Competition exists everywhere. From the morning rush hour, when you are trying to find a seat(unlikely) or find a pole to grab on so you don't fall when bus/train are moving; or trying to squeeze in the Baruch elevator; to the classroom of BPL, where we are competiting for our grades. As firms competiting over each to win more customers, more revenue, and more profit. One way to win is to have an advantage. Once the firm has an advantage, it is easier for them win over the competitor. The two companies I choose that have competitive advantage are Wal-Mart and Dell.
One of the advantage is cost leadership. Wal-Mart is the world's biggest discount department store. You can find almost anything you need in Wal-Mart. It's slogan is "Save Money, Live Better." The items selling in Wal-Mart might not be the best quality item, but it usually is one of the lowest priced compared to the market. Most items selling in Wal-Mart are like me "Made in China" or like my friend Abdul "Made in India". The labor cost in those developing countries are extremely low. Thus the cost of good sold is going to be low as well. Wal-Mart shows economy of scale to its best definition. Since they are such a big company, their average variable cost per unit is going to be lower than those of small companies.
Dell is the first mover in the computer industry to have customers customized their computer their way. One of the reason behind their success is their idea of letting customer choose how their computer are built. The first three computer I bought was a Sony and two unknown brand. They were all built when I bought it. Their idea of customization let the customers choose/create thousands of models. Dell was once the largest seller of personal computers. But the competitors quickly adapt the same idea and right now Dell is the third biggest computer company in term of sales. However, Dell's first move of customization has made Dell one of the most successful company in the world.
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6 comments:
Alan, this is great analysis on the cost leadership and the first mover’s advantage strategy. Wal-Mart and Dell are both very popular and well known companies that are perfect for your analysis. In terms of Wal-Mart, it is no doubt that it has a huge cost leadership in comparison to its competitors. They are able to provide customers with great values, and they are also able to run a business efficient with relatively low cost. I believe Wal-Mart will be able to maintain their competitive advantage as long as they maintain a good relationship with their suppliers. I also talked about Dell in my analysis, but I actually used it for cost leadership. I think it is great that you brought up another view of Dell’s business strategy. I do agree with you that Dell definitely have the first mover’s advantage when it comes to computer customization. Although other computer companies, such as HP, is also allowing their customers to customize the computer they want, but they might not be as cost efficient as Dell in providing value to the customers. So if we combine our analysis on Dell, we can see that Dell have a competitive advantage over its competitions in the computer market because the combination of their first mover’s advantage in customization and cost leadership in providing lower cost.
Great write up, I did the same companies as you. I guess Wal-Mart and Dell is the popular choice of the people. The only difference between our analysis is the classification of the competitive advantage in Dell. I believe Dell’s competitive advantage should be accredited to their cost leadership. Their Just-In-Time inventory policy, efficient supplier system, and direct sales over the internet made them more cost efficient than any other company. Whether as a first mover or being a cost leader, I believe they could sustain their advantage in the long term. Their computer is cheap and performs just as well or even better than their counter part. The ability to let you customizes is also an advantage over other companies.
Alan,
I agree with Wal-Mart's competitive advantage and I know they will remain that way for a very long time. (which I mentioned in my own blog)
I also agree with your Dell analysis. I am not even go to challenge it because I have always loved Dell's model. They understand what the customer needs, and go about to fulfill that need.
They cut costs by cutting out the middleman and market directly to us. I believe they use some of the most efficient technologies to make sure that inventory is minimized, and customer satisfaction is maximized.
In a sense, Dell is also following a cost leadership strategy. All their efficient, cost-cutting operations rolls to the end consumer in the form of a high quality PC on a deep discount. I wish I thought of Dell. It's one of my favorite computers.
Ramon
Alan,
I agree with your analysis on Wal-Mart and Dell. Wal-Mart indeed have a competitive advantage for been a coast leadership. Since they are purchasing inventories and selling products at a massive amount, they have huge control over supplier's power. No doubt that their cost per unit are low and help them to maintain their advantages. Same goes to Dell, they are the first mover in computer industry to go into customization and ensure customer satisfactions. Good Job!
I agree with Tina, this is a good analysis, eventhough a lot of people choose these companies, Alan had a sence of humor when he compare himself to items in Walmart as "Made in China" and his friend to as "Made in India".
Good choice on the topic Al, I definitely have to agree with your inputs on Dell as it has made itself huge by the ability to make its sales over the internet through convinience and strong customization that the consumer has. One of the bettere examples when illustrating competitive advantage.
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