There are multiple ways for firms to achieve competitive advantage but I would like to focus on Product/Service Differentiation & Cost Leadership.
A few years ago, Cingular Wireless entered the wireless market with an excellent product/service differentiation strategy: "Rollover Minutes". Cingular was literally unknown in the wireless space when compared to well established companies such as AT&T, T-Mobile, Nextel and Sprint. The question was: Why would anyone switch to Cingular and risk poor network/service? Well the short answer was rollover minutes! There were so many people (including me) switching to Cingular because of its rollover minute feature. The strategy was a complete success and it didn't take long before Cingular's customer base grew so much to allow it to acquire AT&T.
Another good example of product/service differentiation is Dell. For years, Dell allowed customers to "customize" their personal computers to their needs. You didn't have to buy a pre-configured system with too little or lots of computing power. Your Dell was no more than you needed and on top of it, its website was so easy to navigate that ordering a computer online and having it deliver to your home in a few days, was key to Dell's success.
United Colors of Bennetton is another example of product/service differentiation. For garments with difficult to forecast demand for colors, Bennetton creates an undyed garment called "greige". Stores send feedback on customer's preferences and the company sends a test batch of "greige" garments dyed with the requested colors. According to the company, this process increases costs by 10% but it also increases profit margins as well as cuts on overstocking and discount costs.
The second strategy that I'd like to discuss is cost leadership. Nobody embodies cost leadership more than WalMart. Its founders understood from the very beginning that retailing was a volume driven business and offered its clients better value for their money. WalMart's concept of "every day low prices" knocked out competitors such as Sears & K-Mart. The company that started in 1962 has become one of the largest retailers in the world with thousands of discount centers, supercenters & neighborhood markets throughout the US and the world. WalMart's plans, for fiscal year ending 2007-2008, are to achieve a revenue target of $500 billion.
The low-cost passenger airline JetBlue is another example of cost leadership. The airline focuses on delivering an excellent flight experience in their 2-3 year old aircraft at a very affordable price. The company started in 1998 and became quickly one of the most profitable players in the aviation industry. JetBlue targeted high-fare areas to cut prices and easily undercut its competition. The company operates 50 destinations in the US, Puerto Rico, Mexico and the Caribbean. In addition to the affordable airfare prices, JetBlue offers vacation packages that have resulted in higher profits not only for the company but for its partner hotels and car rentals.
8 comments:
Great analysis! I have Cingular Wireless and I think they did and is still doing a great job executing their service differentiation strategy. Before Cingular, no one thought about our precious left over minutes that went straight to the black hole at the end of every month. Cingular, now AT&T are still trying hard to compete in the phone industry which is extremely competitive! AT&T's acquisition of Cingular certainly reinforced their image because AT&T never really had good cellphone service (at least to me!). I think Cingular can still gain competitive advantage in this industry if they continue to increase their coverage network around America. I think they should maybe also extend their coverage networks out of the United States to appeal to people who travel or people doing business internationally.
Dell is a great example of both product and service differentiation. The fact that you can call their representatives to build a personal computer for you gives them competitive advantage among competitors. They also follow a cost leadership strategy as well, where their prices are lower than competitors (due to their distribution system, bypassing the middle men)since they deliver the product straight to the end consumer.
You're right about Cingular Wireless gained a competitive edge with their rollover minutes. But after establishing such a strong advantage and aquiring AT&T, they chose to change their name to AT&T. Even though AT&T has a strong brand awareness, it's strange that they would do that. AT&T lost its original appeal and people perceived the wireless network as unreliable. Why do you think Cingular, with its well established strategy, would choose to take the name of a lesser brand?
I also analyzed Jetblue business strategies. However I disagree that Jetblue is a good example of cost leadership. Even though they offer low prices to their customers, I don’t think they have low costs for running the business. Just as you said they have new, 2-3 years old aircrafts, also seat built-in satellite TV/radios, internet, they also feature most leg-room space, and excellent customer service. These features are definitely not a low cost features, and do not make Jetblue low cost service provider. Cost leadership could rather be found in American Airlines, which has low fares and low costs for running business. AA has very old uncomfortable, no well maintained aircrafts, with almost no legroom (to fit more rows in the aircraft), rough seats, very limited entertainment during the flight, small meals and not so good customer service. These are examples of low costs of running business and make AA a cost leader.
Even though Jetblue strategies have worked well, Jetblue wasn’t able to sustain its competitive advantage for a longer period of time. Soon after, competitors mimicked a lot of their strategies and Jetblue lost its competitive edge.
Cingular Wireless's "rollover minutes" is a very good way to enter and stay in the market and differentiate itself from its competitors. I heard that Sprint even include the free text messaging services in the plan. Dell is another good example of product/service differentiation. It allows customers to build their own model. That also saves the money for the unneccessary parts that customer doesn't want.
Hello Laura!!! Thanks for commentig on my blog. I found quite interesting the info that you provided me. Such as that Dell has been disaponting investors and that Hewlett Packard is taking customers again from them. However, I analized Dell from the first mover competitive advantage. Dell might not be doing as good as it used too, but there were without a doubt the first ones to enter the custom-build computer market. Don't you think?
L. Estrina,
Thanks for your response and sorry for not replying sooner. If my memory serves me well, when Cingular acquired AT&T, they initially picked the Cingular brand name. However, in 2007 Cingular made a strategic move to yet again become AT&T (the new AT&T). In my humble opinion, AT&T was a stronger and better known brand name around the world and it was a mistake to choose Cingular for the combined company.
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