CHAPTER 2 (IDENTIFYING COMPETITIVE ADVANTAGE)

CHAPTER 2 (IDENTIFYING COMPETITIVE ADVANTAGE)

WHAT IS COMPETITIVE ADVANTAGE?

·         A product or services that an organization’s customers place a greater value on than similar offerings from a competitor.

·         Unfortunately, CA is temporary because competitors keep duplicates the strategy.

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

INTRODUCTION

·         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.

·         Best practices of IT-based- loyalty program in travel industry (e.g. rewards on free airline tickets or hotel stays)

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.)

·         Supplier power is the converse of buyer power.

Suppliers > organization > customers

THREAT OF SUBSTITUTE PRODUCTS & SERVICES

·         High- when there are many alternatives to a product or services.

·         Low- when there are few alternatives from which to choose.

·         Ideally, an organization would like to be on a market in which there are few substitute of their product or services.

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.

RIVALRY AMONG EXISTENCE COMPEITORS

·         High- when competition is fierce in a market.

·         Low- when competition is more complacent.

THE THREE GENERICS STRATEGIES

·         Cost leadership

-          Becoming a low-cost producer in the industry allows the company to lower prices to customers.

-          Competitors with higher cost 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.