INTRODUCTION

TOPIC OF DISCUSSION

SOURCES OF COMPETITIVE
ADVANTAGE
&
VALUE CREATION
Why to think for an advantage?
• Must have some advantage for
competition
• It creates more value.
• Creates more customer base.
• For the positioning in the market.
• It helps in any phase of the life cycle.
• Ultimately it results in relatively high profit.
 Cost and Differentiation
Advantages
• Businesses with a cost advantage are able to
create superior customer value with products
that have average benefits and below average
cost.
• Businesses with a meaningful differentiation
advantage are able to create superior customer
value with above average benefits even at
above average prices.
• The above given type of business have different
target markets.
 Third source of Advantage
• Marketing Advantage
• Businesses that can create a superior customer
value with high levels of market share and brand
awareness along with broad product lines and
highly effective distribution systems have a
market advantage.

• They create customer value with high brand

credibility, a broad product line offering a variety
of choices and excellent product distribution that
lowers customers’ transaction costs and possibly
reduces purchase risk.
 1.Cost Advantage
1.1.Variable or Unit cost advantage: Volume
is a key factor.
• It can be achieved by three ways:-
Scale Effect: A larger production reduces
unit cost.
Scope Effect: A same product be added to
different product line.
Scope Effect
• Learning Effect: When a business builds
more of the same products, it produces
with efficiency through process
improvements that are the result of
learning.
• Learning effect works with two
assumptions
• Workers should not be highly skilled.
• Work should not be simple.
 1.Cost Advantage
• 1.2. Marketing cost advantage: Marketing
cost efficiencies derived from product line
extensions.
• It can be achieved by:-
Marketing cost scope effect.
Advertising cost efficiency.
Advertising cost efficiency.
 1.Cost Advantage
1.3. Operating cost Advantage :
An operating cost
advantage is generally outside the control
or influence of the marketing function but
lower operating expenses relative to
competitors contribute to a low cost
advantage, like McDonald’s has cut
construction costs of new restaurants by
using standardized building designs.
 2. Differentiation Advantage
2.1. Product advantage:
Durability
Reliability
Performance
Features
Appearance
The differentiation advantage gives more customer
benefits, save the customer money even the
products are sold at higher price
 2. Differentiation Advantage
2.2. Service Advantage: Very difficult to create
differentiation because of its characteristics
Intangibility
Heterogeneity
Perishability
Simultaneous production and consumption.
 2. Differentiation Advantage
2.3. Reputation Advantage: One of the resource
that is immovable.
• Brand reputation works as a source of
competitive advantage to attract customers.
• For these companies the stature of their brand
names add a dimension of appeal that is an
important customer benefit for many less price
sensitive more image conscious consumers
 3. Marketing Advantage
• A business that dominates markets with a
relative advantage in sales coverage,
distribution or marketing communications
and can control market access.
 3.Marketing Advantage
3.1. Market share advantage : Market
leaders often do not pose a strong
differentiation or cost advantage. Their
competitive advantage is derived from
market dominance.
• Market leaders have well known trusted
brands, many variations in their product
lines and very effective distribution
systems
 3.Marketing Advantage
3.2. Product line advantage: The more
products a business has to sell , the more
ways it has to attract and satisfy
customers.
Broad line of products  more selling
opportunities.
Narrow line of products  has to be more
focused.
 3.Marketing Advantage
3.3. Channel Advantage: Markets in which
distribution is required for market access
have a limited number of distributors.
Further the number of top-notch
distributors is even fewer.
• A business that can dominate these
distributors can control channels in given
market and to some degree control market
access.
Why to think for an advantage?
• Must have some advantage for
competition
• It creates more value.
• Creates more customer base.
• For the positioning in the market.
• It helps in any phase of the life cycle.
• Ultimately it results in relatively high profit.