Bsad 665: Applied Marketing Management - Kotler Case Study

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SOLUSI UNIVERSITY

MASTER OF BUSINESS ADMINISTRATION (MBA)

                  COURSE BSAD 665:  APPLIED MARKETING MANAGEMENT

                                          ASSIGNMENT     BY

CHUMA BEKEZELA (SU160401A)

This assignment is submitted in partial fulfilment of the requirements for the course BSAD 665: APPLIED MARKETING MANAGEMENT

Lecturer:  MR O. CHAPWANYA

                                                          Date:         08 February 2017                                          

For an organisation to ensure that it goes beyond the commodity status, there is need to have a competitive edge over competitors. Commodity status is defined by Ferrell et al (2013) as a scenario where goods and services lack any real means of differentiation. Ferrell et al(2013) goes on to highlight that in such a situation, when consumers begin to see products and services offering roughly  the same benefits ,then price  becomes the clincher in securing a sale.

This is where Porter’s generic strategies come in as they can be used as a source of competitive advantage. The diagram below depicts Porter’s generic strategies which are namely, cost, differentiation and focus.

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Porter’s strategies are classified into mass market and segmented markets. Cost leadership and differentiation are applicable for mass or broad markets. Cost focus and differentiation focus are for narrow or segmented markets.

Competitive advantage is defined when the target market views another company marketing mix as better than the competitors’ marketing mix.

COST AS A SOURCE OF COMPETITIVE ADVANTAGE

Keegan (2014) defines cost leadership as competitive advantage based on a firm’s position as the industry’s low-cost producer, in broadly defined markets or across a wide mix of products. This strategy is most applicable in broad markets, or mass markets where a standardized marketing mix is used. Firms that opt for cost leadership to gain competitive advantage must construct the most efficient facilities (in terms of scale or technology) to allow them to enjoy economies of scale. Efficient technology will ensure high asset utilization thus reducing operating costs. This will assist in obtain the largest share of market so that its cost per unit is the lowest in the industry. Over time, the benefits of competitive advantage may give producer a substantial lead in terms of experience with the production process, leading to refinements of the entire process of production, delivery, and service, which ultimately result in cost reductions.

An organisation with products in the last stages of the product life cycle can adopt cost-leadership strategy to push sales. Cost leadership remains a source of competitive advantage only if barriers exist that prevent competitors from achieving the same low costs. Sources of competitive advantage are usually transient in this era of technological advancement as competitors seek to outdo each other in terms of offering better products and services to customers at lower costs.

According to Keegan (2014), IBM once enjoyed the low-cost advantage in the production of computer printers until the Japanese took the same technology and managed to reduce production costs as well as improve product reliability, thereby gaining the low-cost advantage. IBM fought back with a highly automated printer plant in North Carolina, where the number of component parts was slashed by more than 50 percent and robots were used to snap many components into place. Despite these changes, IBM ultimately chose to exit the business.

In commodity status markets e.g telecommunication, airline, household appliances and retailing industries, Ferrell et al (2013) points out that low price leaders perform quite well, citing Southwest Airlines, a discount airline which was profitable for over 33 years before the economic recession of 2008.

Kotler et al (1999) brings out the idea that consumers go for products and services that they derive maximum value from. Hence to acquire new customers as well as retain them, an organisation has to differentiate its products and services from what competitors offer. This can be achieved either by offering low prices or provision of more benefits e.g after sales services, guarantees, warranties to justify the higher prices. Keegan et al (2014) brings out that a firm can   can pursue a low-cost strategy, enabling it to offer products at lower prices than competitors or competitive advantage may also be gained by differentiating products so that customers perceive unique benefits, often accompanied by a premium price. Both strategies have the same effect of contributing to the firm’s overall value proposition.

Ferrell et al (2013) points out two ways of increasing revenue, which are to increase prices or to increase volume of sales. Cost leadership allows for firms to increase volumes of sales by mass production which results in lower production costs allowing the firm to offer a low price to consumers. Cost leadership is sustainable for large firms as they are able to enjoy economies of scale by mass production, purchase of raw materials in bulk at discounted rates. For small firms, it is more viable to be cost focused, instead of being cost leaders.

The limitations that are associated with this strategy is that usually consumers associate low prices with low quality and also, there is low brand loyalty. Customers switch over to the products with the lowest price at that given time.

COST FOCUS AS SOURCE OF COMPETITIVE ADVANTAGE

This strategy which is applicable for segmented markets allows firms to have a better understanding of customer needs and wants thus they are able to create more customer value. Keegan (et al (2014) defines a cost focus strategy as offering low prices to a narrow target market. IKEA ,a Swedish furniture manufacturer uses this approach to  Cost focus is sustainable if competitors target the broad market.

DIFFERENTIATION AS A SOURCE OF COMPETITIVE ADVANTAGE

There are various ways in which an organisation can differentiate itself, these include,

product, services, personnel and company/brand image.

Product differentiation can be achieved through product lines or through product style and design or performance.  Unique products can command premium prices, an example of the Rolls Royce.

An example of how a local organisation has differentiated its service is Beta Holdings, a major player in the brick making industry. In delivery of bricks to customers, concerns were raised over issues of undersupply or breakage of bricks during off-loading, thus Beta Holdings invested in mechanized equipment for loading and off-loading which reduces issues of product breakage and the bricks can be delivered to the customer shrink wrapped. This curbs pilferage of the product and there is now also satellite tracking of deliveries so customers do not have to escort deliveries. Shrink wrapping also maintains product integrity.