The term “value disequilibrium” refers to overall benefits that arise out of a state of market disequilibrium. According to Keynes, markets usually experience disequilibrium (Mathews 58). This situation may result in advantages or disadvantages depending on how a firm aligns itself strategically with a view to remain relevant to the market. Since value disequilibria result in some benefits to the firms operating within this condition, firms may artificially create it with the aim of benefiting.
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There are numerous reasons that may necessitate the creation of value disequilibrium by firms. Firstly, firms create value disequilibrium in order to gain a sufficient market size capable of enabling high returns due to market control (Mathews 58). When firms realize that market loopholes are potentially beneficial, they become vulnerable to creating disequilibrium in the market with a goal to reap maximum returns. Secondly, firms may create value disequilibrium in order to enhance a market perception of a positive image because of the strategic implementation of facets such as low prices, unique products, and reliability.
Firms may strategically position themselves around their resources in order to gain returns from the disequilibrium state on the market. To achieve this outcome, firms may employ cost leadership and differentiation strategies. Firms use a cost-leadership strategy to appeal to a market that is sensitive to the price or cost of goods and services. Therefore, this strategy is useful in designing the lowest prices as compared to the value gained by the customers (Ireland, Hitt, & Hoskisson 114). To ensure low prices for customers while reaping maximum returns, a firm may utilize the following:
- Firms may create disequilibrium by achieving high production levels. In doing this, firms spread their constant or fixed expenses over relatively large production output. This eventually results in low production cost per given unit. Most firms that achieve this strategy consist of those that have taken advantage of the economies of scale in their production in order to offer their products at a reduced price relative to the market price. This method aims at sustaining the firm as a price leader (Mathews 58). Additionally, firms may do this by ensuring a highly experienced workforce that can produce maximally due to a wide range of experience gained. In general, low inputs by firms compel them to create a disequilibrium value due to strategic advantage.
- The other method is through gaining control of the supply chain in order to minimize costs. A firm can achieve this element by means such as implementing competitive bidding for contracts and bulk purchasing while utilizing operational philosophies such as Just-in-Time (JIT) that ensures high inventory turnover with low inventory costs (Ireland, Hitt, & Hoskisson 114).
Through differentiation, firms redefine their production mechanisms in order to create a unique business image through product differentiation. This strategy targets a market segment that is insensitive to price and has unique needs that remain unmet by other firms (Ireland, Hitt, & Hoskisson 114). Therefore, a firm may capitalize on this market disequilibrium by ensuring the supply of products tailored to meet specific customer needs. Since this segment of the market is insensitive of the prices, firms obtain a value out of the scenario. Firms can ensure this by using their unique production technologies capable of designing innovative products different from those produced by other competitors. When firms employ a successful brand management strategy, it results in a positive perception even in cases where the physical attributes resemble competitor’s products.
Ireland, Duane., Michael Hitt., & Robert Hoskisson. Understanding Business Strategy: Concepts and Cases. New York, NY: Cengage Learning, 2011. Print.
Mathews, A. John. Strategizing, Disequilibrium, and profit. Stanford: Stanford University Press, 2066. Print.