Business models and strategic planning fundamentals

Business Model

What does competing on price mean? Can you name some companies that compete on price?

Of the many forms of competitive differentiation available to companies including striving for highly unique product designs, responsive service, or unique distribution channel arrangements, competing on price is the single most common. When a company uses price as the differentiator, it is commonly selling commoditized products that are very similar in features and functions to other products, making price the only factor in the marketing mix that can be used to differentiate the product. The personal computer laptop market is a case in point, as are many household items that have comparable features to each other and therefore can only be differentiated on with pricing. Companies that compete on price as part of the unique value propositions include Air Berlin (European airline), Motel 6 hotel chain, Southwest Airlines (U.S. regional airline), and Wal-Mart stores.

In addition to customer value and relative positioning, what else is likely to impact a business model's profitability? Which of these factors can also be regarded as positions?

There are many other factors that can directly influence a business models' profitability. First, there is the relative stage in the product lifecycle a given product is relative to the industry lifecycle it competes in. An example of this is the technological leadership Intel has in microprocessors, where the company strives to set the pace of industry product lifecycles with its own product lifecycles. Another example is in the area of hybrid automobiles, where the industry lifecycle for these vehicles is relatively new, and Toyota Corporation has virtually created the industry with its series of new product introductions in this area. This first factor of the product's specific position in its lifecycle relative to the industry's overall lifecycle has direct implications on follow-on product strategies, pricing strategies, distribution and promotional strategies. Taken together, all these factors influenced by the stage a product is in relative to the industry lifecycle; influence the business model's profitability. Overall this factor influencing a business modes' profitability is the stage in the product lifecycle a product is relative to the industry.

Another significant series of factors are the extent of the supply chain integration, supply chain management and supply chain planning the company has engaged in. For customer orders to be filled on time and delivered accurately, the synchronization of supply chain systems and suppliers is critical. This has a direct impact on a business models' profitability as well.