Customer_Social_Responsibility

Porter’s model identifies the forces that influence competitive advantage in the marketplace. Of greater interest to most managers is the development of a strategy aimed at establishing a profitable and sustainable position against these five forces. To establish such a position, a company needs to develop a strategy of performing activities differently from a competitor. Porter (1985) proposed cost leadership, differentiation, and niche strategies. Additional strategies have been proposed by other strategic-management authors(e.g., Neumann, 1994; Wiseman, 1988; Frenzel, 1996). We cite strategies for competitive advantage here. Cost leadership strategy: Produce products and/or services at the lowest cost in the industry. A firm achieves cost leadership in its industry by thrifty buying practices, efficient business processes, forcing up the prices paid by competitors, and helping customers or suppliers reduce their costs. A cost leadership example is the Wal-Mart automatic inventory replenishment system. This system enables Wal-Mart to reduce storage requirements so that Wal-Mart stores have one of the highest ratios of sales floor space in the industry. Essentially Wal-Mart is using floor space to sell products, not storethem, and it does not have to tie up capital in inventory. Savings from thissystem and others allows Wal-Mart to provide low-priced products to itscustomers and still earn high profits. Differentiation strategy: Offer different products, services, or product features. By offering different, “better” products companies can charge higher prices, sell more products, or both. Southwest Airlines has differentiated itself as a low-cost, short-haul, express airline, and that has proven to be a winning strategy for competing in the highly competitive airline industry. Dell has differentiated itself in the personal computer market through its mass-customization strategy. 3. Niche strategy: Select a narrow-scope segment (niche market) and be the best in quality, speed, or cost in that market. For example, several computer-chip manufacturers make customized chips for specific industries or companies. Some of the best-selling products on the Internet are niche products. For example,dogtoys.com and cattoys.com offer a large variety of pet toys that no other pet toy retailer offers. Growth strategy: Increase market share, acquire more customers, or sell more products. Such a strategy strengthens a company and increases profitability in the long run. Web-based selling can facilitate growth by creating new marketing channels, such as electronic auctions. An example is Dell Computer (dellauction.com), which auctions both new and used computers mainly to individuals and small businesses. Alliance strategy: Work with business partners in partnerships, alliances, joint ventures, or virtual companies. This strategy creates synergy, allows companies to concentrate on their core business, and provides opportunities for growth. Alliances are particularly popular in electronic commerce ventures. For example, in August 2000 Amazon.com and Toysrus.com launched a co-branded Web site to sell toys, capitalizing on each others’ strengths. In spring2001 they created a similar baby-products venture. Of special interest are alliances with suppliers, some of whom monitor inventory levels electronically and replenish inventory when it falls below a certain level (e.g., Wal-Mart,Master Builders). Alliances can also be made among competitors in a strategy known as “co-opetition” (cooperation + competition). For example, airlines in global alliances such as OneWorld and the Star Alliance compete for ticket sales on some routes, but once the ticket is sold they may cooperate by flying passengers on competitor’s planes to avoid half-full planes. Additional examples of alliances are provided in Chapters 5 through 8. Innovation strategy: Introduce new products and services, put new features in existing products and services, or develop new ways to produce them. Innovation is similar to differentiation except that the impact is much more dramatic. Differentiation “tweaks” existing products and services to of-fer the customer something special and different. Innovation implies some-thing so new and different that it changes the nature of the industry. A classic example is the introduction of automated teller machines (ATM) by Citibank. The convenience and cost-cutting features of this innovation gave Citibank a huge advantage over its competitors. Like many innovative products, the ATM changed the nature of competition in the banking industry so that now an ATM network is a competitive necessity for any bank. Eight ways that IT can introduce technological innovation for competitive advantage are shown in Table 3.1, and others will be provided in Chapter 11. In the late 1990s innovation became almost synonymous with electronic commerce. The Internet, especially, enabled dot-com entrepreneurs to create innovative Web-based business models, such as Priceline’s name-your-own-price model, Auto-by-Tel’s informediary model, and Amazon.com’s affiliate program. A key consideration in introducing innovation is the need to continually innovate. When one company introduces a successful innovation, other companies in the industry need to respond to the threat by attempting to duplicate or better that innovation. Especially in electronic commerce, the visibility of technologies on the Web makes keeping innovations secret more difficult.