- What is competitive advantage ?
* It is a product or service that an organization’s customers place a greater value on than similar offerings from a competitor.
* Competitive advantage is temporary because competitors keep duplicate the strategy.
* then, company should start the new competitive advantage.
Michael Porter's Five Forces
* useful tool to aid organization in challenging decision whether to join a new industry or industry segment.
1. Buyer Power.
- HIGH - when buyers have many choices of whom to buy
- LOW 😄 - when their choices are few
- to reduce buyer power, an organization must make it more attractive to buy from the company not from the competitors.
- BEST practices of IT-based
Bargaining Power of Customers./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)
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
- E.g. 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.
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| An organization within the Supply chain |
- 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.
- BEST practices of IT
- E.g. Electronic product -same function different brands
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
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 marke
- Best Practices of IT
- Wal-mart and its suppliers using IT-enabled system for communication and track product at aisles by effective tagging system.
- Reduce cost by using effective supply chain.
Rivalry Among Existing Firms.
- Existing competitors are not much of the threat: typically each firm has found its "niche".
- However, changes in management, ownership, or "the rules of the game" can give rise to serious threats to long term survival from existing firms .
- E.g: 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)
Porter's 3 generics strategies
1. 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.
2. 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.
- Ex: i-care by Proton
- Target to a niche market
- Concentrates on either cost leadership or differentiation.
Cost strategy
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Competitive Scope
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Low cost
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High cost
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Broad Market
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Cost leadership
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Differentiation
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Narrow Market
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Focused Strategy
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| Example 3 Generics Strategy |
- Supply Chain - a chain or series of processes that adds value to product & service for customer.
- Add value to its products and services that support a profit margin for the firm
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| Supply chain diagram |
THE END CHAPTER 2 😃
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