Chapter 2 : Identifying Competitive Advantage
What is competitive advantage ?
· 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, the company should start the new competitive advantages.
· Michael Porter’s find forces model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment.
The Five Forces Model:
· Buyer Power
ü High – when buyers have many choices of whom to buy
ü Low – when their choices are few
ü To reduce buyer power, an organization must make it more attractive to buy from the company not from the competitors.
ü Best practices of IT-based
High – when buyers have few choices of whom to buy from.
Low – when their choices are many.
Best practice of IT to create competitive advantage.
Threat of Substitute products and services
High – when there are many alternative to a product or service.
Low – when there are few alternative from which to choose.
Ideally, an organization would like to be on a market in which there are few substitute of their product or services.
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 the market.
Entering barriers is a product or service feature that customers have come to expect from organization and must be offered by entering the organization to compete and survive.
Rivalry among existence competitors
High – when competition is fear in a market.
Low – when competition is more complacent.Reduce cost buy using effective supply chain.
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 cost cannot afford to compete with the low cost leader on price
-create competitive advantage by distinguishing their product on one or more features important to their customers.
-unique features or benefit may justify price differences or stimulate demand.
-Ex : i-care by Proton
3. Focused strategy
-target to niche market.
-concentrates on either cost leadership or differentation