A firm can enjoy competitive advantage in several ways. For instance, a firm may gain competitive advantage because:
- The price of its product is lower.
- The quality of its product is higher.
- Availability of its product is sooner, or more dependably just in time.
- Customer service is better.
- Attractiveness of its product is greater.
- Awareness of its product is greater.
- Other social, psychological, and ideological factors.
In practice, customers shop around amongst competitive alternatives by setting parameters for some of these advantages and then making the final choice on the basis of the key or critical advantage. Customers today expect high reliability and low prices and these are mutually reinforcing attributes that a supplier is expected to achieve just to be in the competition. But these are not often enough. The winning competitor must have both the lowest price and highest reliability or achieve one of the other competitive advantages that customers value.
A firm, which has a strong R&D programme, can influence all these factors positively and contribute to the competitive advantage of a firm. Competitive advantage views R&D activities as a way of improving a process, thus reducing costs, or providing customers with a best-of-class benefits.
Porter defined and discussed three types of generic strategies: cost leadership, differentiation, and focus. Low cost leadership means essentially what it says ; achieving the lowest-cost position possible in each operation of the firm, not just manufacturing, through such means as vigorous cost reduction programmes, strict cost and overhead controls, economies of scale, and learning curve efficiencies.
Differentiation refers to unique feature of a product or service as perceived by a customer, which directs the customer to prefer it over competing alternatives. A differentiating uniqueness is typically achieved through such means as design features, establishing a brand-name identity, or offering superior customer service. The linkage between the earlier list of competitive advantages and Porter’s strategies should be obvious; low-cost leadership corresponds to a potential competitive advantage; differentiation corresponds to uniqueness in terms of quality, sooner availability, better customer service, etc.
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