After the magnitude and importance of each element in the SWOT matrix have been assessed, the manager should focus on identifying competitive advantages by matching strengths to opportunities. The key strengths most likely to be converted into capabilities will be those that have a compatibility with important and sizable opportunities. Remember that capabilities that allow a firm to serve customers’ needs better than the competition give it a competitive advantage. As outlined in Exhibit 4.7, competitive advantages can arise from many internal or external sources.
When we refer to competitive advantages, we usually speak in terms of real differences between competing firms. After all, competitive advantages stem from real strengths possessed by the firm or in real weaknesses possessed by rival firms. However, competitive advantages can also be based more on perception than reality. For example, Apple’s iPad dominates the market for tablet computers despite the fact that competing products from Google, Motorola, RIM (Blackberry), Samsung, Acer, and Amazon typically match, or even beat, the iPad in terms of features and performance. Customers who are unaware of better tablets (or those that simply don’t care) buy the iPad because of its slick image, integration with iTunes and the App Store, and the availability of third-party accessories. Because consumers maintain the perception that the iPad is better than competing products, competing products have a difficult time breaking through Effectively managing customers’ perceptions has been a challenge for marketers for generations. The problem lies in developing and maintaining capabilities and competitive advantages that customers can easily understand, and that solve their.
specific needs. Capabilities or competitive advantages that do not translate into specific benefits for customers are of little use to a firm. In recent years, many successful firms have developed capabilities and competitive advantages based on one of three basic strategies: operational excellence, product leadership, and customer intimacy:
• Operational Excellence. Firms employing a strategy of operational excellence focus on efficiency of operations and processes. These firms operate at lower costs than their competitors, allowing them to deliver goods and services to their customers at lower prices or a better value. Low-cost airlines, like JetBlue and Southwest Airlines, are a prime example of operational excellence in action. Southwest’s no-frills service and use of nearly identical aircraft keep operating costs quite low compared to other air carriers. Other firms that employ operational excellence include Dell and Walmart.
• Product Leadership. Firms that focus on product leadership excel at technology and product development. As a result, these firms offer customers the most advanced, highest quality goods and services in the industry. For example, Microsoft, which dominates the market for personal computer operating systems and office productivity suites, continues to upgrade and stretch the technology underlying its software, while creating complementary products that solve customers’ needs. Pfizer, Intel, and 3M are other examples of companies that pursue a product leadership strategy.
Customer Intimacy. Working to know your customers and understand their needs better than the competition is the hallmark of customer intimacy. These firms attempt to develop long-term relationships with customers by seeking their input on how to make the firm’s goods and services better or how to solve specific customer problems. Nordstrom, for example, organizes its store layout by fashion and lifestyle rather than by merchandise categories. The company offers high quality products with impeccable customer service. In fact, Nordstrom is consistently ranked tops in customer service among all retail chains.9 Other firms that pursue customer intimacy include Amazon, DHL, and Ritz-Carlton.
To be successful, firms should be able to execute all three strategies. However, the most successful firms choose one area at which to excel, and then actively manage customer perceptions so that customers believe that the firm does indeed excel in that area. To implement any one of these strategies effectively, a firm must possess certain core competencies, as outlined in Exhibit 4.8. Firms that boast such competencies are more likely to create a competitive advantage than those that do not. However, before a competitive advantage can be translated into specific customer benefits, the firm’s target markets must recognize that its competencies give it an advantage over the competition.
• Operational Excellence. Firms employing a strategy of operational excellence focus on efficiency of operations and processes. These firms operate at lower costs than their competitors, allowing them to deliver goods and services to their customers at lower prices or a better value. Low-cost airlines, like JetBlue and Southwest Airlines, are a prime example of operational excellence in action. Southwest’s no-frills service and use of nearly identical aircraft keep operating costs quite low compared to other air carriers. Other firms that employ operational excellence include Dell and Walmart.
• Product Leadership. Firms that focus on product leadership excel at technology and product development. As a result, these firms offer customers the most advanced, highest quality goods and services in the industry. For example, Microsoft, which dominates the market for personal computer operating systems and office productivity suites, continues to upgrade and stretch the technology underlying its software, while creating complementary products that solve customers’ needs. Pfizer, Intel, and 3M are other examples of companies that pursue a product leadership strategy.
Customer Intimacy. Working to know your customers and understand their needs better than the competition is the hallmark of customer intimacy. These firms attempt to develop long-term relationships with customers by seeking their input on how to make the firm’s goods and services better or how to solve specific customer problems. Nordstrom, for example, organizes its store layout by fashion and lifestyle rather than by merchandise categories. The company offers high quality products with impeccable customer service. In fact, Nordstrom is consistently ranked tops in customer service among all retail chains.9 Other firms that pursue customer intimacy include Amazon, DHL, and Ritz-Carlton.
To be successful, firms should be able to execute all three strategies. However, the most successful firms choose one area at which to excel, and then actively manage customer perceptions so that customers believe that the firm does indeed excel in that area. To implement any one of these strategies effectively, a firm must possess certain core competencies, as outlined in Exhibit 4.8. Firms that boast such competencies are more likely to create a competitive advantage than those that do not. However, before a competitive advantage can be translated into specific customer benefits, the firm’s target markets must recognize that its competencies give it an advantage over the competition.
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