The main goal of the company is to obtain a consistently high return on invested capital. For the profitability of investments to be higher than that of competitors, the competitive advantage over them must be sustainable. In other words, the quality of goods and services provided to consumers should be higher. For profitability to become sustainable, it is necessary to invest in the development of production capabilities that ensure the preservation of competitive advantage for the future. Strategy, therefore, depends on determining competitive advantage, on developing resources and production capabilities that provide sustainable excellence in this volatile world. A strategy, in essence, is a definition of how a company participates in a competition (Grant and Jordan, 2015). The strategy creates industry positions of the company and ensures internal coherence of its policy aimed at achieving these positions
The overall importance of strategy cannot be underestimated due to the fact that a competitive edge can be easily lost. For example, Blue Apron is an outstanding case of potentially prospective business becoming a failure due to the emergence of a stronger rival, such as Amazon. In 2016, Blue Apron filed for its initial public offering with a high estimated price per share, but as soon as Amazon entered its market, the price fell drastically from $17 to $2 (Braun, Latham, and Cannatelli, 2019). This is an example of how the cost leadership strategy of Amazon allowed it to remove its competitor. The main reason is that Amazon utilized its economies of scale and larger size to outcompete Blue Apron.
However, cost leadership might not always be essential for gaining a competitive advantage over rivals. For example, the study suggests that a Nigerian hotel can significantly outcompete others by dismissing cost leadership and adopting a differentiation strategy (Gorondutse and Hilman, 2019). The overall performance of the hotels attempting to differentiate from other competitors through offering novel customer experience opportunities led to a significant boost to their competitiveness. However, cost leadership did not yield substantial improvements, and occasionally, resulted in lower performance (Gorondutse and Hilman, 2019). Therefore, the critical question of the paradox is related to strategy selection and how one can implement it in aby relevant theoretical frameworks.
The given cases can be analysed through several key concepts. One of the possible reasons can be rooted in industry specifics and resources and capabilities (Grant and Jordan, 2015). The former framework can be evaluated through Porter’s Five Forces, which allows assessing the overall condition of industry rivalry. The theory consists of five major elements, which are the threat of new entrants, the threat of substitutes, the bargaining power of customers, the bargaining power of suppliers, and competitive rivalry (Zhao et al. 2016). Blue Apron, being a meal delivery service, experienced all of the five forces.
The overall industry is not complex because meals can be prepared by ordinary people. The threat of substitutes is high because people have a wide range of options in regards to food. The latter manifests itself in the strong bargaining power of customers, where people can choose the most viable option and ask for convenient conditions. However, the main strength of Amazon lies in its higher bargaining power of suppliers and competitiveness. Amazon is a large online retail company with an established network of delivery systems. It is stated that meal delivery is a central aspect of running a business, such as Blue Apron (Ulmer et al. 2017). Therefore, Amazon is a company with a more effective infrastructure to outcompete its rival. In addition, the former company possesses larger access to supplier networks, which allows it to have stronger bargaining power.
Porter’s Five Forces can also have implications on the Nigerian hotel industry because differentiation played a major role in gaining a competitive advantage. It is stated that for small industries, cost leadership might not be as important as differentiation (Agyapong, Ellis, and Domeher, 2016). The most probable reason might lie in the notion that an industry filled with smaller units has no significant bargaining power in regards to both customers and suppliers. The strategy always involves a company taking a specific position in the market depending on its capabilities (Mintzberg, 1987). This means that no single hotel can gain a substantial level of economies of scale in order to effectively reduce the overall cost, which is necessary for cost leadership. Therefore, the theory can explain all situations, but a thorough analysis of other theories is required.
The problem set can be assessed and understood by examining Amazon’s approach, where the company used its size and resources to replace Blue Apron. The study suggests that the food industry, alongside the pharmaceutical one, is the most competitive sector in the economy (Kharub and Sharma, 2017). Therefore, it is evident that this high competition level, in conjunction with the large size of the industry, creates an opportunity to gain a bigger gap in bargaining power and competitive rivalry of Porter’s Five Forces.
A similar approach can also explain the Nigerian hotel industry and the relevance of differentiation over cost leadership. It is stated that the hospitality industry is unique in comparison with other ones because the overall strategic management approaches are tactical and more applied (Harrington and Ottenbacher, 2011). In addition, this particular industry is small, and it mostly contains small and medium-sized businesses, which can find it challenging to gain a significant level of competitiveness in regards to Porter’s Five Forces and cost leadership (Nwosu 2016). Therefore, the major gap in the model is the lack of effective ways, which would allow projecting the differentiation strategy as being a more viable option. In order to resolve such an issue, the given theoretical framework should be used in conjunction with SWOT analysis.
SWOT allows companies to deliberately observe key internal and external strengths of a company, which can help to decide whether it should gain cost leadership or undergo differentiation. It is stated that both SWOT and Porter’s Five Forces possess their weaknesses when used separately, but their collective use can create a strong basis for analysis (Oneren, Arar, and Yurdakul, 2017). The Five Forces does not fully reveal internal strengths and weaknesses, but it is useful for an external overview. In other words, it is important for a strategy to be multivariate, where it requires several analytical frameworks (Hambrick, 1980). Therefore, if Blue Apron had realized its internal weakness in regards to Amazon, the company would not have gone public, which could have been a key differentiating factor. Such occurrences can manifest themselves as a competitive advantage, and it allows smaller firms to increase their performance.
In conclusion, it is important to note that strategy plays an essential role in making a company competitive and sustainable. The case of Blue Apron and Amazon is an illustration of how a business can lose its cost leadership due to new entrants with a strong infrastructural basis. The case of Nigerian hotels depicts the importance of differentiation because smaller businesses in constrained industries cannot gain a substantial advantage in regards to the Five Forces. However, they can proactively differentiate to gain a competitive advantage.
- Agyapong, A., Ellis, F. and Domeher, D. (2016) ‘Competitive strategy and performance of family businesses: moderating effect of managerial and innovative capabilities, Journal of Small Business & Entrepreneurship, vol. 28, no. 6, pp. 449-477.
- Braun, M., Latham, S. and Cannatelli, B. (2019) ‘Strategy and business models: why winning companies need both’, Journal of Business Strategy, vol. 40, no. 5, pp. 39-45.
- Gorondutse, A. H. and Hilman, H. (2019) ‘Testing the effect of business-level strategy on performance of hotels’, Global Business Review, vol. 20, no. 5, pp. 1141-1154.
- Grant, R. M., and Jordan, J. (2015) Foundations of strategy. 2nd and. Chichester: Wiley.
- Hambrick, D. C. (1980) ‘Operationalizing the concept of business-level strategy in research’, The Academy of Management Review, vol. 5, no. 4, pp. 567-575.
- Harrington, R. J., and Ottenbacher, M. C. (2011) ‘Strategic management: an analysis of its representation and focus in recent hospitality research’, International Journal of Contemporary Hospitality Management, vol. 23, no. 4, pp. 439-462.
- Kharub, M. and Sharma, R. (2017) ‘Comparative analyses of competitive advantage using Porter diamond model’, Competitiveness Review, vol. 27, no. 2, pp. 132-160.
- Mintzberg, H. (1987) ‘The strategy concept I: five Ps for strategy’, California Management Review, vol. 30, no. 1, pp. 11-24.
- Nwosu, B. (2016) ‘A review of the hotel industry in Nigeria: size, structure and issues’, Worldwide Hospitality and Tourism Themes, vol. 8, no. 2, pp. 117-133.
- Oneren, M., Arar, T. and Yurdakul, G. (2017) ‘Developing competitive strategies based on swot analysis is Porter’s Five Forces model by DANP’, Journal of Business Research, vol. 9, no. 2, pp. 511-528.
- Ulmer, M. W. et al. (2017) The restaurant meal delivery problem: dynamic pick-up and delivery with deadlines and random ready times. Iowa City: University of Iowa.
- Zhao, Z. Y. et al. (2016) ‘Competitiveness assessment of the biomass power generation industry in China: a five forces model study’, Renewable Energy, vol. 89, pp. 144-153.