Ans. 1.

In consideration to Michael Porter’s theory about creating a superior performance and competi tive advantage, a firm’s overall competitive advantage derives from the difference between the value it offers to customer and its cost of creating that customer value. In order to survive and prosper in industry, firm must meet two criteria– they must supply what customers want to buy and they must survive competition. To attain superior performance and attain competitive advantage, firm must have distinctive competencies. Distinctive competencies can take any of the following two forms: Relative low-Cost advantage– under which customers gain when a firm’s total costs undercut those of its average competitor. An offering or differentiation advantage– If customer perceive a product or service as superior, they become more willing to pay a premium price relative to the price they will have to pay for competing offerings. Low Cost Advantage (Cost Leadership) ZA can enjoy relative cost advantage if its total costs are lower than those of its competitors. This relative cost advantage enables a business to do one of the following: – Charge a lower price than its competitors for its services to gain market share and still maintain current profitability; or – Match with the price of competing services and increase its profitability. Cost reductions in ZA can be achieved through yield management with variable pricing depending on capacity utilization with careful monitoring; application of computer and communication technology in cost effective way i.e. selling seats via the internet rather than through travel agents; trimming overhead costs by using lower cost out-of-town airports, no printed tickets, seat allocations, or free meals and drinks; efficient operations i.e. fast turnaround times for aircraft to improve utilization; and no exceptions policies to reduce the cost of handling exceptions (e.g. no flexibility for passengers who arrive late). Cost economies can also be realized from large scale operations. However, it is important to note that as soon as more firms strive to become the cost leader, rivalry become so fierce that the consequences for the profitability in the industry are disastrous. Differentiation Advantage It occurs when customers perceive that a business services offering is of higher quality, involves fewer risks and/or outperform services offered by competitors. In other words, customers perceive the service offered by a business to be superior. For example, differentiation may include a firm’s ability to deliver services, and other factors that provide unique customer value. ZA is a multinational passenger airline. It can adopt a differentiation approach by offering passengers a higher-quality experience than many of its rivals. This allows it to charge a premium for its flights compared to many other airlines. A differentiation advantage can be achieved by offering enhanced features such as prime landing slots can be obtained at major airports around the world; using superior and advance techn ology; wellmaintained, clean, and comfortable aircraft; training in customer care and the recruitment of high - quality staff; providing complementary services such as in-flight entertainment, high-quality food and drink. Customer value can also be increased by subjective features such as brand image, advertising based on quality of service provided. However, differentiator cannot ignore its cost position. If costs are too high the premium price are nullified. On successfully differentiated its offering, management of ZA may exploit the advantage in one of two ways viz., either increase price until it just offsets the cost of improvement in customer benefits, thus maintaining current market share; or price below the “full premium” level to build market share. Alternatively, ZA may focus on geographical region and short point to point flights to reduce costs. Michael Porter enlightens focus as attaining low cost or product differentiation for a particular buyer group, segment of product line, or geographic market rather than for the industry as a whole. The focuser can attain competitive advantage within a niche, because large firms are either not attracted to niche or have ignored the potential. The narrow focus in itself though is not adequate for a competitive advantage. The firms need to optimize the strategy on two variants: cost focus and differentiation focus. One risk of a ‘focus strategy’ is that broadly targeted competitors devastate the segment once it becomes economically attractive. In addition, the currency depreciation is hitting Airlines harder and international overhead costs have risen, the ZA should attempt to increase the number of internal domestic flights. Moreover, ATF cost can also be lowered by investment in fuel saving modern Airbuses, however, the reduction in operating costs may outweigh the capital equipment costs. To gain competitive advantage ZA may also assess Value Shop Model. Value Shop generates value by organizing resources (e.g. people, knowledge, and skills) and deploying them to solve specific problems, for example, delivering airline services to the passengers or delivering a solution to the business problem. Shops are organized around making executing decisions- identifying and assessing problems or opportunities, developing alternative solutions or approaches, choosing one, executing it and evaluating results. In this way, the above discussed strategies may be more appropriate for helping ZA in achieving superior performance and competitive advantage over its competitors.

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