CHAPTER 2 - IDENTIFYING COMPETITIVE ADVANTAGES

LEARNING OUTCOMES

2.1 Explain why competitive advantages are typically temporary 

2.2 List and describe each of the five forces in Porter's Five Forces Model

2.3 Compare Porter's three generic strategies 

2.4 Describe the relationship between business processes and value chains

IDENTIFYING COMPETITIVE ADVANTAGES

To survive and thrive  an organization must create a competitive advantage

• competitive advantage  -   a product or service that an organization's customers place a greater value on than similar offerings from a competitors
• First-mover advantages -  occurs when an organization can significantly Impact its market share by being first to market with a competitive advantage
• Example : Air-asia are the ticket low cost

Organization watch their competition through environment scanning

• Environment scanning-  the acquisition and analysis of event and trends in the environment   external to an organization

Three common tools used in industry to analyze and develop and competitive advantages include

• Porter’s  Five Forces Model
• Porter’s three generic strategies
• Value chains

Porter’s Five Forces Model

BUYER POWER

•  high - when buyers have many choices of whom to buy from 
•  low - when their choices are few       

    Ways to reduce buyer power is through loyalty program

• Loyalty program - rewards customers based on the amount of business they do with a particular organization
• Example  : Tesco Card
• Switching cost - costs that can make customers reluctant to switch to another product or service

SUPPLLIER POWER

• High - when buyers have few choices of whom to buy from
• Low - when their choices are many

Supply chain - consists  of all parties involved in the procurement of a product or raw material

• can create a competitive advantages by locating alternative supply sources (decreasing supplier power ) through B2B marketplace
• Business-to-business(B2B) marketplaces - an internt is based service that brings together many buyers and seller

Two types of business-to-business(B2B) marketplaces

• Private exchnge - a single buyer posts its needs and then opens the bidding to any supplier who would care to bid
• Reverse auction - an auction format in which increasingly lower bids

THREAT OF SUBSTITUTES PRODUCTS OR SERVICE

• High – when there are many alternative to a product or service
• Low – when there are few alternative from which to choose
• Switching cost – costs that can make customers reluctant to switch to another product or service

THREAT OF NEW ENTRANTS

• High – it is easy for new competitors to enter a market
• Low -  there are significant entry barriers to entering a market
• Example : astro and Air-asia

   Entry Barrier

•  a product or service feature that customers have come to expect from organization in a particular industry.
• Must be offered by an entering organization to compete and survive.

RIVALRY AMONG EXISTING COMPETITORS

• High – when competitors is fierce in a market
• Low – when competition is more complacent
• Need to know how to create best selling in industry
• Example :Maxis ,Digi, Celcom and U-mobile

Competition is always more intense in some industries  than in others, the overall trend is toward increased competitive is just about every industry.

THE THREE GENERIC STRATEGIES- CREATING A BUSINESS FOCUS

Organization typically follow one of Porter’s Three Generic Strategies when entering a new market

Example : 

VALUE CREATION

Once an organization choose 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 series of processes, each of which adds value to the product or service for each customer.

Customers determine the extent to which each activity adds value to the product or service

  

The competitive advantage is to :

• Target high value-adding activities to further enhance their value
• Target low value-adding activities to increase their value
• perform some combination of the two