Gaddi, Maria Ynalyn V.

2BSAIS-3
ASSIGNMENT NO. 7
STRABA

1. Figure 7.1 implies that stable industries, where firms have similar resources and
capabilities, offer less opportunity for competitive advantage than industries where change is
rapid and firms are heterogeneous. On the basis of these considerations, among the following
industries, in which do you predict that interfirm differences in profitability will be small
and in which will they be wide: retail banking, video games, wireless handsets, insurance,
supermarkets, and semiconductors?

Answer:

Retail banking: In this field, the inter-company gaps can be very large. This is how banks are
willing to sell consumers various services and features. The interest rates of FD and RD can differ,
and the problem solving rate can also be very broad. The retail bank offering the best services will
have the most profitability.

Video games: The introduction of AI has strengthened this segment's console and user interface.
All companies have realized the potential of AI and have embraced it in their business model. The
video game businesses have comparable capital and skills and the range of competitive advantage
in this market is thus very limited.

Wireless handsets: Similar functions and advantages are provided by the wireless handset
companies. The primary source of competitive advantage is based on their performance. The best-
performing wireless handsets are more popular in the industry.

Insurance: In this field, the inter-company gaps can be large. This is how the insurance companies
come up with creative features for the consumers and user-friendly incentives. In addition, the
claim acceptance rate of these banks and the duration of claim processing both serve as a
significant factor in enticing consumers to purchase insurance.

Supermarkets: In this market, the inter-firm differentiation is very narrow. Among the different
supermarkets, much of the services and skills are very similar. In this sector, therefore, the range
for providing competitive advantage is small.

2. Since 2009, Apple has been the world's most profitable supplier of wireless handsets
by a large margin. Can Apple sustain its competitive advantage in this market?
Answer:
Apple’s Air Pods most likely would are made with simply Bluetooth. However, by deciding to
travel with proprietary chips, Apple gave Air Pods a competitive advantage that's however to be
rivaled by the competition. what is more, these chips don't seem to be simply replicable Associate
in Nursing it’s unlikely we’ll see a robot version of them anytime presently. Different phone
makers can seemingly still consider the Bluetooth protocol and integrate newer versions of it.
Apple Corp. manufactures and markets a variety of computers and consumer electronics products,
including smartphones, tablets and music players. The investment analyst firm Market Realist
identified brand strength, innovation, supply chain management and premium pricing strategy as
key factors in the company’s competitive advantage.

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 Gaddi, Maria Ynalyn V.
2BSAIS-3
ASSIGNMENT NO. 7
STRABA

Brand strength gives the industry tremendous exposure to businesses like Apple and helps create
customer loyalty. The good positioning of the company and the interrelationships between its
brands inspire clients who purchase one Apple product to try another.
Since the company's beginnings, Apple has made product design a hallmark of its policy of
distinction. There were no equivalent consumer electronics devices that contained so many
features in one distinctive, iconic package when Apple launched the iPod, iPhone, and iPad. –
brand strength
The lowest-priced Apple goods consistently remain in the mid-range, but for the high quality of the
consumer interface, consumers are able to pay that amount. This price policy runs counter to
manufacturers of commodity laptops, tablets and cell phones that market lower-cost products and
counter their thin profit margins with high volumes. – pricing strategy
In the world of mobile devices, the idea of brand differentiation has helped Apple to establish a
virtual split: Apple devices vs. everyone else. A vision of exclusivity has been developed that gives
Apple a leg up on the industry, helping them keep their products at the top of numerous must-have
lists every year. – brand loyalty

3. Illy, the Italian‐based supplier of quality coffee and coffee‐making equipment, is

launching an international chain of gourmet coffee shops. What advice would you offer Illy for
how it can best build competitive advantage in the face of Starbucks' market leadership?
Answer:
There are two dimensions of competitive advantage, one is cost advantage and one is
differentiation advantage. I suggest Illy to pursue the cost advantage dimension because Illy has
already had the cost advantage in terms of being a coffee supplier and coffee-making equipment.
Thus, Illy can lower its input cost in the seven drivers of cost advantage. Moreover, Starbucks has
a niche segment customers based and in many countries, Starbucks’ coffee is considered high
price. So, Illy can charge its customers with lower price to attract customers. On the other hand,
Illy can focus on specific consumer group as well. Since it is an Italian-based coffee, it should
present its brand as Italian coffee. This way, it can differentiate itself from Starbucks.

4. Which drivers of cost advantage (Figure 7.7) do low‐cost carriers such as Southwest
Airlines and Ryanair exploit in
order to undercut legacy carriers
such as United Airlines and
British Airways?

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 Gaddi, Maria Ynalyn V.
2BSAIS-3
ASSIGNMENT NO. 7
STRABA

5. Target (the US discount retailer), H&M (the Swedish fashion clothing chain),
and Primark (the UK discount clothing chain) have pioneered cheap chic—combining
discount store prices with fashion appeal. What are the principal challenges of designing and
implementing a cheap chic strategy? Design a “cheap chic” strategy for a company entering
another market, for example, restaurants, sports shoes, cosmetics, or office furniture.
Answer:
Cheap chic suggests that the organization is seeking to enforce a policy of differentiation but
still keeping costs down. This is difficult to do because distinction normally leads to higher costs.
A cheap, trendy business will have to keep up with and replicate the current fashion trends on a
budget. Ultimately, a cheap trendy company will have to be sure that the gains from distinction
offset the differentiation's additional costs.
Combining low cost with differentiation advantage is an attractive combination for any company.
The challenge is to pull it off. Differentiation typically adds cost – in improved design, variety,
quality, or some other attribute. Hence, for a “cheap chic” strategy to work requires that the
differentiation gains compensate the additional costs involved. For Target, IKEA, H&M, Zara,
Primark, and other successful exponents of the cheap chic approach, the key is to maintain the
basic model of a low-cost operator but to add a few (but not all) of the distinguishing
characteristics of more upscale operators. For example, in fashion retailing, H&M, Zara, and
Primark produce “knock-offs” of new styles introduced by the leading fashion houses of New
York, Milan, and Paris. IKEA sells out of vast, warehouse stores, but has contemporary European
designs associated with more expensive furniture makers.

6. To what extent are the seven cost drivers shown in Figure 7.7 relevant in
analyzing the costs per student at your business school or educational institution? What
recommendations would you make to your dean for improving the cost efficiency of your
school?

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 Gaddi, Maria Ynalyn V.
2BSAIS-3
ASSIGNMENT NO. 7
STRABA

7. Bot
tled

water sells at least 200 times the price of tap water, with substantial price differentials
between different brands. What are the key differentiation variables that determine the price
premium that can be obtained for bottled water?

In contrast with tap water, bottled water sells at a substantial premium and some even charge a
massive premium among the bottled water brands, while some are more affordable. The key
differentiation factors which affects the price premium are:

 Building a perception of better taste: Bottled water firms have been able to
establish a perception that bottled water is much healthier in terms of taste than tap
water by clever and enticing advertisement campaigns. This is achievable by
sowing photos of pristine waterfalls and mountain streams in their ads. This image,
which is mirrored in their pricing, has been better leveraged by some of the brands.
 Building a perception that bottled water is healthier: Again, companies have
demonstrated that drinking bottled water is better because it has fewer impurities
and more essential minerals by careful brand building and engaging customers by
showing that wellness is really relevant. Few firms have distinguished themselves
by claiming that their substance is subject to a certain degree of filtration and is, as
a result, purer than others. As a result, they are able to charge a premium price.
 Attractive packaging: Water packages are bundled in visually enticing and
elegant packages. Some of the items are sold in glass bottles, where more money
than the water itself is expended on bottles. It also helps firms to discern and
encourages premium branding and pricing.

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 Gaddi, Maria Ynalyn V.
2BSAIS-3
ASSIGNMENT NO. 7
STRABA

 The convenience of carriage: Since bottled water is compact and can be

transported in a backpack or on a bicycle, the more convenient the packaging and
the scale, the much more the company wants to charge.
 Appealing to ego of the customer: The firms have put bottled water as a status
symbol through powerful advertisements, and the wealthy prefer to choose the
costlier type in order to appease their ego.

The price differentials for bottled water are primarily perception. Consumers perceive that the
water is purer than tap water. In addition, it is packaged and easy to transport. Some consumers
buy it because it is a packaged alternative to caloric drinks, as if buying something packaged gives
them a treat that is healthy and low calorie.

8. Advise a chain of movie theaters on a differentiation strategy to restore its

flagging profitability. Use the value chain framework outlined in Strategy Capsule 7.8 to
identify potential linkages between the company's value chain and that of its customers in
order to identify differentiation opportunities.

Answer:

The value chain structure can be used by a chain of movie theatres to chalk its plan for distinction.
For the study of the distinction benefit, the value chain will act as a reference here.

The product offered by the chain is the ticket to a film and the experience it provides to its viewers
in the form of good facilities, good food and a good atmosphere. The goods and services are
therefore immediately absorbed by the viewers. A viewer is interested in the following series of
events before going for a film: checking for a film, show time, seats, and then buying the film
ticket. The viewer's value chain would have to be associated with the theatres' value chain.

By introducing artistic distinction, the film theater chain will provide importance to its viewers.
For example, to decide the genre of movies they want, the theater may use the data of previous
movies watched by its consumers and then provide them with discounts on those types of movies.

This strategy will improve loyalty, and the movie theater chain will continue to enjoy increased
patronage, allowing it to boost its revenues.

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 Gaddi, Maria Ynalyn V.
2BSAIS-3
ASSIGNMENT NO. 7
STRABA

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