CHAPTER 2

IDENTIFYING COMPETITIVE ADVANTAGE

Ø  Competitive advantage is a product or service that an organization’s customer place a greater value on than similar offerings from a competitor. But, competitive advantage is temporarily because competitor keep duplicate the strategy.

Ø  Michael Porter’s Five Forces Model is useful tool to aid organization in challenging decision whether  to join a new industry or industry segment.

Ø The five forces model are:-

1)       Buyer power

2)      Supplier power

3)      Threat of substitute products or services

4)      Threat of new entrants

5)      Rivalry among existing companies.

1.        Buyer power

·         High = when buyers have many choices to 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.

Bargaining Power of Customer

·         Customers can grow large and powerful as a result of their market share.

·         Many choices of whom to buy from

·         Eg : 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.

·         Supplier power is the converse of buyer power.

3.       Threat of Substitute product & Services

·         High : when there are many alternatives to a product or service.

·         Low : when there are few alternatives from which to choose.

·         Eg : electronic product- same function, different brands.

            Threat of Substitutes

·         Customer can use different products to fulfil the same need, the threat of substitutes exists.

·         Switching cost = cost 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 market.

           Threat of new entrants

·         Many threats come from companies that do not yet exists or have a presence in a given industry or market.

·         Forces top management to monitor the trends, especially in technology, that might give rise to new competitors

5.       Rivalry among existence competitors.

·         High : when competition is fierce in a market

·         Low : when competition is more complacent.

           Rivalry Among Existing Firms

·         Existing competitors are not much of the threat : typically each firm has found its “niche”.

·         Changes in management , ownership , or “the rules of the game” can give rise to serious threats to long term survival from existing firms.

THE THREE 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.

·         Eg : i-care by proton.

3.       FOCUSED STRATEGY

·         Target to a niche market

·         Concentrates on either cost leadership or differentiation.

The Value Chains- Targeting Business Processes

·         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.