Below is a summary of what will guide you, in addition to the concepts discussed in the business level strategies. Use them for reference in answering the questions. You may access company websites for additional information.
Sources of C/A – Cost Advantage
- Economies of Scale or Scope
- Learning & Experience
- Proprietary Knowledge
- Input Costs
- Different Business Model
Sources of Differentiation Advantage
- Different Product/Service Features (better job, more jobs, unique job)
- Quality and Reliability
- Convenience
- Brand Image (mere exposure effect, in social psychology/familiarity principle, prestige brands
How to find Sources of Differentiation?
- Customer Segmentation (product attributes on price, attributes of customers, job-to-be done view
- Mapping the Consumption Chain
Please document your responses to the following:
- Select a public company that seems to have a cost advantage over its competitors – demonstrated by consistently lowest prices in the market.
- Describe one or more sources of advantage.
- Identify any resources or capabilities the company has that enable it to achieve low costs.
- What if anything prevents competitors from imitating this product or service? Explain.
- How does the Toyota Production System provide a cost advantage for Toyota?
- Airbnb is an on-line, homestay network that provides short term lodging. It is a very successful start-up that makes money by charging its users. Guest fee range from 6-12% depending on the size of the reservation subtotal. The higher the subtotal, the smaller the reservation fee percentage – which is non-refundable. Airbnb also charges hosts a 3% host service fee which is applied to the subtotal. What sources of cost advantage apply to Airbnb’s business model? What sources of differentiation apply to Airbnb’s business model?
- Wal-Mart is the most obvious example of a company benefiting from economies of scale. As a dominant player in retailing, the company’s size provides it with enormous efficiencies that it uses to keep costs low. Size provides enormous efficiencies across it’s over 5000 stores worldwide. Wal-Mart has a ton of important information concerning consumer likes and dislikes and it spreads best practices across all its stores. (news.morningstar.com/classroom 2016)
- Beyond the obvious economies of scale, which other sources of Cost Advantage does Wal-Mart leverage?
- What approaches do you think Wal-Mart uses in “finding sources of differentiation”?
- Dollar Shave Club’s retail disruption. As noted in theweek.com (August 2016), “in a deal that has shaken the stodgy consumer products industry, Unilever announced (2016) it will pay $1 billion to acquire Dollar Shave Club – a five year old firm that delivers no-frills disposable blades to subscribers for as little as $3 a month. Since launching in 2011, the Venice CA-based startup has grown to 3.2 million subscribers – earning $152 million in 2015 and becoming a case study in how a disruptive innovator can “break into a highly profitable and overserved industry”. DSC contracts with a South Korean razor manufacturer and then sells the blades directly to consumers over the web. The global razor business has long been built on convincing people they need more and more blinged-out blades at higher and higher prices (Terlep, Wall Street Journal). Doller Shave Club now claims 5% of the US men’s shaving market long dominated by Gillette (Proctor & Gamble). Since 2010, Gillette’s market share has fallen from 71 to 59 percent.”
- Which type of Cost Advantage applies to Dollar Shave Club?
- What sources of Differentiation Advantage does Dollar Shave Club leverage?
- Duluth Trading Company – sells men’s and women’s clothing, accessories and outdoor gear.
- Which source(s) of Differentiation Advantage does Duluth Trading employ?
- In terms of “finding sources of differentiation”, what approach does Duluth take to Customer Segmentation?
- Casper sells mattresses on line.
- Which sources of Cost Advantage does the company leverage?
- How does Casper apply the “Consumption Chain” to help with customer segmentation?
- Nordstrom is known for its exceptional customer service.
- What sources of differentiation advantage is Nordstrom using?
- LLBean – Free shipping, 100% guarantee. According to the LLB company website: Since 1912, we’ve believed in the adventure of a life lived outdoors, the promise of a fair deal sand the guarantee that everything we make is designed to last. So if any of our products isn’t working or fitting or standing up to its task, we’ll take it back. LL himself always said that he didn’t consider a sale complete “until goods are worn out and the customer still satisfied”.
- What sources of Differentiation Advantage is LLBean leveraging?
- Prepare a cost and differentiation advantage comparison between Home Depot and a local hardware story in your area.
References:
- Dyer, J., Godfrey, P., Jensen, R., & Bryce, D. (2016). Strategic Management Concepts and Tools for Creating Real World Strategy. Hoboken, NJ: John Wiley & Sons, Inc.
- Liker, J., (2004). The Toyota Way. New York, NY: McGraw-Hill.
- Mcalone, N. (2015). Airbnb’s Summer Reach Has Grown by 353 Times in 5 years. Retrieved from http: //www. businessinsider.com. (2017)
- Albert-Deitch, C. (2016). This $200 Million Mattress Company is Waking Up the Sleep Industry, Retrieved from http://www.inc.com. (2017)
- Shaoolian, G. (2017). Improving Brand Credibility in 2017: What Can We Learn from Brands like Warby Parker and Casper. Retrieved from forbes.com (Links to an external site.) (2017)
- Gonzalez, G. (2016). Inside Dollar Shave Club’s Billion-Dollar Payday. Retrieved from inc.com (Links to an external site.) (2017)
- Dollar Shave Club’s Retail Disruption (2016). Retrieved from http://theweek.com/articles (Links to an external site.) (2017)
- Low-Cost Producer or Economies of Scale (2016). Retrieved from http://news.morningstar.com/classroom (Links to an external site.). (2017)
- Solomon, M. (2014). Take These Two Steps to Rival Nordstrom’s Customer Service Experience. Retrieved from http://www.forbes.com (Links to an external site.). (2017)
- Casper.com
- Duluthtrading.com
- LLBean.com
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