Cima E2 Exam Question No 3

Question No 3

C is planning to set up a dry cleaning and laundry business which will be a new venture for her. She has identified suitable premises which are located in the commercial centre of S City. This could be viewed as a high risk strategy since it would be the only business of its type in the commercial centre. 

However, C's view is that there is significant potential to provide dry cleaning and laundry services to customers who commute to the city from where they live and where dry cleaning and laundry businesses already exist.

C now needs to determine on what basis her new dry cleaning and laundry business could gain sustainable competitive advantage.

Required:
(a) Describe the different ways in which C's dry cleaning and laundry business could seek to gain competitive advantage.

(b) Explain the factors C should consider when deciding on the basis for her business's competitive strategy.

 
Answer:Requirement (a)
According to Porter, there are three possible ways through which C could develop her business to achieve competitive advantage over rival businesses. Firstly, she could decide to compete on the basis of cost (cost leadership). By offering the laundry and dry cleaning services at significantly lower prices than her competitors, C could attract price conscious customers. However, to sustain its advantage C would need to ensure that customers are satisfied with the quality of service provided in order that they keep returning to her business.

A second option for C would be to offer potential customers something unique that they value in terms of the services her business could provide that competitors might not easily copy or imitate (differentiation), such as excellent customer service.

Finally, C could decide to concentrate her business on just a small part of the potential market by offering a specialised laundry and cleaning service tailored to the needs of a particular market segment rather than trying to cater for the mass market. This approach to achieving competitive advantage is called focused differentiation

Requirement (b)
In deciding the basis for her business's competitive strategy, C will need to consider which strategy best positions her business relative to potential rivals, in the light of the threats and opportunities posed within the market and also the general environment.

This will involve C analysing the environment in which her business will operate to assess likely strengths and weaknesses when compared to rival businesses.

Cost leadership may prove a difficult route for C's business due to the potentially high costs normally associated with operating in a city centre location. However, the location C is considering for her dry cleaning and laundry business could prove to be its greatest strength of all despite the fact that its potential customers do not live nearby.

C could exploit this by offering commuters a high quality and convenient service together with a fast turnaround, then price may not be as crucial a factor. This would use differentiation as the basis of the business's competitive strategy.

Whilst C's business may be unlikely to compete with dry cleaners located in the commuter towns in terms of the range and diversity of items cleaned, e.g. curtains and bed linen as well as clothes, it could focus on business suits and other garments dropped off/picked up by office workers on their way to and from work.

She could even target commercial premises themselves and have a pick up and drop off service for laundry, which could present a distinct advantage over rival businesses.