Marketing

LECTURE #4

Competitive Advantage

Well, we've been talking about how the product-orientation approach to marketing doesn't work anymore. We've been discussing how technology has enabled anyone to quickly match product advantages thus creating a great deal of competition. We've discussed how all the competitors have "parity" product (no differentiation) and how it ultimately leads to price wars and a transfer of power to the consumer. In short, what we've learned is that it is not possible to sustain product oriented distinct competitive advantage.

Here is something that is easy to understand, yet highly relevant. If you have no distinct competitive advantage, you have only one thing, a price war. Conversely, if you have lasting competitive advantage (the kind relationships are built upon) you will not have price war pressures, in fact, the price will become less and less important. The bottom line is that the only way to succeed today in business is through the creation of lasting distinct competitive advantage.

What is distinct competitive advantage? Is it a product or a service? How do you get it? How long will it last? How do you communicate it to your customers? These are the key questions which I hope to answer in this lecture.

A distinct competitive advantage can be a product or a service. However in both cases, the "window of opportunity" is very very small. These kinds of distinct competitive advantage can't last very long. Let's discuss a few examples. Suppose I'm a bank and decide to have a ready teller installed? My competitor can do the same. What if I supply coffee and stay open later hours? My competitor can easily do that too. What if I'm a gas station and decide to avoid price wars (to try anyway) and I put a man out to pump gas and wash windows? My competitor can do the same. If I have a manufacturing advantage, my competitor can match it. If I have a new product feature, my competitor can match it, improve upon it, and offer it at a lower price.

So remember that Distinct Competitive Advantage can be of product or service orientation, but will ultimately evaporate quickly. So how is it that a lasting competitive advantage can be created? There is only one way and that is to turn our initial product or service advantage into a relationship (because we know sooner than later our product or service advantage will be lost to competition).

Let me explain further through the use of three acronyms; D.C., U.S.P., and E.V.P. D.C. stands for Distinctive Competency (same as distinct competitive advantage). U.S.P. stands for Unique Selling Proposition and is essentially the marketing message that communicates the D.C to the customer. E.V.P. stands for Extra Value proposition and could easily be called the "relationship which is protected or insulated from competition and price wars.

What we must do is identify areas of distinctive competency (D.C.) communicate them as quickly as possible to our target niche market (done through image and awareness advertising), induce trial purchase (usually through some type of sales promotion), and ultimately create customer loyalty by delighting the customer and exceeding his or her expectations.

This loyal customer relationship must be established before the competition can come in to try to steal your customers away with some lower priced promotion. IN other words, if your customer becomes loyal, they will be less sensitive to low price promotions.

Think of some examples; Apple Computer, Nike, Coca Cola, or McDonalds for instance. All have become household names and largely due to their initial D.C.'s. It's interesting that all these companies had clear D.C.'s which were product oriented and these D.C.'s built them into what they are today. Two things are important to note. First, they do not enjoy the same D.C.'s today which made them famous, they have lost their original D.C.'s to competitive responses. Secondly, it is important to note that these product oriented D.C.'s were created long ago (back in

the days when product oriented D.C.'s could last). In those days, technology was not able to produce competitive response so quickly. Look at Apple Computer, their D.C. the Mac operating system which was of a product orientation, lasted seven years until Windows was introduced. That would never happen today. By the next trade show, a competitor would have cloned the technology and created additional features and would be offering it at a lower price.

The key is that D.C.'s must be augmented products or value added service which meet the customers time and convenience needs. In America today, we value our time and convenience more than our money and are willing to pay more for things that are convenient or save time. Simply stated the process works as follows: We create a D.C. (which is product or service oriented), we communicate the D.C. to our target market through our U.S.P. (our advertising message complete with response motivator), we delevop a relationship with our customers by exceeding expectations and delighting them, we lose our original D.C. to competitive response, we make the relationship (also called E.V.P. which stands for Extra Value Proposition) our new D.C.

What does all of this mean? It means that we don't have to continually lead the way in technology advancements, it means that even if we could, we couldn't sustain the advantage. It means that when our customers become loyal through our delighting of them, that they will continue to be loyal and less sensitive of price as long as we continually care for the relationship. This is why we constantly see the Nike Swoosh logo, and the Coca Cola red logo, and why we don't see them advertising their products, instead they continually promote the brand and logo.

Discussion Questions (all responses due no later than Day 3)

Initial responses to the discussion questions must be posted as a reply to the threads created in the Main Newsgroup. Responses should not be posted as file attachments. Responses do not have to be posted in APA format. Responses should be approximately 250-300 words in length.

1.) Advertisers use the reach argument to say that on a per exposure basis, advertising is very very cost effective. Your professor is in strong disagreement with this statement. Can you tell me why advertising on an exposure by exposure basis is very very expensive and not generally cost effective at all?

2.) Advertisers say that by using frequency techniques (multiple exposures to a certain advertisement) consumers will be pre disposed to buy certain products. I totally disagree. Tell me why you think that the frequency argument doesn't work anymore? Please see instructor lecture for guidance.

3.) Please tell me what you think is the most significant concept covered in the text readings for week 4. Any comments or further questions?

Graded Exercise #4 (due no later than Day 7).

IMPORTANT: Please remember that this assignment is to be posted to the Assignments Newsgroup, not the Main Newsgroup. Also, please remember that this assignment must be posted in APA format with at least two scholarly references. Responses should be 500-700 words in length.

Take the following companies:

· Apple Computer

· Coca Cola

· Nike

· Federal Express

· McDonalds

Identify their original D.C. (it probably goes back to the early days of the company and is probably of product orientation). Next, tell me how they used U.S.P. (how did they communicate their D.C. to their target audience). Next tell me if you believe they were able to establish E.V.P. (a relationship with their customers). Tell me if you believe they lost their original D.C. and how it happened. Finally, tell me what you believe the new D.C. is.