CHAPTER
2
IDENTIFYING
COMPETITIVE ADVANTAGES
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·
Competitive advantage is a
product or service that an organization’s customers place a greater value on
that similar offerings from a competitor.
·
Unfortunately, competitive
advantages is temporary because competitors keep duplicate the strategy.
·
The company should start the
new competitive advantage.
THE FIVE FORCES MODEL –
EVALUATING BUSINESS SEGMENTS
Michael Porter, a
university professor at Hazard Business School,identified four competitive
forces that can hurt potential sales :
1)
Knowledgeable customers can
force down prices by pitting rivals against each another.
2)
Influential suppliers can drive
down profits by charging higher prices for suppliers.
3)
New market entrants can steal
potential investment capital.
4)
Substitute products can steal
customers.
The five forces model helps determine the
relative attractiveness of an industry and includes the following five forces :
1)
Buyer power
2)
Supplier power
3)
Threat of substitute products
or services
4)
Threat of new entrants
5)
Rivalry among existing
competitors.
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 must make it more attractive to
bur from the company not from the competitors.
·
Best ractices of IT – based.
·
Switching cost are cost that
can make customers reluctant to switch
to another product or service.
·
For examples, switching doctors
is difficult because the new doctor will not have the patient’s history and the
relationship with the patient.
SUPPLIER POWER
·
High – when buyers have few
choices of whom to buy from.
If supplier power is high
the supplier can directly influencesthe industry by :
o
Charging higher prices
o
Limiting quality or services
o
Shifting costs to industry
participants
·
E.g. B2B Marketplaces - private exchange allow a single buyer to
post it needs and then open the bidding to any supplier who would care to bids.
·
Reverse auction is an auction
format in which increasingly lower bids.
THREAT OF SUBSTITUTE PRODUCTS OR
SERVICES
·
The threat of substitute
products or services is high when there are many alternatives to a product or
service and low when there are few alternatives from which to choose.
·
For example, there are many
substitute products in the airline industry.
·
Ideally,an organization would
like to be on a market in which there are few substitutes of their product or
services.
THREAT OF NEW ENTRANTS
·
The threat of new entrants is
high when it is easy for new competitors to enter a market and low when there
are significant entry barriers to entering a market.
·
For example, a new bank must
offer its customers an array of IT enabled services,including ATM’s,online bill
paying, and online account monitoring.
REVALRY AMONG EXISTING COMPETITORS
·
Rivalry among existing among
competitors is high when competition is fierce in a market and low when
competition is more complacent.
·
Product differentiation occurs
when a company develops unique differences in its products with the intent to
influence demand.
·
For example , there are many
companies that sell books and videos on the internet.
USING THE FIVE FORCES
MODEL TO ANALYZA THE AIRLINE INDUSTRY
1.
Buyer power : Buyer power is high as customers have many airlines
to choose from and typically make purchases based on price, not carrier.
2.
Supplier power : Supplier power
is high as there are limited plane and engine manufactures to chose from and
unionized squeeza the airline’s profitability.
3.
Threat of substitute products
or services : Threats of substitute products is high as there are numerous
transportation alternatives including automobiles,trains and boats.
4.
Threat of new entrants : Threat
of new entrants is high as nemw airlines are continuously entering the market
including the new sky taxies which offer low cost on demand air taxi service.
5.
Rivalry among existing
competitors : Rivalry in the airline industry
is high just searc Travelocity.com and see how many choices are
offered.For this reason airlines are forced to compete on price.
THE THREE GENERIC STRATEGIES – CREATING A BUSINESS FOCUS
1)
BROAD COST LEADERSHIP
·
Becoming a low cost procuder in
the industry allows the company to lower prices to customers.
·
Competitors wth higher costs
cannot afford to compete with the low-cost leader on price.
2)
DIFFERNTIATION
·
Create competitive advantage by
distinguishing their products on one or more feartures important to their customers.
·
Unique features or benefits may
justify price differences and stimulate demand.
·
Example : i-care by proton
3)
FOCUSED STRATEGY
·
Target to a niche market
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