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Lecture_Reading_1b_-_Competitive_Advantage_b_ - Chapter 1...

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Unformatted text preview: Chapter 1 What Is Strategy and the Strategic Management Process? 13 petitive advantage over Firm II. The size of this competitive advantage is equal to the difference in the economic value these two firms create, in this case, $30 ($180 — $150 2 $30). However, as shown in the figure, Firm [’5 advantage may come from differ- ent sources. For example, it might be the case that Firm I creates greater perceived benefits for its customers than Firm H. In panel A of the figure, Firm I creates per- ceived customer benefits worth $230, while Firm II creates perceived customer benefits worth only $200. Thus, even though both firms’ costs are the same (equal to $50 per unit sold), Firm 1 creates more economic value ($230 — $50 = $180) than Firm 11 ($200 — $50 = $150). Indeed, it is possible for Firm 1, in this situation, to have higher costs than Firm H and still create more economic value than Firm H if these higher costs are offset by Firm I’s ability to create greater perceived benefits for its customers. Alternatively, as shown in panel B of the figure, these two firms may cre- ate the same level of perceived customer benefit (equal to $210 in this example), but have different costs. If Firm 1’s costs per unit are only $30, it will generate $180 worth of economic value ($210 — $30 = $180). If Firm 11's costs are $60, it will generate only $150 of economic value ($210 — $60 = $150). Indeed, it might be possible for Firm I to create a lower level of perceived benefits for its cus- tomers than Firm II and still create more economic value than Firm II as long as its disadvantage in perceived customer benefits was more than offset by its cost advantage. A firm’s competitive advantage can be temporary or sustained. As summa- rized in Figure 1.3, a temporary competitive advantage is a competitive advan- tage that lasts for a very short period of time. A sustained competitive advantage, (I! the other hand, can last much longer. How long sustained competitive advan- hges can last is discussed in the Research Made Relevant feature. Firms that cre- & the same economic value as their rivals experience competitive parity. Finally, firms that generate less economic value than their rivals have a competitive dis- dvantage. Not surprisingly, competitive disadvantages can be either temporary (I sustained, depending on how long they last. film 1.3 Types of Competitive Advantage ...
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