There are various methods for a company to achieve a competitive advantage over its rivalries. Two common ways are through cost leadership and differentiating. A company may become a cost leader through the efficient use of their facilities, supply system, and reduction in cost of production. This will allow them to undercut their competitor prices, but still offer at a comparable quality. A company that uses the differentiation strategy will try to make their product unique to its competitor in justifying the higher price. This is achieve through R&D, marketing, product design, and etc.
Two example of cost leaders are Dell and Wal-Mart. Dell became a major player in the personal computer industry through the use of direct-sales over the internet and its Just-In-Time inventory policy. Through the use of the internet and J-I-T policy, they have abandoned the traditional brick and mortar business. This eliminates inventory holding charges and retail markup prices. The computers are made only after a customer’s order, so there won’t be obsolete inventory. They also have one of the best supply systems of any company. Through these various cost cutting strategy, they are able to sell there product at a lower cost and obtain a competitive advantage.
Wal-Mart became a cost leader through its efficient management system and technological advantage over their competitors. Wal-Mart’s motto is “Every Day Low Prices,” so how did they achieve this. They eliminate the need for sales, coupon, advertisement, and other marketing tool that is traditionally been very expensive to maintain. What made them very efficient is the use of their automation technology. It allows the manager and suppliers to closely monitor the inventory level, in doing so it helps them maintain a very low inventory and eliminate overhead processing cost.
Two examples of companies using differentiation to gain a competitive edge are Starbucks and Hummer. Starbucks success is attributed to its quality and brand image. They offer a wide variety of premium coffee that no other companies could match. The company is focus more on brand image than anything else. They want to make drinking coffee a “coffee shop experience.” They were able to entice their customers to come back even though at a higher price.
The Hummer is like no other SUV, it is particularly advertise toward the affluent males. This “war machine” is as macho as it gets, it’s suppose to give the driver a feeling of power, control, and invincibility. It’s supposed to offer superior-off road capabilities that will let people travel any where. What they lack in quality and efficiency is made up in appearance and brand image. Through strong marketing and brand image its was able to capture their market.
