Identifying Competitive Advantages?
To survive and thrive an organization must create a competitive
advantage.
§ Competitive
advantage- a product or service that an organization’s customers place a
greater value on than similar offerings from a competitor
§ First-mover
advantage- occurs when an organization can significantly impact its market
share by being first to market with a competitive advantage.
Organizations watch their competition through
environmental scanning
§ Environmental
scanning- the acquisition and analysis of events and trends in the environment
external to an organization.
§ Three
common tools used in industry to analyze and develop competitive advantages
include:
ü Porter’s
Five Forces Model
ü Porter’s
three generic strategies
ü Value
chains
The Five Forces Model
§ Porter’s
Five Forces Model determines the relative attractiveness of an industry
Buyer Power
-Buyer power- high when buyers have many choices of whom
to buy from and low when their choices are few.
-One way to reduce buyer power is through loyalty
programs.
- Loyalty
program- rewards customers based on the amount of business they do with a
particular organization.
SUPPLIER POWER
Supplier
power- high when buyers have few choices of whom to buy from
and low when their choices are many.
Supply
chain- consists of all parties involved in the
procurement of a product or raw material.
§ Organizations
that are buying goods and services in the supply can create a competitive
advantage by locating alternative supply sources (decreasing supplier power)
through B2B marketplaces
§ Business-to-Business
(B2B) marketplace – an internet-based service that brings together many buyers
and sellers.
§ Two
types of business-to-business (B2B) marketplaces
§ Private
exchange- a single buyer posts its need and then opens
the bidding to any supplier who would care to bid.
§ Reverse
auction- an auction format in which increasingly lower
bids are solicited from organizations willing to supply the desired product or
service at an increasingly lower price.
Threat
of Substitute Products or Services
§
High
when there are many alternatives to a product or services and low when there
are few alternatives from which to choose.
§
Switching cost- costs that can make customers
reluctant to switch to another product or service.
Threat of New Entrants
§
High
when it is easy for new competitors to enter a market and low when there are
significant entry barriers to entering a market
§
Entry
barrier- a
product or service feature that customers have come to expect from
organizations in a particular industry and must be offered by an entering
organization to compete and survive.
Rivalry among Existing
Competitors
§
High
when competition is fierce in a market and low when competition is more
complacent.
§
Although
competition is always more intense in some industries than in others, the
overall trend is toward increased competition in just about every industry
The Three Generic
Strategies-Creating a Business Focus
§
Organizations
typically follow one of Porter’s three generic strategies when entering a new
market.
Low Cost High Cost
Value Creation
Once an organization chooses its
strategy, it can use tools such as the value chain to determine the success or
failure of its chosen strategy.
§ Business
process- a standardized set of activities that
accomplish a specific task, such as processing a customer’s order.
§ Value
chain- views an organization a series processes, each of which
adds value to the product or service for each customer.
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