Chapter 2 - Identifying Competitive Advantage

Hi everyone. Now we move to chapter 2 which is identifying competitive advantage.

So, what is competitive advantage? Hmm

Well, competitive advantage is a product or service that an organization’s customers place a greater value than similar offerings from a competitor. Unfortunately, CA is temporary because competitors keep duplicate the strategy.

PORTER'S FIVE FORCES MODEL 

1) 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 should produce attractive product compared the competitors. Best practices of IT-based such as loyalty program in travel industry. For example rewards on free airline tickets or hotel stays.

Bargaining Power of Customers./Buyer power

Customers can grow large and powerful as a result of their market share. Customer have many choices of whom to buy from but low when comes to limited items.

For example, company used loyalty programs (jusco card, tesco card - being a members to get the discount)

2) 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.

For example,  B2B marketplace - a 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.

3) 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.

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

For example, electronic product. They have the same function but different brands.

4) 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.

For example, new bank must offers online paying bills, account monitoring to compete with other bank.

5) Rivalry among existence competitors

High – when competition is fierce in a market

Low – when competition is more complacent

Best Practices of IT

For example, Wal-mart and its suppliers using IT-enabled system for communication and track product at aisles by effective tagging system.

PORTER'S 3 GENERIC STRATEGIES 

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-cost leader on price.

•Superior profits

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.

FOCUSED STRATEGY

•Target to a niche market

•Concentrates on either cost leadership or differentiation.

Supply chain is a chain or series of processes that adds value to product and service for customers.

It add values to its products and services that supports a profit margin for the firm.