The concept of competitive advantage

Competitive advantage is achieved when an organisation is able to outperform its rivals in an industry or market. It can be temporary or sustained depending on the uniqueness of the resources and capabilities that the organisation possesses or controls. The four conditions that a resource or capabilities must meet to create a competitive advantage for the organisation include them being valuable, rare, inimitable, and non-substitutable. These are the four areas that strategic managers single out and seek to enhance for purposes of securing the competitiveness of their organisations.

Value means that the cost of acquiring a resource is lower than the benefit that comes from it. The cost in this case also refers to maintenance costs. If a capability costs more to purchase and maintain than its benefits, then such a resource is not valuable. The benefits can be quantifiable or subjectively determined. Quantifiable value is where the actual costs and benefits can be computed and compared. For instance, a factory plant’s value can be determined by comparing the savings it brings to the organisation in terms of reduced cost of production with the cost of purchasing and maintaining it. Efficient equipment can also have their values determined by comparing the savings related to energy efficiency or reduced labour costs with the actual cost of purchasing or maintaining the product. Effective strategic planning should entail ensuring that an accurate means of gauging the cost and value of resources is established and its accuracy reviewed frequently.

Determining the value of a resource or capability is more complicated where non-financial or unquantifiable measures are involved. For instance, where a resource is maintained solely for purposes of maintaining a certain image, it becomes unclear on the extent to which it contributes to the image and how this translates into actual financial benefits that can be gauged against the cost of acquiring and maintaining it. The issue of value is therefore relatively subjective and dynamic; requiring the strategic managers to regularly diagnose their resources and capabilities with a view to shedding off those whose cost to the organisation cannot be justified.

Rarity refers to a resource not being easy to find. The organisation that has resources or capabilities that are rare are able to use them to serve customers better than their consumers. The contribution of these rare resources is, however, dependent on whether it is possible to imitate or substitute. An imitation is something similar to a given resource and can deliver as well as it can. A substitute is a different resource or capability which can function as well as the resource substituted. In other words, a resource could be rare but this rarity contributes to competitive advantage only when it is inimitable and non-substitutable. Where the latter conditions are not satisfied, the rare resource can only give the organisation a temporary competitive advantage where things are in its favour for as long as the imitations or substitutes have not yet been discovered and put into good use.  

Critical analysis of P&G’s strategy for market penetration

Procter & Gamble’s new growth strategy is to use a new approach to marketing message design to introduce its products to new customers. It is a marketing tactic that is consistent with its goal of expanding its customer base by attracting first time ever consumers. These would be consumers who are experiencing need for the product for the very first time; hence consuming the category of products for the very first time. The company’s strategy can be critiqued based on its ability to use it to develop attract new customers as opposed to using loyal customers to bring in additional ones through referral....

In marketing theory, word-of-mouth marketing is the most effective form of marketing for the organisation. The reason why this form of marketing is highly effective is because the information sources are trusted. Consumers will generally have a healthy level of mistrust for the organisation and the marketing messages that come from it. This mistrust is founded on the rational expectation that organisations will try to entice the customers to purchase their products. They will do this by exaggerating the positives while glossing over the negatives of the products. The consumer is therefore not in a good position to verify the claims made by the organisation. When another consumer that has used the products before gives a positive recommendation, such a recommendation is highly trusted and is more likely to earn the organisation more customers.

It is a proven fact that organisations with a large pool of loyal customers tend to be more effective in attracting new customers than organisations which focus on aggressively marketing to new markets. The reason for the disparity is the difference in trust in the two types of information sources. By focussing on marketing to new consumers, P&G can be said to be taking a gamble using a strategy that has not traditionally been known to yield results. But their approach could be justified using a number of arguments.

At the moment, P&G does not produce products that have no close alternatives or perfect substitutes in the market. The organisation only enjoys partial loyalty as its customers tend to exhibit polygamous loyalty. This means that the probability that it would raise the level of loyalty to the level that its customers become advocates for its brand is quite low. So, P&G’s strategy of being the first in the industry to serve consumers that are recognising the relevant need for the first time could be well-informed. First time-ever customers that recognise their needs and opt for a product are likely to be attached to the brand that first satisfied their need.

If the organisation can effectively manage its customers so that it is constantly in touch and attending to their needs from the very first purchase, it could reduce the tendency of such customers exhibiting polygamous loyalty. At the very least, it would become the most preferred brand among the few organisations that a customer is loyal to. The P&G strategy could therefore be successful; but success would only be realised if the initial marketing approaches are followed up with a tactful commitment to boost the level of brand loyalty. 

Back to the basics: P&G to focus on product benefits

The most basic and traditional approach has always been focus on the product-tangible attributes such as price, qualities, utility, and convenience of access among others. These are attributes that strategic managers find significantly risky because it is easy for competitors to develop substitutes. If the main focus is utility, there is no guarantee that an organisation will not lose its customers to rivals offering products that have similar qualities. It is an approach that is said to be highly risky and often one that generates the lowest level of customer loyalty.

In order to overcome the vulnerability associated with utility-focused brand identities; marketers seek to focus on creating emotional connection between consumers and their brands. The brands are associated with personalities and emotions that consumers can identify with and be attached to. The interesting thing about brands is that they allow people to interact with organisations and sustain bonds in much the same way that natural persons could. Each bond is expected to be unique and often difficult to replicate. This means that customers will not easily be taken over by rivals. Since value per consumer increases as loyal customers continue patronising a business, the emotional branding approach helps in many ways to make the organisation more competitive.

Even though P&G has thrived and grown into a global brand by building trust with its consumers, it is now focused on returning to the basics where its marketing messages are to focus on highlighting the benefits of its products. It is not expected that this would be an exclusive strategy with analysts predicting that it will continue strengthening its brand. Focusing on the basics helps to draw in first-time customers. Highlighting the benefits of a product promotes need-recognition. This is the first stage in the purchasing decision making process of the consumers. It is only when consumers recognise their needs that they set out in the process of searching for products and services that will satisfy such needs. The organisation could either wait for the consumers to recognise their needs and embark on the process of satisfying it; or seek to promote need recognition. Need recognition is promoted when the marketer highlights the benefits of a product through consistent marketing messages; expecting to draw the attention of these consumers to the needs in question.

P&G’s focus is to draw the attention of target customers to their needs and promote need recognition. This is consistent with its goal of attracting new customers. Through a mixture of digital and traditional marketing approaches, the organisation will be advertising aggressively to reach a wide range of consumers. The organisation is yet to come up with a clear niche that it is to target. This implies that it will be focusing on attracting the mass market which comprises of the different niches that are likely to be attracted to its different products. But there are mixed interpretations on the extent to which P&G’s strategy can be expected to contribute to success as projected. The company’s strategy raises questions on whether marketing to new consumers could be as effective as focusing on customer loyalty in attracting new customers. 

P&G’s go-to-customer strategy

Procter & Gamble is to embrace a new strategy to target entry-point customers as a way of attracting new market for its products. The entry-point consumer refers to persons who are becoming aware of a certain need for the first time. These are consumers who have not consumed such products before need to be introduced to the products as well as the benefits they offer.

Procter & Gamble’s strategy is a shift from its traditional approach in which it has previously concentrated on encouraging repeat sales. The products sold are routinely consumed hence the organisation justifiably saw frequency of purchase and loyalty among the current consumers as being the key to success in the market. Customer loyalty has indeed been the main source of focus for most organisations and for good reasons. As competitiveness in the market increases, the organisation is prone to lose its customers to competitors. This makes it necessary for it to offer value and generate trust to keep consumers coming back. In fact, emotional connections between brands and the consumer has become an important predictor of customer retention.

The rationale for customer retention (as opposed to attracting new customers) is that it costs more to retain a customer than to attract a new one. But as the market shifts towards customer retention, a general weakness has been realised in that few make efforts to attract first time customers. P&G aims at sealing this weakness by attracting customers that are just becoming aware of their needs. But attracting new customers has two dimensions: attracting the customers who have consumed similar products from competing brands, and attracting customers who are consuming such category of products for the very first time. The strategic value of the latter can be high if the marketing process is executed effectively.

Marketing research experts have established that consumers who make a purchase for the very first time tend to be loyal to the first brand they purchased from until such a time as when they will realise their needs are not being fully met. Such customers are more likely to be loyal than customers attracted from other brands. The latter group of customers do not completely lose loyalty to their initial brands. Their loyalty is therefore more polygamous. On the other hand, consumers who have realised the need for the very first time will be loyal to the brand that first met their newly realised needs for much longer. This means that there is considerable value in attracting first-ever customers.

By focusing on marketing products in their trial generation, P&G’s strategic approach is likely to be successful. The market is likely to be curious about what the new products and the needs that they are likely to satisfy. This approach makes it more probable that the organisation will attract customers who are consuming such types of products for the very first time. But success of this strategy is dependent on the organisation being accurate in identifying these first time customers and using appropriate messages that would help in promoting need recognition. 

P&G strategic focus on product trial

Procter & Gamble strategic management focus in 2016 is to increase use of products that are in the trial generation. These are supposed to be products that conform to consumer preference and are still being tested to determine their viability in the market. The strategy is aimed to achieving several goals including enhanced brand image and streamlining the type of consumers that the organisation will attract.

In reference to the brand, focusing on trial generation products helps to bring out a brand image of an organisation that is dynamic and innovation oriented. These types of products are new to the market and will have been developed with a view to meeting emerging needs.  Such a strategy can only be sustained where an organisation is keen on research and development and is constantly innovating to meet changing consumer preferences. One of the main principles in strategic brand management is the creation and sustenance of a similar image over long periods of time. Where an organisation places emphasis on products in trial generation, the consumers get accustomed to the fact that it tends to stock the newest products in the market. Such an idea helps to generate the brand image of an organisation that is highly dynamic and always innovating.

The value of having an innovative brand can be drawn from blue chip companies such as Apple. Apple has wowed the market each time it has brought up some new products. It was the first to actualise the idea of a phone without a keyboard and went ahead to turn mobile phones into mini computers that have become instrumental in improving internet access around the world. Apple can be said to have mastered an innovative approach to strategic management by being ahead of the market. P&G intends to also bring out an innovative brand image by focusing on showcasing products that are in their trial phase.

The second value of P&G’s strategy is in the nature of the customers that they wish to attract. The innovators and early adopters tend to be highly potent consumers with considerable purchasing power. They tend to be curious to try out new products and this gets them to prefer shopping from organisations that are keen on showcasing these new products. P&G has traditionally attracted the mass market through a differentiation strategy. By focusing on an innovation approach, it would appear to be keen on market penetration; attracting a new group of consumers.

Market penetration as planned by P&G can be very effective in for purposes of growing the customer base for an organisation. However, it comes with the risk of expectation being higher than the organisation can sustain. An organisation that creates the image of an innovative brand must continually invest in research and development to not only understand changing market preferences but also accurately translate these preferences into products that meet them. Satisfaction can only be sustained if such a record is sustained. This means that the image may be easier to create than sustain. 

Assessing P&G marketing plan; the strategic management perspective

The choices made by Procter & Gamble are common decisions made in strategic management. In mid-2016, P&G expressed its intention to increase its spending in advertising. The strategy came on the backdrop of the company making a saving of $250million by reducing non-media marketing costs. These savings were related through revamped agency management system that reduced the agency costs. This meant that the organisation could increase its advertising spending without having to significantly increase its overall marketing budget. This can pass for a good strategy where there is greater focus on reduction of waste and increase in value.

The trade-off between cost and returns is one that has to be made by strategic managers from time to time. Marketing agencies charge considerable fees for their services. They use their expertise in mastery of media platform design and marketing message design to bring out the message that the organisation intends to sell. In many cases, it makes sense for organisations to engage their services as it would take enormous time and resources to develop such capabilities in-house. Besides, marketing agencies have been known to be highly creative and behind many of the most successful branding campaigns around the world. But for large organisations, it could be practical to develop in-house marketing design functions that reduce the amount spent on marketing agencies. This is what has been done at P&G enabling them to save up to $250million annually.

Returns on investment are generally highest where spending is on elements that are capable of producing direct results. However, the organisation needs to carefully review its implementation strategies to be sure that it has made the right decisions. An example of this dilemma can be drawn from the trade-off between agency costs and investing directly into buying media space. Agency costs can be justified on the basis that marketing agents could use their expertise to generate messages that resonate well with the market. Where there is effective message design, the organisation can create messages that go viral and those that are highly effective. But on the other hand, engaging the marketing agency means that millions of dollars are spent in agency fees. The trade-off therefore is in the question: is the value of message design higher than the agency cost?

Procter & Gamble seems to have found a middle ground between reducing agency costs and investing directly in buying media space. This solution is expected to contribute positively to its returns on investment in marketing. Investing in understanding customers is certainly bound to shape their product offers hence improving the consumer experience significantly. This strategic marketing approach has been found to work for other organisations such as Unilever. They have managed to not only review advertising expenses but also ensure that money is put where it matters most. Procter & Gamble’s strategic management strategy appears based on reviewing its expenses of diverting the savings made to where it would have the greatest impact on attracting and maintaining customers. 

Innovation as an element of strategic management in the hotel industry

Introduction

Innovation is very important in strategic management of organisations in today's highly dynamic market. In terms of the production of new products and service delivery approaches, innovation is one of the most commonly embraced methods of creating and sustaining a competitive advantage in businesses (Rugman and Verbeke, 2002). The hotel industry is not an exception to this view with many hotel managers keen to align their services and practices to “the new wind blowing throughout the hotel business”. An overview of the arguments by Hu, Horng and Su (2008) concerning innovation highlights the importance of taking a comprehensive approach towards ensuring innovation in organisations. This view is complimented by the views of Freund de Klumbis (2011) in his emphasis on the changing customer characteristics and the increasing pressure on the hotel industry to live up to the expectations of their clienteles. The typical service of a hotel is aimed at providing clients with meaningful experiences which are mostly personalised to meet the expectations of the clients in question. The art of attracting and retaining customers is a function of the level of satisfaction derived from the unique experiences offered by them. This requires an innovative approach in the creation and provision of services. Hotels are increasingly making efforts to create unique experiences by offering a larger range of services known to enhance customer satisfaction (Bouncken, 2005). These unique experiences must be sustained with new innovations produced from time to time in order to keep up with the ever changing customer preferences. 

Innovation

The importance of innovation to the hotel industry

Before considering the importance of innovation in the hotel industry, perhaps it would be prudent to consider the characteristics of the industry’s clientele and how their changing perceptions are likely to impact strategic management and operational practices in hotels. The modern day hotel clients tend to focus more on rewarding themselves through the enjoyment of unique experiences rather than merely taking a rest in a traditional hotel room (Freund de Klumbis, 2011). These consumers tend to be more informed than the traditional consumers with many reaping the benefits of increase proliferation of information as made possible by the internet (Freund de Klumbis, 2011). Being that they tend to be more informed, their expectations of the level of service provided by hotels tend to high with many looking beyond the physical description of facilities and services at their disposal. The main focus becomes the gratification to be derived from the unique experiences to be felt (Earnst & Young, 2011). Customers expect hotels to be more of a ‘home away from home’ where they can get special experiences that are largely reflective of their lifestyles (Freund de Klumbis, 2011).

As analysts would hold, success in any business is dictated by how well the business understands their clientele and goes on to create the products that best satisfy their clientele’s changing needs (Wilkerson, 2003). Clients tend to be more loyal to businesses that are seen to be conscious of their needs and accurately translate such knowledge into acceptable or satisfying goods and services (Barney, 1991). Given that customers of the hotel industry are increasingly conscious of the uniqueness of experiences provided by hotels, it becomes increasingly necessary that hotels embrace an innovative approach to the provision of new services capable of satisfying this demand. This trend has led to a growing tendency towards the upgrading of hotels into the lifestyle hotel status where focus is mainly on the customer and their experiences while at the hotels (Wilkerson, 2003). As a component of strategic management, innovation has become a requirement for survival in the increasingly competitive market with those getting it right appearing to steadily gain on the market share. Care must however be taken to ensure that the kind of innovation is in line with the expectations of the clientele. The accurate translation of information into suitable services is the key to ensuring that innovations create a competitive advantage to any given business.  

Conditions necessary to promote innovation in the industry

Organisations must consciously take measures to create a suitable internal environment for innovation. Some of the practices known to promote innovation best include knowledge management, knowledge sharing, and the promotion of team culture (Hu, Horng and Sun, 2008). Effective strategic management should incorporate all these elements to ensure that every aspect of the organisation functions at its optimum. Knowledge management and knowledge sharing are closely related and often refer to the process through which valuable information is collected from an organisation’s clientele regarding their likes, dislikes, preferences, and attitudes (Cabrera, Collins and Salgado, 2006). Given that hotel services are highly personalised, it is relatively easy for employees to collect the information through conversations with the clients or through observation on their reactions to the various services. Such information is crucial in enabling hotels come up with an array of services that can create extraordinary levels of satisfaction among the customers. However, a common problem has been observed when it comes to information sharing. Employees may intentionally or unintentionally provide their peers with partial information regarding the clients served hence making it difficult to satisfy their customers (Hu, Horng and Sun, 2008).

Management teams should come up with good knowledge management systems that enable accurate sharing of information with minimal impartialities. It is an established fact that information sharing and knowledge management is an integral part of promoting innovation in any organisation (Cabrera, Collins and Salgado, 2006). As strategic management analysts would hold, the development of new services is useless unless it is based on accurate information about the prevailing needs among the customers targeted. Another crucial requirement for the promotion of innovation in organisations is the promotion of the team culture. Teamwork is a crucial practice for promoting cooperation among employees who then take joint responsibility to ensure that the organisation’s goals are achieved (Hu, Horng and Sun, 2008). A good team culture also helps dissipate the problem commonly associated with information hoarding commonly practiced by employees collecting information from their clients (Cabrera, Collins and Salgado, 2006). Adopting the view that members of an organisation are team members with the responsibility to ensure overall results, hotels are increasingly finding ways to getting their employees to solicit for relevant information and pass them on for the benefit of the whole organisation.

Underlying theoretical perspectives

Perhaps the most relevant organisational view is the resource-based view of the organisation. This theory envisions the organisation as a collection of resources where these resources include all physical, financial and human resources at the disposal of the firm (Barney, 1991). Barney's theory has often been described as the backbone of strategic management theory and practice. It emphasises the use of the resources available to the firm to enable it create a competitive advantage. For instance, a hotel can choose to make good use of its employees to create a competitive advantage by enriching the experiences that customers have while at their hotels. As has been mentioned earlier, hotel services are highly personalised and therefore involve a substantial level of interaction between the employees and the clients. The employees can therefore become the most strategic resource for any hotel wishing to stand out in the market. Proper training of employees in customer service and in how to cater for different client needs can enable employees to provide exemplary service.

Unique satisfaction can also be created by ensuring that the employees are adequately informed on the areas that are likely to be of interest to the clients (Earnst & Young, 2011). For instance, a visiting client may want to know about various facilities in the locality and would be very pleased to be provided with ample information on the available and the most reliable facilities. The strategic manager ought to be able to understand such client needs and ensure that they are satisfied for sustainable competitiveness to be assured. Perhaps one of the best ways of using human resources in creating a strategic advantage is in involving them to turn the organisation into a leader in innovation of products and services. In the hotel industry, employees are valuable and effective instruments of collecting information (Earnst & Young, 2011). Through their interaction with their clients, the employees are able to learn about the preferences of their clients and come up with ideas on how such information can be used to create innovative services (Earnst & Young, 2011). With the current trends in the demand for luxury products and services, it is predicted that innovators will be experiencing remarkable returns in the medium and long term. Hotels must therefore channel all the resources at their disposal to promote innovation and tap into this growing demand.

Conclusion

From the perspectives highlighted above, the arguments advanced by Hu, Horng and Su (2008) are largely reflective of the views held by strategic management experts around the world. Knowledge management, knowledge sharing and teamwork are indeed crucial when it comes to promoting a culture of innovation in a given organisation.  The push for more innovation in the hotel industry is fuelled by the changes in the expectations of their clientele with more focus channelled towards gaining memorable experiences from the hotels. The typical hotel customer is more demanding, better informed, and certainly experience extraordinary thrills. As Freund de Klumbis (2011) ably demonstrates, a new wind is blowing in the hotel industry and this wind is characterised by changing expectations and preferences among the clients of the hotel industry. Experts concur with this view and predict that innovation is going to be the most important platform on which the survival and success of hotels around the world will be determined (Earnst & Young, 2011).

References

Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of Management, 17 (1), pp. 99-120

Bouncken, R.B., 2005. Standardisation and individualisation strategies of hotel brands: matching strategies and quality management instruments and marketing in Germany. Journal of Hospitality and Leisure Marketing, 13 (3/4), pp. 29-51

Cabrera, A., Collins, W.C., Salgado, J.F., 2006. Determinants of individual knowledge sharing. The International Journal of Human Resource Management, 17 (2), pp. 245-264

Earnst & Young, 2011. Global Hospitality Insights: Top Thoughts for 2011. (Online) Available at: http://www.ey.com/Publication/vwLUAssets/Global_hospitality_insights_Top_Thoughts_for_2011/$File/Top-thoughts-for-2011.pdf (Accessed 23 October 2011)

Freund de Klumbis, D., 2011. Seeking ‘the Ultimate Hotel Experience’. Unpublished

Hu, M.M., Horng, J., Sun, Y.C., 2008. Hospitality teams: knowledge sharing and service innovation performance. Tourism Management, xxx, pp. 1-10

Rugman, A.M., Verbeke, A., 2002. Edith Penrose’s Contribution to the Resource-Based Views of Strategic Management. Strategic Management Journal, 23, pp. 769-780

Wilkerson, C., 2003. Travel and Tourism: An overlooked industry in the US and Tenth District. Economic Review, 88 (Third Quarter), pp. 45-72