Chapter 2 : Identifying Competitive Advantages

WHAT IS COMPETITIVE ADVANTAGES ?

A product or service that an organization’s customers place a greater value on than similar offerings from a competitor. Same like best value product.

A business strategy is a leadership plan that achieves a specific set of goals or objectives such as:

- Developing new products or services.
- Entering new markets
- Increasing customer loyalty
- Attracting new customers
- Increasing sales.
- Decrasing costs.

The Five Force Model

1. - Buyer power
2. - Supplier power
3. - Threat of subtitude products or services.
4. - Threats of new entrants
5. - Rivalry among existing companies

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 organization must make it more attractive to buy from the company not from the competitors.Best practices of IT-based
• Loyalty program in travel industry (e.g. rewards on free airline tickets or hotel stays )

2 - Supplier power

• High – when buyers have few choices of whom to buy from. 
• Low – when their choices are many.
• Best practices of IT to create competitive advantage.
• E.g. B2B marketplace – private exchange allow a single buyer to posts it needs and then open the bidding to any supplier who  would care to bid. Reverse auction is an auction format in which increasingly lower bids. 

3- Threat of subtitude products or 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 services. 
• Best practices of IT 
• E.g. Electronic product -same function different brands

 4.Threats 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.
• Best practices of IT
• E.g. new bank must offers online paying bills, acc monitoring to compete.

5- Rivalry among existing companies

• High – when competition is fierce in a market 
• Low – when competition is more complacent 
• Best Practices of IT 
• Wal-mart and its suppliers using IT-enabled system for communication and track product at aisles by effective tagging system. Reduce cost by 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 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.
Ex: 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