CHAPTER 2

IDENTIFYING COMPETITIVE ADVANTAGES.

What is competitive advantage?

#Is a Product or service that an organization’s customers place a greater value on than similar offerings from a competitor.

#Unfortunately, CA is temporary because competitors keep duplicate the strategy.

#Then, the company should start the new competitive advantage.

 The Five Forces Model

 

  

Michael Porter’s Five Forces Model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment.

BUYER POWER.

* High – when buyers have many choices of whom to buy.

* Low – when their choices are few.

* To reduce buyer power (and create competitive advantage), an organization must make it more attractive to buy from the company not from the competitors.

COMPETITIVE ENVIRONMENT

bARGAINING pOWER oF cUSTOMER / bUYER pOWER.

#Customers can grow large and powerful as a result of their market share.

#Many choices of whom to buy from

#Low when comes to limited items

#E.g.: used loyalty programs (jusco card, tesco card, - being a members to get the discount) 

Supplier Power 

#High – when buyers have few choices of whom to buy from.

#Low – when their choices are many.

#Best practices of IT to create competitive advantage.

 Threat of Substitute products & Services

High – when there are many alternatives to a product or service.

Low – when there are few alternatives from which to choose.

THE COMPETITIVE ENVIRONMENT

Threat of Substitutes. 

* To the extent that customers can use different products to fulfill the same need, the threat of substitutes exists.

* E.g: electronic product -same function different brands

* Switching cost- costs can make customer reluctant to switch to another product or service.

 Threat of new entrants.

 

#High – when it is easy for new competitors to enter a market.

#Low – when there are significant entry barriers to entering a market.

#Entry barriers is a product or service feature that customers have come to expect from organizations and must be offered by entering organization to compete and survive.

Porter's 3 generic strategies

•  Cost Leadership.

            - Becoming  a low-cost producer in the industry allows the company to lower their prices to customers.
             - Competitors with higher costs cannot afford to compete with the low-cost leader on price.

•  Differentiation

            - Create competitive advantage by distinguishing their products on one or more features important to their customers.
            -  Unique features or benefits may justify price differences and/ or stimulate demand.
            - Example : i-care by Proton. 

• Focused Strategy

          - Target  to a niche market.
          - Concentrates on either cost leadership or differentiation. 
 Relationship Between Business Process and Value Chain

•  Supply Chain -  A chain or series of processes that adds value to product and service for customer

      Add value to its products and services that support a profit margin for the firm