MERRY CHRISTMAS! It's been several days since I got back from Arizona, but I've been too busy to post this. Here is an entry I wrote while I was down there:
Allow me to spend a few minutes with you. I'm still on vacation visiting my Girlfriend's relatives down in Arizona. It's quite beautiful here despite the vast amounts of construction going on. Right now, I'm on my trusty PDA (Dell Axim X51V) typing this post and I'll upload it when I get home. Today I'd like to talk a little about Competitive Advantage.
Competitive Advantage:The marketplace positioning that a business does which improves its profit margins relative to competitors in the same industry. In other words, the company with competitive advantage has something the others don't have. There are two types of competitive offerings that a company can offer - Cost Advantage and Benefit Advantage.
Cost Advantage:It's no wonder that companies such as Walmart do not win customers by providing superior service, superior products, and innovative superior ideas. That's not to say that Walmart companies are all bad. They still provide fair service, reasonable products, and time tested ideas. Companies such as Walmart don't compete the way a company such as Apple might, because instead of offering more benefits to the customer, they are offering lower prices. Customers go to Walmart expecting the best deal for their dollar. The consumer will often seek out the firm with the lowest cost to that individual.
Benefit Advantage:As mentioned a moment ago, companies such as Apple do not pursue a cost strategy. Instead, they seek to charge a higher price by offering powerful, unique, or specialized benefits that other firms in the industry cannot provide. Apple has had a significant benefit advantage in the portable music player market. Other firms can and do create quality music players at a lower price, but they have been unable to succeed in the way Apple's Ipod product has. The reason is that consumers see all of the benefits in an Ipod as being worth the added cost. Benefits such ease of use, a deep library of music, stylish case, and large display screen have convinced many consumers to pay the higher charge. These benefits have enabled Apple to make a larger profit margin and gain in the marketplace.
As you have seen, a Competitive Advantage is a valuable thing for a firm to seek. Find out how you too can create value for your customers, either through lower prices or greater benefits. You may then discover greater profitability for your firm by pursuing a focused strategy in one of those areas.
Thanks for reading. If you'd like to say something, please add a comment below.
----Sincerely, Trevor Stasik.
Competitive Advantage, Walmart, Apple, strategy
A discussion about Ben Bernanke and the Fed would not be complete without a discussion of where the Fed Funds Rate is going? The current rate is a 4.25%. How can you predict this ahead of time, and perhaps ahead of the markets? Can managers prepare for these changes? Predicting what decision the Fed is likely to make can be a valuable tool for financial analysts, managers, and investors. An article by Michael Hunstad in the November "AFP Exchange" journal describes 5 predictive indicators that can be observed prior to a fed decision.Sudden CPI Shock: A slow growth or decline in the CPI is less likely to prompt Fed Rate action than that of a rapid, sudden jump. Should there be a spike in the CPI, inflation may be perceived as quickly rising and the Fed will be more likely to raise rates to curb spending.
Long Leading Indicator: Put out by The Conference Board, this is an indicator relating to economic growth. When there is stronger growth, the Fed may be more likely to raise rates to keep the economy from overheating. The Fed may also be more likely to lower rates if economy appears to be contracting.
Corporate Credit to 10-Year Treasury Spreads: The difference in yield between a "Baa" rated corporate bond and a 10-year U.S. Treasury Bond can be important. The greater the spread, the greater the perception of risk of companies with low credit ratings. As these companies are often the ones most affected by a recession, a greater spread can be a leading indicator of a coming downturn in the economy. The Fed in observing this my lower rates to reduce the severity and duration of the recession.
Spread between 6-mo T-Bill and Fed Funds Rate: When these bonds approximately equal the Fed Funds Rate, the economy is in near equilibrium. However, a deviation in which the 6-mo T-Bill rate is lower than the Fed Funds Rate represents investor confidence in anticipating a rate cut. As Mr. Hunstad states in his article "This results as T-Bill investors are willing to take a lower yield today because they expect future interest rates to be lower". The Fed may be likely to move in that anticipated direction.
Previous Fed Action: This is the easy one. A Fed Funds Rate in motion is likely to remain in motion, a Rate at rest is likely to remain at rest.
Trevor Stasik