ECONOMICS OF COMPETITIVE ADVANTAGE: WOOLWORTHS AUSTRALIA Essay Example

Introduction

The concept of “competitive advantage,” in essence, refers to intrinsic and extrinsic conditions that allow a business entity to produce services or goods either at a comparatively lower price or in an approach that is more desirable for its customers in comparison to its rivals in the same industry[ CITATION Mic08 l 1033 ]. Competitive advantage, therefore, affords a said entity an edge over the competition and a capacity for generating greater value for the company and its stakeholders. Competitive advantage constitutes a differential and comparative advantage. Comparative advantage occurs when a firm can produce at lower costs and hence offer its products to customers at lower prices than the competition[ CITATION Jay01 l 1033 ]. Conversely, the differential advantage is the performance of business activities in unique ways that create more purchase value than the competition hence commanding premium prices. Companies endeavor towards competitive advantage in a bid to increase profit margins and maintain sustainability in competitive markets. Woolworths Australia provides a perfect case study of how the economics of competitive advantage impacts on the strategic position of firms in the retail industry and ultimately affects the success levels of the company in the market.

Impact of Global Environment on the structure, conduct, and performance of Woolworths Australia

Globalization has led to several significant advancements in the retail industry and its interaction with the associated technology advances. Consumers are now more conscious with regards price and always demand great value. The global environment has increased the product choices for the retail consumers. The associated technology has also made the comparison of these prices easier and ultimately transformed shopping to feature more convenience. These advances have also rendered entry barriers virtually irrelevant allowing the entry of global retailers into the Australian retail market. Ultimately, the global environment and the new global entrants into the market have fundamentally altered the Australian retail market. Indeed, several global models have thrived in the country quickly gaining market share. Costco and ALDI are prime examples of international entrants that now compete with Woolworths. As a result, Woolworths has had to make some structural, conduct, and performance changes to keep up with the changing retail market.

The global retailers have, for one, challenged the company’s innovation format as they have resulted in the resetting of consumers’ expectations regarding private label and choice[ CITATION Roy14 l 1033 ]. ALDI, for instance, offers a virtually exclusive private label that features price discounts while maintaining a quality that contests with branded products. Woolworths and other incumbents have had to expand their variety of private label products in the global markets reduced price levels while also advancing quality. Costco also offers a subscription model encouraging members to buy all their needs under an assortment of basic goods with the firm. The payment of membership fees means that retailers such as Woolworths are locked out of a section of the particular consumer spending. The global environment has, therefore, exposed consumers to innovative business models resetting their expectations regarding private label and choice forcing the company to restructure.

Global entrants have also introduced their global bargaining power hence bearing and driving hard on pricing[ CITATION Sam14 l 1033 ]. Resultantly, the consumers’ value expectations have changed. The global companies engage their purchasing power over a restricted products to range in comparison to traditional supermarkets such as Woolworths. As such, they can employ a heightened level of bargaining power on each product line. Additionally, these global entrants are not subjected to a similar level of local regulatory inspection or sourcing pressure to that applied on Woolworths as a national retailer. As such, the global environment has led to capacity for competitors to offer low pricing and ultimately changing the consumers’ expectations regarding value. Incumbent retailers such as Woolworths have therefore had to make investments and expand as an aggressive reaction to the competition.

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