Defining and analysing competitive advantage

Competitive advantage is a position that a company earns return on its investment that is higher than the cost of the investment. Competitive advantage should be relevant, unique, and sustainable. ¼ˆMichael E. Porter 1998)

The term competitive advantage is the ability gained through attributes and resources to perform at a higher level than others in the same industry or market (Christensen and Fahey 1984).

It is important mostly because that competitive advantage can ensure that a company earns excess returns for a longer period of time.

Almost all businesses have to face stiff competition with their business rivals in virtually any market today. Having an advantage over them is not enough to guarantee the company can sustain the position on the competitive ground. An ongoing analytical survey of the market and its volatility is required to keep organization updated and informed of the need for improving the quality of product and service.

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Competitive advantage is a set of methods and strategies that work to not only position the business but also make it stand out in the market. Understanding the competitive advantage of the company over its rival companies is the key to creating a dominant position in the market. The company should incorporate competitive advantage management with the business plan that has sketched, without this; the business plan may incomplete and will be ineffective as well.

The goal of most companies is to achieve a sustainable competitive advantage, including McDonald’s. A company has competitive advantage when it can provide the same products but at a lower cost compared with its competitors, it is refers as cost leadership. Compared with its competitors, such as KFC, Burger King, McDonald’s has almost the same prices, but they are able to produce and distribute at lower costs. This is a very strong competitive advantage.

¼ˆsource: http://www.quickmba.com/strategy/competitive-advantage/¼‰

Resources are firms’ assets that are useful to create a cost or differentiation advantage and that few competitors can achieve easily. Common examples of such resources are patents, trademarks, proprietary know-how, installed customer base, reputation of the firm, brand equity, etc.

Capabilities are firms’ abilities to use its resources effectively, like introducing a new product to the market before other companies. Such capabilities require a highly coordinated organization and strict procedures, so other competitors will not be able to replicate.

Distinct competencies are formed by firms’ resources and capabilities. With excellent distinct competencies, the firm will have good innovation, efficiency, quality and customer responsiveness. And these kinds of distinct competencies will create a cost advantage or a differentiation advantage.

Competitive advantage is achieved with firm’s resources and capabilities to either a lower cost or differentiated product. The firm’s position in the market could determine which to choose. The firm should also decide what the market segment to target.

Value creation is performed by a series of activities called value chain. The performance of the value chain also involves the suppliers and distributors. To achieve the competitive advantage, the firm must perform one or more value creating activities to create more total values than competitors. Superior value is created through lower costs or superior benefits to the consumers.

Relate to McDonalds

McDonalds is the biggest fast food chain stores with a 40 million customers visiting it per day. It has over 30,000 branches in 120 countries. It derives 80% of its revenues from eight countries like Canada, Brazil, Germany, France, Japan, UK, Australia and US.

The greatest competitive advantage for McDonald’s is that it has a great number of customers and can produce and distribute at a lower cost than its competitors. McDonalds is the biggest fast food chain stores with a 40 million customers visiting it per day. Besides, it has over 30,000 branches in 120 countries; it derives 80% of its revenues from eight countries like Canada, Brazil, Germany, France, Japan, UK, Australia and US.

McDonald’s product value is also its strength. Adjusted Ingredients and product offerings to comply with upgraded health standards deemed necessary by the USDA. Most customers know what to eat when they step into a McDonald’s. And McDonald’s is always innovating to satisfy customers’ new needs

Innovation aspect is another competitive advantage, it wherein new products line up to catch up with the new trends and tastes of the people. Its diversity into other new business ventures can also be considered as its strengths.

Delivery speed, customer care and cleanliness also are the core strengths on which these stores expanded. Besides, McDonald owns an active Childers’ charity by the name “The Ronald McDonald House.’ They created a corporate symbol and their advertisement campaigns were highly successful in establishing the brand image and logo in the minds of the millions.

Own an active children’s charity by the name

Task 2

Distribution channel

The distribution channel represents the channel through which products or services reach customers. Typical distribution channels include wholesale, retail and direct sales. A distribution channel can be as short as being direct from the vendor to the consumer or may include several inter-connected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers. Each intermediary receives the item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer.

Distribution channels are just one component of the overall concept of distribution networks, which are the real, tangible systems of interconnected sources and destinations through which products pass on their way to final consumers. As Howard J. Weiss and Mark E. Gershon noted in Production and Operations Management, a basic distribution network consists of two parts: 1) a set of locations that store, ship, or receive materials (such as factories, warehouses, retail outlets); and 2) a set of routes (land, sea, air, satellite, cable, Internet) that connect these locations. Distribution networks may be classified as either simple or complex.

Important

It is a channel serves as a connecting link between the producer and consumers.

In the theory of the Marketing Mix, distribution (place) determines where the product will be sold and how it will get there. Usually, different distribution channels are used at the same time in sales of the products or service. Distribution channels provide a general structure for distributing goods. Wholesale trade, sales to industrial customers or direct sales from a plant are typical examples of distribution channels. It is also to help in set up according to the company’s market strategy or internal organization. Customers can be served through one or more distribution channels within a sales organization. Furthermore, through different distribution channels, prices and target customers can also be different. A good distribution channel save the company’s cost and helps the company to build a very good image to its customers. Besides, better distribution channel can be a key competitive advantage sometimes.

Relate to case

As the leading global fast food retailer, McDonald’s has more than 30,000 restaurants all around the world serving nearly 46 million people each day in 121 different countries. Approximately 80 percent of all McDonald’s restaurants worldwide are owned and operated by independent franchisers. This effective distribution strategy (place) has helped McDonald’s develop a strong market share in the fast-food market around the world. All of McDonald’s raw materials are provided locally, which saves a lot of cost in distribution. And locally, McDonald’s has its specialized distribution system, which distributes the raw materials at quite a low price and quickly. McDonald’s are located in almost all shopping malls, so their products are distributed to customers everywhere. It also has a fast delivery team, which allows customers have anything from McDonald’s with just a phone call. And when the order is arrived, the food is still warm and fresh. Moreover, stores must have a planned atmosphere that suits the target market and moves customers to buy. In addition, McDonald’s has pre-determined the locations for many of its stores to help reach a variety and diverse population. In conclusion, McDonald’s has an intensive distribution process which is a credit to their marketing department.

Task 3

Price strategy

Price strategy is the strategy to choose a suitable price, either low or high, to achieve maximum profits, earn market share or beat the competitors. Pricing is one of the most important decisions a marketer must make regarding a product since price plays a crucial role in competitiveness and consumer demand. Marketers must determine price at the initial stage of a product’s life and re-evaluate pricing to manage the delicate balance between production and profits. It can be classify in few methods, which are price flexibility strategy, product line pricing strategy, Leasing Strategy, Bundling pricing strategy, pricing leadership strategy

Price skimming

Price skimming is selling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market.

Price skimming is most appropriate when:

Demand is expected to be relatively inelastic and customers are not price sensitive

Large cost savings are not expected at high volumes, or it is difficult to predict the cost savings that would be achieved at high volume

The company does not have the resources to finance the large capital expenditures necessary for high volume production with initially low profit margins

This strategy is often used to target “early adopters” of a product or service. These early adopters are relatively less price-sensitive because either their need for the product is more than others or they understand the value of the product better than others. This strategy is employed only for a limited duration to recover most of investment made to build the product.

Penetration pricing

The price is deliberately set at low level to gain customer’s interest and establishing a foot-hold in the market.

Penetration pricing is most appropriate when

Demand is expected to be highly elastic and customers are price sensitive and the quality demanded will increase significantly as price declines

Large decreases in cost are expected as cumulative volume increases

The product is of the nature of something that can gain mass appeal fairly quickly

There is a threat of impending competition

Objective of McDonald

A marketing strategy must be created in order to determine the means by which a set of clear objectives may be met. Objectives communicate what marketers want to achieve, guide marketing actions and are used to measure how well a plan is working. They can be related to market share, sales, reaching the target audience and creating awareness in the marketplace.

Once marketing objectives have been established, the next stage is to deine how they will be achieved. The marketing strategy is the statement of how objectives will be delivered. It explains what marketing actions and resources will be used and how they will work together.

McDonald’s objective is to achieve a high market share, so with lower prices of its products, it can earn a high profit and beat its competitors. Its long-term objectives are broken down into shorter-term measurable targets, which McDonald’s uses as milestones along the way. And feedbacks from markets around the world are send back to McDonald’s headquartering frequently, which allows the company to change plans flexibly.

McDonald Price Strategy

McDonald’s price strategy varies. Sometimes company charge premium comparing to other fast food restaurants but sometimes they also have low price strategy with discount coupons or cheaper deals. Thus sometimes they are using price skimming and sometimes they are using penetration pricing. It’s good for the company to use different pricing strategies because each of them actually follows different corporate strategy.

Price strategy helps in objective achieve

Usually, when McDonald’s goes into a new market, it uses penetration pricing to gain market share and compete with its competitors. After that, if the situation goes well, they will continue operating with the same low price. If the market share is still low after some attempts, it may use price skimming strategy to earn enough profit.

Market condition

Market condition is the characteristics of a market into which a firm is entering or into which a new product will be introduced, such as number of the competitors, level or intensity of competitiveness, and the market’s growth rate. When the competition is not intense, the market growth rate is expected to be high, and the society is willing to accept McDonald’s fast food, the market will be suitable for McDonald’s. Nowadays, McDonald’s has a well known image in almost all areas. But if the economy of an area is very weak, it is hard for McDonald’s to enter and sustain. And in some countries, people do not like fast food so much. This kind of market is also not suitable for McDonald’s.

Task 4

Promotion activity

Promotion is an intricate part of market mix. Marketing mix includes product, price, place/distribution and promotion (4 Ps).

The activities of the first three Ps — product planning, pricing, and distribution — are performed mainly within the firm or between the firm and its marketing “partners.” With promotional activities, a firm communicates directly with potential customers. Promotion activities include advertising, sales activity, free gifts and so on.

All the promotional activities must be integrated to deliver a consistent and positive message. A multi-media promotion campaign is usually more effective than any promotional activity alone. For example, if a company is launching a new product or program, it can contact the media to get free press and then run an advertisement offering information, combined with offering sales promotion, direct marketing by mail or phone, and product demonstration or a visit by sales people

As a key part of marketing mix, promotion must also be integrated into a firm’s strategic planning because all elements of the market mix — product, price, place, and promotion — must be coordinated in order for a promotion program to be successful.

A good promotion has strong influence on customers. It delivers a clear message to its targeted customers accurately.

McDonald’s Advantage promotion

First of all, McDonald’s has a lot of advertisements all around the world, either on streets or on TV. McDonald’s also has engaged in many short-term incentives for consumer promotion through limited value menus, promotional games to promote old/new items on the menu, such as Happy Meal toys, Big Mac Hockey Contest, card games etc.. And McDonald focuses its ad campaigns on its overall Mc Donald experience and active life style.

In addition, McDonald’s has successfully used a differentiated market segmentation strategy by targeting the family unit and particularly children with their “Happy Meals” and prices. McDonald’s has traditionally offered lower prices than other hamburger chains, thus gaining the patronage of larger-size families. The location of its outlets has been instrumental in making McDonald’s so successful. It was the first hamburger chain to expand into the suburbs and into the crowded downtown areas of large urban cities (Greco & Michman, 1995).

The issue of targeting children, particularly by commercial advertising like the one used in McDonalds, for example, sometimes raises many questions and, probably more than most topics, involves strongly held views and opinions. Given the vulnerability of children, questions about ethics, about the regulation of advertising and about effects of advertising, are in the forefront of heated debates.

Many ads have one specific target audience and the target character is designed accordingly. It is possible, however, for one commercial to address multiple target audiences and still achieve identification. Although McDonald’s mostly targets on children as audience, their commercials most of the time target multiple audiences specifically families. An example is the McDonald’s ad that shows a working mom in a business suit showing her husband and lads everything in the refrigerator and freezer. She’s going on a business trip and has color-coded the plastic wrap around all the foods–blue is for broccoli, red is for. . .–dad and the kids are just looking at her, not paying attention. Then you cut to dad pulling stuff out of the refrigerator for dinner, asking the kids, ‘What do you want for dinner, blue or red?’ They say, ‘Let’s go to McDonald’s.’ Lots of McDonald’s spots work against multiple targets (Sutherland & Sylvester, 2000).

McDonald’s also has focused on a global fundraiser benefiting Ronald McDonald House Charities and children around the world. Helping children and families in need is one of the most important things that the global corporation does for the local communities. A large percentage of McDonald’s fast food chains worldwide are owned and operated by independent, local businessmen and businesswomen and together they support Ronald McDonald House Charities.

Task 5

Marketing mix

The term “marketing mix” is probably the most famous marketing term. Its elements are the basic, tactical components of a marketing plan. Also known as the Four P’s, the marketing mix elements are price, place, product, and promotion was first used in 1953 when Neil Borden, in his American Marketing Association presidential address, took the recipe idea one step further and coined the term “marketing-mix”. A prominent marketer, E. Jerome McCarthy, proposed a 4 P classification in 1960, which has seen wide use. The four Ps concepts are explained in most marketing textbooks and classes.

(source: http://www.quickmba.com/marketing/mix/)

Product

Product is the physical product or service provided to customers. Sometimes products also include functions, appearance, packaging and customer service.

The type of marketing undertaken and the resources invested will be different depending on the stage a product has reached. For example, the launch of a new product will typically involve television and other advertising support. At any time a company will have a portfolio of products, each in a different stage of its cycle.

Price

The price is the amount a customer pays for the product. It is affected by market share, product costs, profit margin and the prices of competitors. Discounts are also taken into account when determining the prices. The customer’s perception of value is an important determinant of the price charged. It is important when deciding on the price to be fully aware of the brand and its integrity.

Place

Place represents the location where a product can be purchased. It is often referred to as the distribution channel. It can be either physical outlets or virtual shops on the Internet. The goal the choosing a place is to distribute the products or service to targeted customers as soon as possible and to create a good image of the company.

Promotion

Promotion is about communicating with its customers and selling products or service to potential customers. Promotion has four distinct elements: advertising, public relations, personal selling and sales promotion. The most common promotion activity is advertising. Advertising covers any communication that is paid for, from cinema commercials, radio and Internet adverts through print media and billboards

Relate to case

Referring to McDonald’s the products are the fast food they sell. The food can be ordered through ala carte or set meals. McDonald’s are also delivered from its outlets. McDonald’s has introduced new products and phased out old ones over time, and will continue to do so. The prices in McDonald’s are usually cheaper or same as its main competitors, yet the danger of using low price as a marketing tool is that the customer may feel that a low price is indicative of compromised quality.

McDonald’s has over 30,000 outlets around the world, and its products are highly recommended by its customers. And McDonald’s not only has outlets in concentrated shopping areas, but also in some remote places where no other food can be found. The delivery of McDonald’s is also very convenient, which also build a better image of the company. As for promotion, McDonald’s has enormous advertisements in all places and media. And according to the locations of McDonald’s stores, it has many different selling activities. And continuous innovation also pushes McDonald’s to its customers.

Extended 3ps

People:

People also a part of the marketing mix. People are the most important element of any service or experience. Services tend to be produced and consumed at the same moment, and aspects of the customer experience are altered to meet the ‘individual needs’ of the person consuming it. Most of us can think of a situation where the personal service offered by individuals has made or tainted a tour, vacation or restaurant meal. Remember, people buy from people that they like, so the attitude, skills and appearance of all staff need to be first class. Here are some ways in which people add value to an experience, as part of the marketing mix – training, personal selling and customer service.

Process:

It is another element of the extended marketing mix, or 7P’s.There are a number of perceptions of the concept of process within the business and marketing literature. Some see processes as a means to achieve an outcome, for example – to achieve a 30% market share a company implements a marketing planning process. For the purposes of the marketing mix, process is an element of service that sees the customer experiencing an organization’s offering. It’s best viewed as something that your customer participates in at different points in time.

Physical Evidence:

Physical evidence is the material part of a service. Strictly speaking there are no physical attributes to a service, so a consumer tends to rely on material cues. There are many examples of physical evidence, including Packaging, Internet/web pages; Paperwork (such as invoices, tickets and dispatch notes); Brochures, Furnishings, Signage (such as those on aircraft and vehicles); Business cards. The environment in which the service or product is delivered, tangible are the one which helps to communicate and intangible is the knowledge of the people around us.

Case to McDonald

For McDonald’s, the people are the decision-makers, workers in outlets, and customers. The decision-makers, also the high-level people, decide the objectives and strategies of McDonald’s. Since most outlets are independent from the head quarter, they also have their own strategy. Then the workers in McDonald’s outlets sell the products. Finally, the products reach the targeted customers. Process for McDonald explains in order, First, McDonalds’ headquarter make decisions, objectives and strategies. Then they will grant independent merchandisers around the world. Those independent merchandisers follow the objectives and strategies, and then run on their own according to the situation. But feedback is sent back to McDonald’s from time to time. McDonald’s is a product based company, but all their products are delivered to customers through somehow an excellent service. McDonald’s is sold all over the world, thus the physical environment is very international, but mainly in the cities.

Task 6

Consumer market

The consumer market is composed of individuals who buy a specific good or service. The consumers of a consumer market can be classified by many standards. One way is to classify according to the age of people. Also, it is can be segmentation into two perspectives, the first perspective involves staring with the total market and looking for ways to cut in into meaningful pieces, the second perspective involves starting with individual customers and finding other potential customers with the same characteristic to make up a segment large enough to warrant advertising attention. The mass of variables consumer market can be divided into four categories, which are geographic, demographic, psychological and geodemographic segmentation. The important is to better understanding of customer needs as well as the competitors. besides, it is also more efficient use of resources.

Usually, the main part of a consumer market selling fast food can be classified into adult and kid. Thus, McDonald’s focuses on adults and kids mainly, but sometimes kids are more targeted than adults.

The same statistical truth applies to cultural products. However, because of the extremely fragmented nature of the cultural sector, some distinctions are in order. For example, looking at this sector as a whole, it can be said that nearly 100% of the population consumes one type of cultural product or another. Indeed, in its broadest sense, the cultural sector encompasses everything from the performing arts (high and popular), to heritage, compact disks, movies, book and magazine publishing, and radio and television, with each of these disciplines appropriating a more or less important share of global demand.

Indeed, in its broadest sense, the cultural sector encompasses everything from the performing arts (high and popular), to heritage, compact disks, movies, book and magazine publishing, and radio and television, with each of these disciplines appropriating a more or less important share of global demand.

Relate this two different to McDonald

Mainly, McDonald’s targeted market segments are all the people of the society. However, the main consumers are adults and kids. Of them, kids are sometimes more focused by McDonald’s because kids usually like McDonald’s more than other food. Adults only use fast food like McDonald’s when they are very busy or inconvenient to sit down and have a normal meal.

The customers of McDonald’s can be basically divided into the following types:

These examples represent just a few of McDonald’s possible customer profiles. Each has different reasons for coming to McDonald’s. Using this type of information McDonald’s can tailor communication to the needs of specific groups. It is their needs that determine the type of products and services offered, prices charged, promotions created and where restaurants are located.

Task 7

It is necessary to better understand the difference in marketing products and services to organizations. It is an important tool for brand direction setting and on strategic market research captures what consumers like or dislike about certain brands. It reveals consumers’ perceptions toward a product or service category. Nowadays , consumers have a strong voice in shaping product and services being offered in the market.

Consumer market

Consumer market is all the individuals and households who purchase goods and services for personal use. Rarely does one product interest the entire population. This statement applies even to staples, such as sugar, flour, and salt. A small percentage of households do not eat these products, so even if a company did target the entire population, not everyone would be a potential consumer.

The same statistical truth applies to cultural products. However, because of the extremely fragmented nature of the cultural sector, some distinctions are in order. For example, looking at this sector as a whole, it can be said that nearly 100% of the population consumes one type of cultural product or another. Organization market

Organization market is all the individuals and companies who purchase goods and services for some use other than personal consumption. Organizational markets usually have fewer buyers but purchase in far greater amounts than consumer markets, and are more geographically concentrated. Organizational markets are divided into four components: industrial market, which includes individuals and companies that buy goods and services in order to produce other goods and services; reseller market, which consists of individuals or companies that purchase goods and services produced by others for resale to consumers; government market, which consists of government agencies at all levels that purchase goods and services for carrying out the functions of government; institutional market, which consists of individuals and companies such as schools or hospitals that purchase goods and services for the benefit or use of persons cared for by the institution. B2b markets are usually organization markets. And b2c markets are usually consumer markets.

Case to McDonald

First of all, the market McDonald does business is a consumer market. Consumers buy McDonald for personal reasons, and use consumer research to dredge more consumer insights that can be basis of a new marketing campaign. The only way to sustain growth and ride higher with competitors is to remain knowledgeable about the consumers market, which can only be best served through sustained consumer market research. It is useful for every organization, especially for McDonald, as it is more concentrate on consumer. Thus If McDonald focus on its product, obviously the business may not satisfy customer needs so well, hence the business won’t be successful, because consumer is a key in the marketing mix, as well as to successful, and all the product and service is only to serve the consumer.

Therefore, merely focus and understanding consumer buying behavior entails marketing, relationship, and consumer behavior and help McDonald to successful.

Task 8

International marketing

International marketing refers to marketing efforts which is carried out by companies in a manner which transcends national boundaries. Although it follows the 4 ‘Ps’ of a marketing mix, operating in a global environment will inevitably contain global restraints and considerations. In other words, the international arena becomes the chosen market of the firm.

A domestic market is a financial market. Its trades are aimed toward a single market. A domestic market is also referred to as domestic trading. In domestic trading, a firm faces only one set of competitive, economic, and market issues and essentially must deal with only one set of customers, although the company may have several segments in a market.

Although the similarity between domestic and international marketing is obvious due to the marketing techniques and efforts employed, the dissimilarities surface when we consider the differences that must be taken into consideration before marketing efforts are employed. Several factors include the political scene, economic condition, socio-cultural differences, technological development, the legal system and overall environment of the international market. All these factors assist the marketer to decide on the most efficient marketing mix.

Relate to case study by talking tastes in different, culture

Political

Political factors are often one of the more imp