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How to Create Sustainable Competitive Advantages

by | Nov 11, 2022 | Blog | 0 comments

“The key to competing and surviving against Wal-Mart is to focus your business on a niche or pocket where you can leverage your strengths in the local marketplace.” – Michael Bergdahl, former Director of People at Walmart.

Many factors go into making a successful business; once there the next step is to create the conditions that facilitate a sustainable competitive advantage. So what is a sustainable competitive advantage, and how can you ensure your business achieves it? A sustainable competitive advantage is something that gives your business an edge over the competition and maintains it over the long term. It can be anything from owning key patents, game-changing innovation, trade secrets to having more efficient processes or better customer service.

The Resource-Based View of Competitive Advantage

The Resource-based view of strategic competitive advantage helps companies identify specific resources, goods, innovations, or capabilities that can provide it with a sustained competitive edge over rivals. According to the resource-based view, a company must meet four criteria in order to reach a sustainable advantage over its competitor. They are as follows:

    1. Value: a product or service must be valuable to consumers
    2. Rare: a product or service must be difficult to acquire
    3. Imperfectly imitable: a product must be difficult to copy
    4. Non-substitutable: the product or service cannot be substituted with a similar product or service.

When a company’s operations meet the above criteria of valuable, rare, imperfectly imitable, and non-substitutable (VRIN), it will enjoy a long-term strategic competitive advantage in the marketplace.

Who came up with the VRIN famework?

This framework was developed in 1991 by Jay Barney, a researcher at the University of Utah. Barney identified four attributes that a company’s resources must possess for sustained competitive advantage. According to him, the resources must be valuable, rare, imperfectly imitable, and non-substitutable. Jay called his original framework VRIN.

Note: the VRIN is sometimes referred to as valuable, rarity, imitability, and organization (VRIO). However, this article will focus on Jay Barney’s original definition of strategic competitive advantage.

What is an example of a company that meets the VRIN model?

In this blog, we use Walmart Inc as an example of an organization that has maintained a long term strategic competitive advantage in the retail industry. 
The dominant retailers delivers quality merchandise for the lowest prices possible. In addition to building a reputation for low prices, it also maintains strong processes in terms of logistics, supply chain management, and operational efficiency.

According to MBA Skool.com, in 2022, Walmart Inc is considered the world’s most successful retailer with over 11000 stores. The retail giant also operates across 25 countries under 50+ names. What’s more, Walmart has generated $500 billion in revenues in 2022 and has established itself as the world’s largest retail company by the Fortune Global 500 list.

What makes Walmart strategically competitive versus its competitors?

Walmart has developed many processes and capabilities that reliably provide VRIN-type value to its customers. As mentioned earlier, it sells products at consistently lower prices than any of its competitors and has done so for decades. Further, Walmart does not rely on schemes or sales to attract and retain customers; customers are loyal to the brand.

What makes Walmart’s business model valuable?

The monetary value of a good or service is what consumers believe the product or service is worth to them. More importantly, a product’s true value is based on how well it meets or exceeds customer expectations.

“Today’s leading real-world retailer, Wal-Mart, uses software to power its logistics and distribution capabilities, which it has used to crush its competition” – Marc Andreessen.

In the case of Walmart, the company does many things extremely well that add value for its customers. For example, the retail giant has accumulated extensive amounts of consumer data and analytics over the decades. This data mining capability is a valuable resource that most retailers do not have access to and cannot be developed easily or quickly. This information provides Walmart with significant competitive advantages over rival companies. These value-added constituents have allowed Walmart to dominate the global retail industry for many years. 

What part of Walmart’s business operations can be considered rare?

Something is considered rare when it is difficult to make or find. Rarity is one of the essential factors in determining value. For example, an item is rare if only a few are available, and it’s even more valuable if the item is unique. Conversely, when something exists in large quantities, generally, people won’t pay as much for it compared to rare items.

Walmart’s vendor-managed inventory (VMI) system can be considered a rarity in the retail industry. The VMI system places the responsibility of inventory planning on manufacturers, which significantly lowers inventory-carrying costs. In addition, data-driven analysis facilitates optimal inventory levels and eliminates the guesswork when it comes to replenishing stock.

Five Vendor-Managed Inventory Benefits

  • Improved alignment of inventory with customer demand
  • Streamlined processes and lower costs
  • Improved data sharing and analytics
  • Closer collaboration with consumers
  • Improved sales

In short, VMI provides a mutually beneficial relationship with suppliers that has the effect of smoothly and accurately controlling the supply and delivery of goods. Walmart’s version of VMI is rare, if not unique within the retail industry.

What makes Walmart Imperfectly Imitable?

Imperfectly imitable means the good or service is impossible, extremely costly, or difficult for rival businesses to duplicate. Walmart is considered a low-cost provider of retail goods and services, which in itself is not difficult to imitate. However, many value-added innovations and cost-saving processes ensure the company can reliably sell low-priced products and services over the long term.

“Wal-Mart’s success strategies and tactics are easy to understand yet hard to duplicate.” – Michael Bergdahl.

Walmart is known for Every Day Low Price (EDLP), which is a pillar of its strategy. The company’s commitment to EDLP prices, quality products, and a pleasant shopping experience; the Walmart brand is synonymous with helping people save money and live better. These principles are part of the company’s reputation, brand, and mission. It has taken Walmart decades to develop this reputation, and it cannot be duplicated in the short term.

The importance of Non-substitutable!

A product or service must not be substitutable by similar valuable resources in order to meet the VRIN criteria. If two products or services exist that are interchangeable in their application and, when employed, achieve the same outcome, they are substitutable. Thus, this product or service would not meet VRIN criteria for sustainable competitive advantage.

As the world’s largest retailer, Walmart has economies of scale that no company can match. The company has incredible negotiating power over suppliers, with approximately $575 billion in global revenues and $430 billion in wholesale purchases.

“A large retail store can buy in bulk and lower its cost per unit. It can then choose to keep the savings to increase the business’ profits or use them as a competitive advantage by passing the savings on to the consumer and offering lower prices than its competitors.” – Indeed.com

Whenever possible, Walmart utilizes its purchasing volumes to reduce costs and pass on those savings to consumers. In terms of VRIN, Walmart’s utilization of economies of scale cannot be substituted.

Companies need to focus on controlling valuable, rare, difficult-to-duplicate, and non-substitutable resources or capabilities to achieve and maintain a sustainable competitive advantage. By understanding these four critical criteria and implementing them into your business strategy, you can create a distinct edge over your competitors. Have you been able to identify any exploitable resources in your industry? Let us help you find them! Visittimewellscheduled.com today for more information on how our cloud-based scheduling solution  can assist your business in achieving and maintaining a sustainable competitive advantage.

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