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The Competitive Advantage, Research Paper Example

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Research Paper

There are various competitive advantages that the previously stated companies i.e. Colgate Palmolive, Coca Cola Company and US Airways have in common with the food bank. To better understand these advantages and their implications on the food bank, it would be paramount to first take a look at what competitive advantage is all about. Competitive advantage is attained when the company in question creates more value in comparison to its competitors and when it is able to utilize that value to sustain its niche and propagate its operations. To this extent, therefore competitive advantage of an organization is the difference of the accrued value created within the industry by a firm when still active in the market and the possible value that would be created within the industry in case the firm exits the market. Thus, the extra value created by the firm is what is known as competitive advantage (Lewis, 1995).

For a company to be able to out perform its competitors and earn more revenues, it must have competitive advantage. Consider the scenario below illustrating competitive advantage for Coca Cola Company in relation to its main competitor, Pepsi.

The scenario consists of the companies stated above, a single customer and two suppliers. We shall assume that the two suppliers are offering a pack of bottles at a cost of $5 to the companies. Each company uses $10 to bottle and package the water. This cost includes the opportunity cost for factory workers etc. The retailer will only buy one dozen of mineral water. The retailer is willing to pay $60 for Pepsis Aquafina and $80 dollars for coca colas dasani (Lewis, 1995). The retailer will transact with coca cola who will in turn transact with the suppliers.

Calculation of pie will be $80 – $5 – $10 = $65. In the absence of Coca Cola, Pepsi would have a pie of $60 – $5 – $10 = $45. Therefore Coca Colas competitive advantage is $65 – $45 = $20. This is the additional amount that the retailer is willing to pay for Dasani (Rappaport, 1986).

In environmental analysis for  the food bank, its endeavor was to provide high quality food for school children, likewise the other three previously discussed companies  endeavor to give offer high quality products and services at reasonable prices in order to woo more customers into doing repeat business with them and attract new others thereby increasing their marginal revenues. The Food bank together with the three other firms has been able to enjoy competitive advantage by applying a number of strategies which were used by the companies in order to raise customer willingness to make payments. One of the most commonly used strategies applied across the board is product differentiation.

Competitive advantage is derived from three sources namely Product differentiation, cost efficiencies and transaction innovations. Product differentiation raises benefits derived from customers while cost efficiencies ensure that firm’s assets are used efficiently. Transaction innovations lower transaction costs or create combination of new suppliers and customers.

Product differentiation helps limit entry of new firms into the market as well as helping the company in question maintain a certain degree of monopoly in the niche it occupy’s. In the food bank, innovations in production methods have put pressure on competitors. For Colgate Palmolive use of technology to enhance product features has seen the company’s sales sky rocket. Sustained presence in the media has seen Coca Cola maintain brand loyalty and the same case applies for US Airways (Rosenbush, 2000).

The food bank can come up with a competitive strategy to enable it compete nationally and globally. A competitive strategy need to create value that is over and above that of the competitors and utilize a portion of that value through relationships with customers and suppliers.

The company can apply the following competitive strategies in the market to ensure success. The managers of food bank should put under surveillance the industry’s overall state by comparing the demand in the market to industry capacity. For the company to be able to distinguish internal unique factors that is necessary for success, a keen evaluation of the company in relation to competitors in necessary (Stewart, 1991). The food bank can out bid the competitors for shareholders, customers and suppliers by creating an overall value similar to competitors or greater.

The reason behind selecting these competitive strategies is simple. Since customers willingness to make payments is similar to a firms created value, minus the costs incurred by suppliers and cost of using assets owned by a firm, for a firm to attain a competitive advantage it must either costs due to suppliers, discover innovative transactions or increase benefits for customers. Long term organizational transactions can therefore be sustained by executing the fore going competitive strategies (Stewart, 1991).

In conclusion, the food bank is unlikely to suffer from many repercussions due to instability in the global market as it relies entirely on internal suppliers. However, like any other business entity, it is subject to lose grounds on the competitive advantages of its choice should global market instability make it impossible for the firm to rely on high profile a suppliers due to cost restrictions. This can happen if financial position of the company is negatively affected by the global market instability.

 

References

Lewis, J. D., (1995). The Connected Corporation: How Leading Companies Win Through Customer-Supplier Alliances. N Y: Free Press.

Rappaport, A., (1986).Creating Shareholder Value (New York: Free Press.

Rosenbush, S., (2000).  “Rosenbush Covers Telecommunications from New York, Commentary: How Lucent Lost Its Luster,” Business Week.

Stewart, G. B., (1991). The Quest for Value (New York: HarperBusiness.

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