#2 ; IDENTIFYING COMPETITIVE ADVANTAGE

What is competitive advantage?

A product or service that an organization’s place a greater value on than similar offering from competitor.

Buyer power

v  High when people have many choice of whom to buy

v  Low when choice are few

v  To reduce buyer power an organization must make it more attractive to
     buy from the company

v  Best practice of IT

The competitive environment

§  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.

o   Example, used loyalty programs like Jusco card.

SUPPLIER POWER

Ø  When buyers have few choices of whom to buy from

Ø  When their choices are many

Threat of substitute product & service

v  High when there are many alternative to a product or service

v  Low when there are few alternatives from which to choose

v  The treat of substitute

v  Customer can use different product to fulfill the same need.

•      Example: electronic product

v  Switching cost : cost can make customer reluctant to switch product or
    service      

Treat of new entrants

v  High when it is easy for new competitors to enter a market

v  Low when there are significant entry barriers to entering a market

v  Entry barriers  is a product or service feature that customers have come to
    expect from organization and must be offered by entering organization to
    compete and survive

Competitive environment

v  The treats of new entrants’ forces top management to monitor the trends,
    especially in technology, that might give rise to new competitors

o   Example : new bank, online paying bills, account monitoring

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 treat. Typically each firm has found
   its niche

§  Change in management the rules of the game rise to serious threats

The three generics strategies

Cost leadership (Low cost)

§  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

Differentiation (High cost)

§  Create competitive advantage by distinguishing their product on one or
  more features important to their customers

§  Unique features or benefits may justify price differences and/or stimulate
  demand

Focused strategy (Narrow market)

ØTarget to a niche market

Ø  Concentrates on either cost leadership or differentiation