Chapter 2 - Identifying Competitive Advantage

Definition:

Competitive Advantages(CA)

• A product or service that an organization`s customers place a greater value on than similar offerings from a competitor.
• Unfortunately, competitive advantages is temporary because competitors keep duplicate the strategy.
• Then, the company should start the new competitive advantage.

The Five Forces Model

• Michael Porter`s Five Forces Model is 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 (and create competitive advantage), an organizations must make it more attractive to buy from the company not from the competitors.

2. Supplier Power

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

3. Threat of Substitute Products and 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 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 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.

5. Rivalry among Existence Competitors

• High - when competition is fierce in a market.
• Low - when competition is more complacent.

The Three Generics Strategies

a) 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.

b) 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 or stimulate demand.

c) Focused Strategy

• Target to a niche market.
• Concentrates on either cost leadership or differentiation.

The Value Chains

• Supply Chain is a chain or series of processes that adds value to product and service for customers.
• Add value to its products and services that support a profit margin for the firm.