Cost advantage/ Competing in distinctive way

“If a company cannot be more operationally effective than its rivals, the only way to generate higher level of economic value is to gain a cost advantage or price premium by competing in a distinctive way”. Does this apply to the digital economy? Assess critically.

It has been claimed that “value can be created with Internet communication either through finding ways of reducing costs or, on the demand side, by improving the match between buyer preferences and the goods they purchase”. Do you agree?

“Internet technologies tend to reduce variable costs and tilt cost structure towards fixed cost, creating significant greater pressure for companies to engage in destructive price competition.” Do you agree?

INTRODUCTION

o It is argued that “If a company cannot be more operationally effective than its rivals, the only way to generate higher level of economic value is to gain a cost advantage or price premium by competing in a distinctive way”. o I will first give a definition of the digital economy and what is economic value. o This is followed by a briefly discussion on operational effectiveness. o I will then talk about the importance as well as limitation about cost advantage and price premium strategies. o The last part of the essay will look at other strategies and other elements besides cost advantage and price premium a firm can consider gaining competitive advantage.

MAIN BODY

Definition: o Digitalization and globalization is core to what many regard as the digital economy. It is the world of soft – the world of intangible -ideas, information and relationships, of media, of software and of services. (Kelly, 1998).

o Economic value is the gap between revenue and cost.

Operational effectiveness is doing the same things your competitors do but doing them better.