Price And Competitive Advantage Of The Company. Cost Advantage And Differentiation Advantage

Abstract :

From a financial point of view, competitive advantage is the ability of a company to beat the competitors on the key indicator — profitability. Formulating corporate strategy, management identifies the markets and industry in which the company competes, the main sources of profit. In the formation of business, strategy (competitive strategy) is the most important question: how the company competes in selected industries and on certain markets, i.e., here we consider its competitive advantage. There are two basic types of competitive advantage: cost advantage and differential advantage.

If the company has a goal to capture a certain market share, the company must set the price for these products based on the calculation of the current cost and the calculation of cost, which will be achieved when the amount that will meet projected penetration of the market. This so-called price of the introduction (penetration pricing) as opposed to the traditional price based on all costs (full cost pricing). However, if all players do it, they will incur losses because of excessive investment in equipment and a price war.

To maximize sales to achieve economies of scale, it is necessary: to sell certain, but not excessively wide range of; to expand its presence in new markets, going into other regions and countries.

There is a correlation between market share and cost per unit of production, but if sales growth is accompanied by discounts and aggressive advertising, a situation may arise achieve market share at the expense of reducing profitability. So today the practice of strategic management is considered unreasonable to consider market share as the main goal in isolation from the financial goals of the company and assess the success of the company as a whole, in achieving financial and non-financial goals.