IDENTIFYING COMPETITIVE ADVANTAGE
In this chapter, we learned about :
Explain why competitive advantages are typically temporary
List and explain each of the five forces in Porter's Five Forces Model
Compare Porter's three generic strategies
Describe the relationship between business processes and value chain
INTRODUCTION
Competitive advantage : -
- a product or service that an organization's customers place a greater value on than similar offerings from a competitor
- First-mover advantage : -
- occurs when an organization can significantly impact its market share by being first to market with a competitive advantage
* Three common tools used in industry to analyze and develop competitive advantages include :
- Porter's Five Forces Model
- Porter's three generic strategies
- Value chains
THE FIVE FORCES MODEL - EVALUATING BUSINESS SEGMENTS
Porter's Five Forces Model determines the relative attractiveness of an industry
- buyer power
- supplier power
- threat of substitute products or services
- threats of new entrants
- rivalry among existing company
Buyer Power
- Assessed by analyzing the ability of buyers to directly impact the price they are willing to pay for an item
- High - when buyers have many choices of whom to buy
- Low - when their choices are few
- Example : rewards on free airline tickets or hotel stays
- Ways to reduce buyer power include
- switching costs : cost that can make customers reluctant to switch to another product or service- loyalty program : rewards customers based on the amount of business they do with a particular organization
Supplier Power
- Assessed by the suppliers' ability to directly impact the price they are charging for supplies (including materials, labor, and services)
- High - when buyers have few choices of whom to buy from
- Low - when their choices are many
- Example : Business to Business (B2B) marketplace - private exchange allow a single buyer to posts it needs and then open the bidding to any supplier who would care to bid. Reverse auction is an auction format in which increasingly lower bids
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
- Example : electronic product - same function different brands
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
- Example : new bank (online paying bills, account monitoring)
Rivalry Among Existence Competitors
- High - when competition is fierce in a market
- Low - when competition is more complacent
- Example : the airline industry faces serious threats from airlines operating in bankruptcy, who do not pay on the debts while slashing fares against those healthy airlines who do pay on debt ( MAS & AIR ASIA)
THE THREE GENERICS STRATEGICS STRATEGIES - CREATING A BUSINESS FOCUS
Cost Leadership
- Becoming a low-cost producer in the industry allows the company to lower prices to customers
- Competitors with higher costs cannot afford to compete with the low-cot leader on price
Differentiation
- Create competitive advantage by distinguish 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
THE VALUE CHAINS - TARGETING BUSINESS PROCESSES
- Once an organization chooses its strategy, it can use tools such as the value chain to determine the success or failure of its chosen strategy
- Business process : a standardized set of activities that accomplish a specific task, such as processing a customer's order
- Value chain : views an organization as a service or processes, each of which adds value to the product or service for each customer
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