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A price war is one of the greatest severe methods of competitive interchange in the marketplace that is responsible for huge damages. The main notion behind the concept of price war is that firms within an industry lessen their price in the fight for business. The implications of the price war for the company are as follows:
A company should try to deal with the threat of a price war in the following manner:
Profitability drivers can be defined as those measures that assist the managers to determine the performance, profits, value addition, cost structure, allocation of resources, and other aspects of the business. It is important to understand the drivers of profitability as measured by ROIC (return on invested capital) because it concentrates on the actual operating performance of the company. ROIC is the net profit over the capital financed. Since it gives the true driver of value creation, it helps the company to recognize its weaknesses and strengths as compares with its competitors. Moreover, it helps in knowing the historical performance of the company that allows the company to know its profitability condition. Return on capital invested is the most significant technique or method for getting the position of the company in respect of profitability because it assesses the effectiveness that is useful for the company in knowing the available capital funds for the investment purpose (Lee 2019)
Furthermore, it is the most spontaneous measure of profitability and performance of the company as it assesses how much revenue a business makes for each dollar capitalized in a business. It is the actual measure of cash of the company on the cash yields. Moreover, it is best because the market upkeeps most about allocating value to the businesses that generate the greatest money per investment capitalized in them. The profitability drivers that are measured by return on capital invested are reliable. Moreover, the ROIC is mainly determined by competitive advantages that drive the worth rewards or price and wealth proficiencies. It usually finds the fundamental return that a corporate generates on its aggregate reserves in the business. There is no doubt in saying that ROIC is the best measure to judge the superiority of the business (Fan et al 2017).
Value chain analysis is the structure that is used for recognition of business activities that are responsible for creating value and competitive advantage for business (Simatupang, Piboonrungroj and Williams 2017). Yes, Amazon has both rare and valuable resources. The valuable and the rare resources of Amazon are numerous namely brand image, customer base, global presence, technical innovativeness, product range, and customer loyalty. Moreover, its cloud computing infrastructure that includes AWS (Amazon’s web services) and server farms are also its rare and valuable resources. Due to these resources, amazon is the market leader in the cloud computing industry. It has promptly invested enormously in digital technologies due to which it is the market leader in the digital technology industry also. Moreover, it has continued to enhance its investment in the R & D (Research and Development) activities. These resources are located in R& D activities, procurement activities, logistics activities, and marketing & sales activities that all are creating value to the business.
Sustainable competitive advantage indeed depends on purposefully selecting a diverse range of activities from competitors to offer an exclusive mix of value. Amazon has a sustainable competitive position in the virtual retail business due to its leadership in terms of market share.
The term “value innovation” can be defined as the market-creating strategy in which a business novel technologies that are designed to attain a low-cost position and product differentiation. The purpose of these innovations is that they raise the value for the buyer and save costs by evading and minimizing the expensive factors in the previous model of business. This concept was developed by Renee Mauborgne and W. Chan Kim. It can be said that the value innovation is attained only in case the entire system of price, cost, and utility is aligned. This is because the company gets value from this from the price of offering less its cost, and buyers get value from it by the price of utility less its price (Alam and Islam 2017).
Casella wine’s Yellowtail is the brand is the one that has established a robust competitive position through value innovation. It has achieved extreme success using the concept of Blue Ocean’s value innovation. Just after three years of its launch, it has become the fastest developing wine brand in the American market. The brand’s leaders recognized that if they reduce and evade all the things other businesses contended on and by creating a more exclusive product, they might attract novel customers. Hence, they created a novel drink named yellowtail that was proved to be a victory and attracted to its already increasing clients. Furthermore, they presented novel features and traits and tweak it to create a fruitful outcome through value innovation (Rahman and Choudhury2019)
(a) Nordstrom is a fashion retailer company of America that was established in the year 1901. The actions taken by Nordstrom at the functional level to successfully implement its strategy are as follows:
(b) The sources of long term competitive advantage of the Nordstrom are its exclusive customer service, quality, product range, and value for the customers and its employees. The company has been maintaining these sources of competitive advantage for many years till now hence, it has sustained its competitive advantage. Moreover, it is a niche company that emphasizes on the comparatively rich customer segment that is looking for reasonable luxury. Not only it focuses on luxury and quality, but also it concentrates on the operational efficiency of the company. It is constantly improving itself with novel technologies like recently bring mobile checkout devices in business.
The valuable and rare resources of the company that are difficult to imitate by its rivals are the huge presence of its business, its brand image, customer service ethos, and its organizational chart where the CEO is placed at the bottom level and the salespeople at the highest level. Its culture is rare and valuable that its rivals cannot imitate.
Alam, S., and Islam, M. T. 2017. Impact of blue ocean strategy on organizational performance: A literature review toward implementation logic. IOSR Journal of Business and Management, 19(1).
Cohan, P. 2018. 3 Reasons Amazon is the world's best business. [Online]. Available at https://www.forbes.com/sites/petercohan/2018/02/02/3-reasons-amazon-is-the-worlds-best-business/#1b0ed6f63565 [Accessed on 14 May 2020]
Fan, L. W., Pan, S. J., Liu, G. Q. and Zhou, P. 2017. Does energy efficiency affect financial performance? Evidence from Chinese energy-intensive firms. Journal of Cleaner Production, 151, pp.53-59.
Krämer, A., Jung, M., and Burgartz, T. 2016. A small step from price competition to price war: understanding causes, effects, and possible countermeasures. International Business Research, 9(3), p.1.
Lee, J. 2019. Effects of operational performance on financial performance. Management Science Letters, 9(1), pp.25-32.
Rahman, M. H., and Choudhury, S. 2019. The Influence of the Blue Ocean Strategy on Organizational Performance. Global Disclosure of Economics and Business, 8(2), pp.49-62.
Simatupang, T. M., Piboonrungroj, P., and Williams, S. J. 2017. The emergence of value chain thinking. International Journal of Value Chain Management, 8(1), pp.40-57.
Williams, G. 2017. In a price war? 5 strategies that could pay off. [Online] Available at https://www.americanexpress.com/en-us/business/trends-and-insights/articles/in-a-price-war-5-strategies-that-could-pay-off/ [Accessed on 14 May 2020]
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