and Hard Rock Cafe profit from their themes. she can be assured it will look and taste the same at any Applebee's restaurant anywhere in the country. This 24-hour-a-day tech support provides a very important advantage over other PC makers. This additional service allows Mary Kay to charge more for their product than if they sold the product through more traditional channels. And. equipment or employees. who may be perceived as less reliable when a customer needs immediate assistance with a problem. Yet. A company's employees are often overlooked. If a consumer has a favorite dish at her local Applebee's restaurant. instructional training session provided by the consultant. explains that the culture." This competitive advantage can encompass many areas. In the personal computer business. the style of theme restaurants is the key to some establishments. you can buy the airplane. and actions of his employees constitute his strongest competitive advantage: "The intangibles are more important than the tangibles because you can always imitate the tangibles. Employers who pay attention to employees. PEOPLE DIFFERENTIATION Hiring and training better people than the competitor can become an immeasurable competitive advantage for a company./Energizer has promoted their products' performance with the Energizer Bunny ® that "keeps going and going. Two companies can offer a similar physical product. A well-trained production staff will generate a better quality product.It is easy to think of companies that have used these characteristics to promote their products. but the company that offers additional services can charge a premium for the product. As a Money magazine article reported. monitoring their performance and commitment." the Maytag repairman who never has any work to do because Maytag's products purportedly function without any problems and do not require repairs. but these products are usually accompanied with an informational. SERVICE DIFFERENTIATION Companies can also differentiate the services that accompany the physical product. . may find themselves with a very strong competitive advantage. durability is promoted by Chevrolet's "Like a Rock" advertising campaign. but should be given careful consideration. The Eveready Battery Co. This human resource-based advantage is difficult for a competitor to imitate because the source of the advantage may not be very apparent to an outsider. a competitor may not be able to distinguish if the advantage is due to superior materials. CEO of Southwest Airlines.
and this is very important to the consumer who may be trying a new home improvement technique with limited knowledge on the subject. When considering competitive advantage.People differentiation is important when consumers deal directly with employees. jumping 21 percent between 1992 and 1997 (Gaines-Ross). generating hundreds of dollars in revenue. Unfortunately. a company will try giving a product a personality. IMAGE DIFFERENTIATION Armstrong and Kotler pointed out in Principles of Marketing that when competing products or services are similar. and consumers pay attention. QUALITY DIFFERENTIATION Quality is the idea that something is reliable in the sense that it does the job it is designed to do. Thus companies should work to establish images that differentiate them from competitors. Everything that a company does must support their image. buyers may perceive a difference based on company or brand image. If the CEO is considered reputable and is well-liked. and customer service. This story of the elves and the tree gives Keebler cookies a personality. The associate at Wal-Mart who helps a customer locate a product may result in the customer returning numerous times. they are not just purchasing cookies. When consumers purchase Keebler cookies. The manufacturer that can get the best material at a given price will widen the gap between perceived quality and cost. Most consumers are familiar with the Keebler Elves and the magic tree where they do all of the Keebler baking. symbol. Greater quality materials decrease the number of returns. including advertisements. The quality of the material going into the product and the quality of production operations should also be scrutinized. Employees are the frontline defense against waning customer satisfaction. The consumer knows that the staff will be helpful and courteous. Materials quality is very important. Some CEOs are such charismatic public figures that to the consumer. but the story of the elves and the magic tree as well. reworks. it speaks very well for the company. or other identifying means. A recognizable CEO can make a company stand out. A favorable brand image takes a significant amount of time to build. Ford Motor Co. National media coverage of CEOs has increased tremendously. Home Depot prides itself on having a knowledgeable sales staff in their home improvement warehouses. the CEO is the company. Quality labor also reduces the costs associated with these three expenses. It can be done through a story. and repairs necessary. Often. . The Nike "swoosh" is a symbol that carries prestige and makes the Nike label recognizable. sales floor presentation. production.'s former "Quality is Job 1" slogan needed to be supported in every aspect. Another way a company can differentiate itself through people is by having a recognizable person at the top of the company. A symbol can be an easily recognizable trademark of a company that reminds the consumer of the brand image. one negative impression can kill the image practically overnight. one cannot just view quality as it relates to the product.
Some process innovations can completely revolutionize the way a product is produced. too easily mimicked by competitors. but if 95 percent of the consumers wear only black and navy blue suits. Process innovation is anything new or novel about the way a company operates. understands. When the assembly line was first gaining popularity in the early twentieth century. other firms will follow suit in an effort to capitalize on their similarities.INNOVATION DIFFERENTIATION When people think of innovation. A company must be sure the consumer wants. it was an innovation that significantly reduced costs. and it may take competitors a significant amount of time to discover and imitate them. Non-substitutable consumers cannot or will not substitute another product or attribute for the one providing the firm with competitive advantage. Once a firm establishes itself in an area of advantage. its generic strategy must be grounded in an attribute that meets four criteria. The maker of expensive suits may offer its suits in the widest array of colors. As one of the first Internet service providers. and it must be able to determine which are worth pursuing. The company grew at a massive rate. and many are too expensive. SELECTING A COMPETITIVE ADVANTAGE A company may be lucky enough to identify several potential competitive advantages. Process innovations are important because they often reduce costs. While most innovations are not going to revolutionize the way that all firms operate. the small innovations can reduce costs by thousands or even millions of dollars. Product innovation is very important to remain competitive. they usually have a narrow view that encompasses only product innovation. It must be: y y y y Valuable it is of value to consumers. and appreciates the difference offered. America Online offered a unique innovation for accessing the nascent Internet²its unique and user-friendly interface. SUSTAINABLE COMPETITIVE ADVANTAGE The achievement of competitive advantage is not always permanent or even long lasting. A firm is said to have a "sustainable" competitive advantage when its competitors are unable to duplicate the benefits of the firm's strategy. In order for a firm to attain a "sustainable" competitive advantage. but just as important is process innovation. Inimitable it cannot be easily imitated or copied by competitors. and large innovations may save billions over time. then the wide array of colors adds little . Rare it is not commonplace or easily obtained. The first companies to use this innovation had a competitive advantage over the companies that were slow or reluctant to change. Some differences are too subtle. leading the rapidly developing Internet sector as a force in American business. Not all differentiation is important.
superior. Read more: Competitive Advantage . definition. and would be a waste of resources. communicable.referenceforbusiness. A competitive advantage can make or break a firm. advantages.html#ixzz1HdVeMIwz . style. A difference may be worth developing and promoting. and profitable. maintain. advise Armstrong and Kotler.perceived value to the product. Variety would not become a competitive advantage. affordable. if it is important. model. company. so it is crucial that all managers are familiar with competitive advantages and how to create. distinctive.strategy. and benefit from them.com/management/Bun-Comp/CompetitiveAdvantage. business http://www. preemptive.