Assignment
DIRECTIONS
Respond substantively to at least two of your classmates' postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.
1. Douglas (2012) defines competitive strategy "as a coherent and internally consistent set of decisions designed to achieve the firm's objectives" (Ch. 12, para. 5). Firms can use different strategies or a combination of strategies to make themselves appeal to their target markets better than their competitors can.The differentiation strategy is focused on having a higher quality and image while the low-cost strategy is focused on lowering costs at every possible opportunity (Wright, Kroll, Kedia, & Pringle, 1990). Companies usually just implement one or the other. A good example of this is to compare Southwest Airlines to United Airlines. Southwest implements the low-cost strategy to attain sustainable competitive advantage. They usually has some of the lowest airfare prices compared to many other airlines. They also do not charge baggage, changing, or cancellation fees. The reason they are able to do this and still offer low-cost tickets, is because they have low-cost operations and their main focus is on low-costs. For example, they operate out of smaller airports that do not cause delays, which can be very costly. They only own one type of airplane which doesn't have a first class section, in-flight meals, or TV screens in the seats. Overall, this is a lot cheaper than some of their competitors. United implements the differentiation strategy to attain sustainable competitive advantage. They usually have higher priced tickets, and operate a wide variety of airplanes that can go all over the world, which can be very costly to maintain. They have fancy first-class sections with seats that lay all the way down and they advertise this a lot to differentiate themselves from other airlines. They also have in-flight meals and many times have TV screens in the backs of the seats. United Airlines has higher costs to differentiate themselves as being a superior quality airline compared to their competitors.Both airlines really have to choose what strategy they want to do. In this airline scenario, it would be extremely difficult to implement both strategies. If they tried that, they would probably succeed in one strategy, but fail in the other.
2. According to Porter (1985), a low-cost strategy seeks to minimize costs in administration, production, and marketing, striving to be as lean as it can be without compromising the level of quality. Normally in hard economic times, businesses try to engage in cost reduction to remain profitable or at least stay afloat. Also, firms may be forced to try low-cost strategy when the economy is thriving, and competition is so fierce that they must compete to remain profitable. A company that comes to mind is in the airline industry- Southwest Airlines. In the period between the year 2000 and 2009, while the airfares were hiking, this airline maintained low prices by costing costs in administration and the delivery service process.
Diaconu (2012) outlined that during that period, southwest succeeded to be a dominant airline because of:
Its low-price strategy allowed it to maintain and expand its market share.Positive management-employee relations allowed the airline to negotiate with its labor force to lower the costs
• Southwest had extensive price hedging of fuel that they gained through oil futures
A differentiation strategy emphasizes a reputation for quality, a good firm image, and product design (Chun & Cho, 2017). While advancing this strategy, a company must minimize manufacturing costs and Research and Development and advertising expenses.
A real-world example that comes to mind is Apple; this company is known for its high-quality products, hence creating a difference from other manufacturers' products. Apple has embraced performance-based training by training employees on customer service skills and placing them at every local Apple. As a result, Apple has achieved a sustainable competitive advantage over the rivals.
3. The above chart gives basic information about GE and Maytag. It suggests the costs involved for Maytag to become involved in competition against GE for selling high efficiency dryers. Currently GE will spend $12M for advertising cost without Maytag in the market for competition. Projections show General Electric will make $30M without competition on the dryers. General Electric could see 34% reduction in sales if Maytag does decide to enter the market and sell the dryers. That is a hit from $30M to $20M annually. If this happens, Maytag would be projected to make $1M in profits for its first year in business selling dryers. The tricky apart to determine about this chart is the hypothetical thought that General Electric decides to budget increased marketing/advertising cost $700k during the year if Maytag enters the market. The chart suggest Maytag would benefit tremendously from GE advertisement. Without GE advertisement, Maytag is estimated to make $1M. With GE advertise extra $700,000 for the fiscal year, it would create extra $11M in sales which is 1,100% percent increase. In this case, I believe the textbook and Douglas quoted was correct. "This is a zero -sum game where when one side gains the other side loses proportionately (Douglas,2012)." Maytag gains immensely if General electric adds to the fiscal advertisement budget. Only way to consider General Electric keeping Maytag from expanding product lines to sell high efficiency dryers would be one of two ways. GE must increase their advertisement in the millions compared to $700,000. The $700k would not last long across the USA and people would not see or hear the product long enough to remember that GE is the number one company for these dryers. If they would raise the advertisement budget to $7M instead of $700,000 GE would saturate the airwaves with their product and Maytag could not last long enough from advertisement budget view point to keep the consumer alerted about their product against General Electric
4. I do not believe that GE can successfully prevent Maytag from entering the market. Assuming that GE and Maytag are the two primary competitors in this product line, it is healthy for them to have competitive pricing and competition. I would encourage them to continue the campaigns to promote individual product lines but closely examine how much to invest when a new player is coming on the market. The equilibrium outcome in this game is that Maytag brings a new product line to the table and GE starts a campaign to debut the product line. Inevitably the 2 will level out assuming they are of equal pricing and quality.The additional funding into the advertising budget for either company would help them with the profit margins and to compete with competitors both big and small. Focusing on raising the advertising budget by itself will not guarantee it will translate to sales but would help them to promote a positive relation where people are not left with items that are not performing to the quality expected.