petitive environment. A firm’s strategy is a comprehensive plan to achieve its goals in the face of these conditions. Strategy defines how a firm will achieve long-term success. Determining the strategy is a critical decision for management because it involves a significant commitment of resources and, once initiated, it is very difficult and costly to change.
In the movie The Godfather II, Michael Corleone says: “My father taught me many things. He taught me: keep your friends close, but your enemies closer.” This applies in strategy, as well. A company’s friends are its customers. Strategy must keep the company aligned with its customers’ needs. Its enemies are its competitors. Competitors are firms that provide similar products or services and try to attract the same customers. Competitors are likely to have similar business goals in terms of sales, profitability, and market share. To succeed and achieve its goals, a firm has to “beat” its competitors by constantly striving to improve its offerings to customers and to be better than the competitors’ alternatives. In this section we look at how companies address competitors in their strategy.
Competitive Advantage
In a competitive environment, businesses try to stand out from their competitors. Consider the following car companies. Is there a particular characteristic or quality that you associate with each of them?
Porsche
Volvo
Hyundai
Toyota
Ford
Companies try very hard to create a perception that they are different from their competitors. If you are looking for a high-performance sports car you probably won’t go to a Ford dealer. But if you are looking for a durable truck you wouldn’t go to a Porsche dealer. Companies strive to provide a product or service that is distinct, or differentiated, in some way from their competitors. When customers perceive the distinction as being valuable, they will prefer to purchase the business’s product over a competitor’s products. This is called a competitive advantage. Competitive advantage means that the business outperforms its rivals in the market because customers prefer its products or services.
tributes that competitors cannot match.
Creating Competitive Advantage
Businesses create competitive advantage by doing some things better than their competitors. For example, look at the companies in the chart that follows. By doing some things much better than competitors, the businesses are able to create a valuable distinction for customers.
