Firms Strategies to Stay Competitive in the Market

Table of Content ......................................... -2-
Introduction ................................................ -3-
Differentiation Strategy ................................ -4-
Benefits & Challenges of Differentiation Strategy .................... -5-
Apple ..................................................................................... -6-
Low Cost Strategy ................................................................... -7-
Benefits, Challenge &Mistakes of Low Cost Strategy ................ -8-
Interview .............................................................................. -11-
Conclusion............................................................................. -15-

In the beginning, I would like to explain the major problem that is associated with economy in the whole world which is scarcity. We know that humans are greedy and they always want more of everything, so that is why we have the problem of not having enough resources to all people. Firms try to satisfy their customers by thinking of strategies that can make their customers satisfied and to stay competitive in the market. Looking from this perspective, I would like to introduce my topic about Firms Strategies to Stay Competitive in the marketplace. Firms can remain competitive through a lot of planned strategies. Being a competitor in the market requires constant monitoring of the situation and the events that are taking place. To stay profitable, the firm must have strategies available that it serves to stay competitive in the marketplace. Therefore, in this research I will be discussing some of the strategies that firms tend to use to stay competitive in the market. Also, I selected the most popular firms in order to, list their strategies and analyze their achievements that were related to the strategies.
To achieve the company goals and stay competitive, an organization must employ strategic planning. The strategic plan identifies possible problems, creates framework to help develop a budget and recommends the effective use of company personal as a line to achieve corporate goals. To Highlight, A company cannot remain competitive if it does not take the time to analyze the path ahead, and create a well plan to avoid the problems and benefit from the opportunities. Pricing also play a significant role to stay competitive in the market. Pricing may not always be the main reason why customers use particular product, but the cost of the product to the consumer needs to remain fair for the consumer to justify the purchase .If the firm want to develop competitive pricing it does requires strategies that involve proper personnel forecasting, purchase costs of raw materials and shipping costs to the distributing, according to the Reference for Business website. A company must maintain the lowest production costs possible to offer competitive pricing in the marketplace.
There are some important strategies that firms use to stay competitive in the market .For example, when more than one company sells the same product, the firm that offers customers a benefit such as a lower shipping cost or lower price will often earn more revenue than its competitor. Competitive strategy is the methods one business uses to gain an advantage over another company or a group of rivals. Several competitive strategies are common in the business world. Therefore, in this research we will be discussing some of the strategies that firms use to stay competitive by listing the threats, benefits, and the challenge for each strategy .In addition to the most successful and distinctive firms, and what did they use from the strategies that made them succeeded. Also there will be analysis to their achievements so far. Last but not least, interview with a professional in market strategies.

First: Differentiation Strategy: • A differentiation strategy develops when a company decides to expand the number of features or characteristics of a product to provide more choices to the consumers. Executives usually make this decision after conducting enough market research to determine the needs and desires of their customers or clients. To make a profit, the cost of adding a new feature must be affordable and there must be a reasonable expectation that customers will pay a higher price for the redesigned product. For example, if there are three companies that sell mobile phones and one of them offers a phone with a tracking device that works even when it's turned off, that company has created a differentiation that provides a competitive advantage.
Differentiation strategy faces some threats like:
- Threats of possibility entrants
Product differentiation helps reduce the threat of new entry by forcing potential entrants to an industry to absorb not only the standard costs of beginning business but also the additional costs associated with overcoming current firms' product differentiation advantages

-Threat of competition
Each firm in an industry attempts to carve out its own unique product niche. Competition is not reduced to zero, for these products still compete with one another for a common set of customers

-Threat of substitutes
Firm's trying to limit the threat of substitutes by making current products appear more attractive than substitute products .Easily, they manage to make the product look attractive more than the other substitute product

-Threat of suppliers
They can raise the prices of the products or services they provide. These increased supply costs must be passed on to a firm's customers in the form of higher prices. A firm without a highly differentiated product may find it difficult to pass its increased costs on to customers, since these customers will have numerous other ways to purchase similar products or services from a firm's competitors.

-Threat of buyers
When a firm sells a highly differentiated product, it enjoys a near monopoly in that segment of the market. Buyers interested in purchasing this specific product must buy it from a particular firm. Eg. Ipod .Any potential buyer power is reduced by the ability of a firm to withhold highly valued products or services from a buyer.

• Benefits:

-Creates Value

When a company uses a differentiation strategy that focuses on the cost value of the product versus other similar products on the market, it creates a perceived value among consumers and potential customers. A strategy that focuses on value highlights the cost savings or the strength of a product in comparison to other products.

-Non-Price Competition

The product differentiation strategy also allows business to compete in areas other than price. For example, a candy business may differentiate its candy from other brands in terms of taste and quality. A furniture manufacturer may differentiate its line of furniture as an image enhancer or status symbol while other companies focus on cost savings. Small businesses can focus the differentiation strategy on the quality and design of their products and gain a competitive advantage in the market without lowering their price.

-Brand Loyalty

A successful product differentiation strategy creates brand loyalty among customers. The same strategy that gains market share through perceived quality or cost savings may create loyalty from consumers. The company must continue to deliver quality or value to consumers to maintain customer loyalty. In a competitive market, customers can turn to a competitor in order to have the good quality if a product doesn't maintain quality

-No Perceived alternative

A product differentiation strategy that focuses on the quality and design of the product may create the perception that there's no substitute available on the market. Although competitors may have a similar product, the differentiation strategy focuses on the quality or design differences that other products don't have it. The business gains an advantage in the market, as customers view the product in a unique way.

Challenge:

Finding the ways to differentiate by:

• Create value for buyers and that are • NOT easily copied or matched by competitors

The most popular firm that uses Differentiation Strategy is Apple. Over here there are some specific strategies that apple use to stay competitive in the market such as, • Segment your customers then price your product.

Often lost in the anticipation of Apple's launch events are the subtle changes the company makes to its product portfolio. When Apple launched its most recent iPhone two years ago, it reduced the price of its 3G version to $99. During its most recent launch of the new iPad, it reduced the price of the iPad 2 by $100. In both cases, Apple established a market for additional customer segments
This strategy allows Apple to capture high margins with early adopters and drive penetration among a broader, more price conscious audience at a later date. Not every company has product launches that allow it to adopt this strategy, but there are always opportunities to develop and re-price a successful product to address the needs of a new and different customer segment

• Keep your eye to the future.

Success and growth elicit expectations. As Apple continues to launch innovative products, the expectations rise. Each Apple event seems to be met with more anticipation than the last and technology pundits spend months leading up to the events with conjecture about Apple's "next big thing."
To its credit, Apple has never stopped innovating. iPad sales for Apple's fiscal first quarter increased 111% over the year-ago quarter, and the company still maintains 74% market share in tablets. Amazon, Blackberry, Samsung, and others have all launched tablets over the past year each with features that they believed provided an advantage over the Apple. But Apple's continuous innovation and forward focus have allowed it to stay ahead of competitors. There's a lesson there for any business that thinks it can ride the coattails of a single successful product for the long term. • Listen to your customers.

With the benefit of social media, customers have a variety of avenues available to them to express their opinions on a particular company or product. But even if your company isn't a common topic of bloggers, there are more old-fashioned ways to listen to your customers. What's unique about Apple's two most recent product launches, the iPhone 4s and iPad, is the remarkably minor changes the company made to create an liberality of demand.
The new iPad, for example, is not all that dissimilar from the iPad 2. A new screen, 4G, faster processor, and better camera top the list of major developments, but there hasn't been a total redesign of the product. But the new iPad addresses some of the major concerns customers have expressed since the initial launch of the iPad in 2010. By directing product development to the voice of the consumer, Apple was able to benefit from the most successful tablet launch in its history. Listening to your customer is something a firm of any size can do.

To sum up Apple differentiation strategy, there are few companies that compete with the size of Apple, and fewer still that have been as successful as Apple over its most recent stretch. In my own perspective, the formula that has defined Apple's success is not restricted to the economy's behemoths. It is segmenting the customers and then putting the prices, keeping eye to the future and listening to the customers is the key to Apple's growth and it can be applied to a business of any size.

Second: Low Cost Strategy:

• Sometimes providing the lowest cost for a product or service can be the most effective competitive strategy because many consumers first consider the cost of a product or service when deciding what to buy. A low-cost strategy requires developing ways to reduce production costs without sacrificing quality. Inexpensive Poorly made product or poorly delivered service can make Customers avoid purchasing the product. Manufacturers can reduce costs by using new technology to reduce the price of production equipment, and finding suppliers with cheaper prices. • As for the Low-Cost strategy threats and risks they are the following:

- lowing the cost caused by excessive profit margins
- New competitors are likely to come from behind
- Loss the ability to foresee changes in the market
- Technological changes reduce the effectiveness of corporate resources
- Vulnerable to the impact of the external environment • Benefits: • Endure the confrontation of the existing competitors • Resist the bargaining power of buyers • More flexibility in the higher price of the supplier • Forming barriers to enter • Establish additional competitive advantage
In my opinion, many companies miss fully understanding their cost behavior, and they are then unable to take advantage of the opportunity to improve its relative cost position. Enterprises are guilty of some of the most common mistakes which include:

(1) a lot managers only think of the cost of production activities

Mentioning the “cost” can always make managers directly think of the production. However, total cost, if not most of, forms a huge part of the produce marketing, technology development, service and infrastructure activities. Most managers’ think only of the cost of production activities, and cost analysis often attracts little attention to review the entire value chain. This often comes to relatively simple steps that can greatly reduce costs. For example, in recent years, the cost of computer and computer-aided design progress on the research work is convincing.

(2) Ignoring procurement

Many companies are buying with reducing labor costs of purchased inputs that buying has almost been entirely ignored. They tend to purchase as a secondary support function, and management usually pays no attention. Analysis of procurement departments are often too focused on the purchase price of key raw materials. Companies often allow reduction of costs when neither have the expertise nor the enthusiasm to purchase necessities. For many businesses, the procurement methods’ little changes will produce significant benefits in cost.

(3) Ignore indirect or small-scale activities

Reducing the cost of planning is usually focused on a large scale. The cost of activities and (or) direct activities such as component production and assembly, is a small part of the total cost of activities. Maintenance and routine costs are often ignored because they are indirect activities.

(4) Lack of awareness on the cost drivers

Businesses often misjudged their cost drivers. For example, the lowest cost can be in the largest national market share, but may incorrectly be thought of as a national market share to promote cost. Cost leadership, however, may actually be the region from businesses operated by the larger regional market share. Companies do not understand that the source of its cost advantage may encourage attempts to reduce costs in order to improve the national market share. As a result, it may be weakened by a regional focus to destroy their cost position. It may also focus its defense strategy on the national competitors, while ignoring the greater threat caused by strong regional competitors.

(5) Inability to use contact

Few companies recognize the impact of cost between the relationship with suppliers and a variety of activities, such as quality assurance, inspection and services. The ability to use contact is fundamental to the success of many Japanese companies. An instance is Panasonic (Matsushita) and Canon’s awareness and use of contact, even if their policies are in contradiction with the traditional production and procurement methods. Several errors can be not recognizing the contact, such as requiring each department to reduce fees in the same proportion, regardless if some departments need to improve the cost so that it may reduce the total expense.

(6) Reduce the cost of the conflicting

Companies often attempt to contradict each other in various ways to reduce costs. They try to increase market share and benefit from economies of scale and diversification model to offset the economies of scale. Factories are located close to the customers in order to save transportation costs, but also stress that the development of new products will reduce burden. The cost drivers are sometimes contrary, companies must take seriously the trade-offs between them.

(7) Unintentional cross-subsidization

When enterprises fail to recognize the existence of cost performance for each different part of the market, they often do not know not to get involved in cross-subsidization. The traditional accounting system rarely measures these products, and the cost difference between customers, sales channels, or geographic regions. Companies may on certain price too high, but given consideration of the price subsidies on other products or customers. Competitors can take advantage of unintentional cross-subsidization, and often those who know the value of cost advantage will undercut in order to improve their market position.

(8) The added value considerations

The efforts made for lower cost is often to secure added value to improve, rather than seeking ways to reconfigure the existing chain. Value-added improvement may reach the point of diminishing returns, and reconfigure the value chain will be able to enter a new stage of the cost.

(9) Damage the image of the uniqueness

Reducing costs for customers, in consideration of unique characteristics of the product for customers, may impair its special image. Although this may be strategically desirable, this should be a result of conscious choices. Efforts to reduce costs should focus primarily on the benefits of the enterprise’s unique activities. In addition, the leading provider need not spend a lot of money to improve efficiency, create a unique image and work hard to do so.

• Challenge:
Find the ways to: • Produce good quality with low cost • Gain consumers trust

According to the low cost strategy, MacDonald’s is the best example to link with the strategy. Especially that MacDonald’s uses the lowest prices comparing to other fast food restaurants. For this Perouse, I interviewed Mohammed Ifechgoune he is the General Executive Manager in MacDonald’s Company and this is what he replayed...

Mohammed Ifechgoune
General executive manager
Advertising and public relationship
Email: mohamed.ifechgoune@macdonalds.com.sa
What strategies do the firm use to stay competitive in the market? (explain and give examples please)?
First of all, you are welcome in our firm and I wish that I could be able to benefit you in your research. It is known that all firms have their own strategies to apply ,in order to enable the company to achieve its mission and profits. For our company, MacDonald, the strategies applied are to keep the company in its leading position between the competitors in the field of restaurants and fast food. The main strategy depend on the quality of the meals and products we offer to our customers. We made continuous researches to choose the products and kinds of meals which keep the customer attracted to our products. We in MacDonald are distinguish of remarkable service in presenting meals and offers in addition to innovation in ideas related to kinds of meals and gifts. The prices of our company are making a competition between firms because it is affordable to all levels of our society. The customers can find verity of chooses with any price and any kind of food they wish. We hold many researches to develop the meals and food in addition, to put wonderful designs for the restaurants which keep the customers attracted to the architecture and design.
2. As we all know that MacDonald is one of the best fast food restaurants in the whole world, but especially in the middle east , the standard in MacDonald's are higher than any other place. Why? And is it connected to a certain strategy?
Macdonald's have a very remarkable and stated strategy which is applied in all branches of the company around the world. The leadership puts the strategy which is applied in these branches to achieve the main goal stated. The standards of MacDonald's are the same, but any way we wish that in the middle east we can serve and introduce the best for our customers. We appreciate your words and we promise to introduce the best all times.
3. Do you think that if another firm used you firm's strategies, would they achieve what you achieved?
Generally, the strategy have a unique umbrella which need all factors to be applied to achieve success. These factors are brand, system, strategies and people. All these factors work together to achieve the success to the firm. So our success is based on all these factors together. I think that it is very difficult to get all these factors together , so we in MacDonald's succeeded due to applying and gathering all these factors together.
4. What is your firm strategies against you competitors?
The success of MacDonald's has many reasons of it and we are challenging ourselves to keep our firm in the top ,and widening the gap between us and our competitors as we can. Also , MacDonald's is number seven between the Brands around the world in general and the first in food and restaurants field.
5. In the last three years , what have competitors done for MacDonald's? and how did you avoid it?.
Nothing, in general the competition is very healthy , but the reaction towards the competitor is not healthy. The practice should be proactive and keep you in the action. There are internal and external threats for our firm. The most important one is the "brand". The brand related to people who live and use food more than dead brands which does not deal with " trust bank". We have a social responsibility towards the community in the felids of charity such as human and children committees. In addition to the Ramadan campaigns performed from ten years, moreover the sportive events. All the above makes the brand image of MacDonald's.

References:

• http://en.wikipedia.org/wiki/Product_differentiation

• http://www.investorwords.com/19056/differentiation_strategy.html

• http://www.apple.com/

• http://smallbusiness.chron.com/advantages-product-differentiation-strategy-17691

• http://www.businessdictionary.com/definition/low-cost-strategy

• http://www.mcdonaldsarabia.com/ksa-riyadh/en/home.html?gclid=CMvv75P88LYCFQpZ3godGFEApg