2.1. Explain why competitive advantages are typically temporary.
2.2. List and describe each of the five forces in Porter's Five Forces Model.
2.3. Compare Porter's Three Generic Strategies.
2.4. Describe the relationship between business processes and value chain.
Identifying Competitive Advantages.
- To survive and thrive an organization need and must create a competitive advantages for their company.
what is competitive advantages?
- - A competitive advantages is a feature of a product or services on which customers place a greater value than they do on similar offerings from competitors.
- - this mean the product have its own uniqueness or value in terms of features, price and any other aspect that relevant.
- - For example, competitive advantages provide the same product or services either at a lower price or with additional value that can fetch premium price.
- - Unfortunately, competitive advantages are typically temporary, because competitors always seek ways to duplicate them.
- when the company or organization is the first to market the competitive advantages it will be considered as the first-mover advantage.
- First-mover advantage occurs when a company significantly increase its market share by being first with a new competitive advantage.
- For example, FedEx created a first-mover advantage by developing its customer self-service software, which allows people to request parcel pickups, print mailing slips, and track parcel online.
- Competitive Intelligence is the process of gathering information about the competitive environment, including competitors' plans, activities, and products to improve a company's ability to succeed.
- Its mean understanding and learning as much as possible, as soon as possible about what is occurring outside the company to remain competitive.
Managers always use three common tools to analyze competitive intelligence and to develop competitive advantages including:
- The Five Forces Model ( for evaluating industry attractiveness ).
- The Three Generic Strategies ( for choosing a business focus ).
- Value Chain analysis ( for executing business strategies ).
THE PORTER'S FIVE FORCES MODEL - EVALUATING INDUSTRY ATTRACTIVENESS.
Porter’s Five Forces Model determines the relative attractiveness of an industry.
u The founder of the model is Michael Porter which is a university professor at Harvard Business School.
u He has identified some pressure that can hurt potential sales such as
- knowledgeable customers can force down prices by pitting rivals against each other.
- influential suppliers can drive down profits by charging higher prices for supplies.
- Competition can steal customers.
- New market entrants can steal potential investment capital.
- Substitutes product can steal customers.
Figure 2.1. Porter’s five forces model.
1) Buyer Power
l Buyer Power is the ability of buyers to affect the price the must pay for an item.
l The buyer power high when buyers have many choices of whom to buy from and low when their choices are few.
l In order to reduce the buyer power, the way is provided which are:
- Loyalty Program - reward customers based on the amount of business they do with a particular organization.
- For example, a club card that provided by Tesco to its customers.
-Switching Costs - costs that can make customer reluctant to switch to another product or service.
- switching costs include financial as well as intangible value.
- For example, the costs of switching doctors. Have the powerful intangible components of having to build relationships with the new doctor and nurses, as well as transferring all your medical history.
2) Supplier Power
l A supply chain consists of all parties involved directly in obtaining raw materials or product.
l Supplier Power is the suppliers’ ability to influence the prices they charge for supplies including materials, labor, and services.
l Supplier power high when buyers have few choices and low when their choices are many.
l When supplier power is high, buyer lose revenue because they cannot pass on the raw material price increase to their customer.
l For example, pharmaceutical companies. They can exert a threat over an entire industry when substitutes are limited and the product is critical to buyers.
l So, patient who need to purchase the cancer - fighting drugs have no power over price and must pay whatever the drug company ask due to the few alternative.
l MIS is one of the way than can be used to find alternative product in order to decrease the supplier power.
l For example, cancer patient now can use internet to search alternative medications and practices.
l Organization that are buying goods or services in the supply chain can create competitive advantages by locating alternative supply sources (decreasing supplier power) through B2B marketplace.
l Business-to-business (B2B) marketplace is an internet-based service that brings together many buyers and sellers (reduce supplier power between one company and another company)
l There are two types of B2B marketplaces which are:-
- Private exchange - a single buyer (company) post its needs and then opens the bidding to any supplier (supply company) who would care to bid.
- Reverse Auction - an auction format in which increasingly lower bids are solicited from organizations that willing to supply the desired product or service at an increasingly lower price.
- in other words, supplier itself offered to the market a lower price of product or services for whom might have desired to buy.
3)Threat of substitutes products or services
l A threat of substitutes product or services is high when there are many alternatives to a product or service and low when there are few alternatives from which to choose.
l For example, travelers have numerous substitutes for airline transportation including automobile, trains and boat.
l Ideally, a company would like to be in a market in which there are few substitutes for the products or services it offers.
l A company can reduce the threat by offering additional value through wider product distribution. For example, soft-drink manufacturers distribute their products through vending machines, gas stations and convenience stores to increase the availability of soft-drinks relative to other beverages.
l Another way is by offering switching costs (costs that can make customers reluctant to switch to another products or services.)
l For example, providing a very good services such as customer service in order to avoid customer going to competitors.
4) Threat of new entrants
l It become high when it is easy for new competitors to enter a market and low when there are significant entry barriers to enter the market.
l Entry Barriers is a products or services feature that customer have come to expect and entering competitors must offers the same for survival.
5) Rivalry among existing competitors
l It is high when competition is fierce in a market and low when competition are more complacent.
l Product differentiation occurs when a company develops unique differences in its product or service with the intent to influence demand.
l Company can use product differentiation to reduce rivalry.
l For example, Amazon.com has offered its customer a differentiated products based on the customer profiling.
The Three Generic Strategies - choosing a business focus.
Figure 2.2. The Three Generic Strategies
- figure above show the three strategies that applies to real companies, demonstrating the relationships among strategies ( costs leadership versus differentiation) and market segmentation (broad versus focus)
v Broad market and low cost (cost leadership):
- companies competes by offering a broad range of products at low prices. The business strategy is to be low-cost provider of goods or services for the cost-conscious customers.
- For example, Tesco, Giant
v Broad market and high cost (differentiation):
-companies competes by offering a broad range of differentiated products at high prices. The business strategy offers a variety of specialty and upscale products to affluent consumers.
-For example, KLCC and Pavillion shopping mall.
v Narrow market and low-cost (focused strategies):
- Companies competes by offering a specific products such as shoes at low prices.
- The business strategy is to be low-costs provider of particular products.
- For example, Verns competes with Bata which also sells low-costs shoes by offering a far bigger selection of sizes and styles.
v Narrow market and high costs (focused strategies):
-company competes by offering a differentiated products such as jewelry at high prices.
- The business strategies allows it to be a high-costs provider of premier designer of jewelry to affluent consumers.
- For example, Tiffany and Co., Rafflesia which both of them competes by offering jewelry with high quality in a high prices.
Value Chain Analysis - Executing Business Strategies
l Once an organization chooses its strategies, it then can use tools such as the Value Chain to determine the success or failure of its chosen strategy.
l Value chain analysis is created by the Michael Porter to identify the competitive advantages through this.
l Value chain analysis is a useful tools for determining how to create the greatest possible values for customers.
l The goals of value chain analysis is to identify processes in which the firm can add value for the customer and create a competitive advantages for itself, with cost advantage or product differentiation.
l Meanwhile, Business Process is a standardized set of activities that accomplish a specific task, such as processing a customer’s order.
The value chain groups a firm into two categories, primary value and support value.
- Primary value activities shown at the top of the value chain, it acquire manufacture, operations, delivery and logistic, marketing and selling and provide after-sales service.
- For example:
ü Inbound logistic : Acquires raw materials and resources and distributes to manufacture as required.
ü Operations : transforms raw materials or inputs into goods or services.
ü Outbound logistic: distributes goods and services to customers.
ü Marketing and sales : promotes, prices, and sells products to customers.
ü Services : provides customers support after the sale of goods and services.
- Support value activities along the bottom of the value chain, including firm infrastructure, human resource management, technology development, and procurement.
- For example :
ü Firm infrastructure : includes the company format or departmental structures, environment and systems.
ü Human resource management : provides employee training, hiring and compensation.
ü Technology development : applies MIS to process to add value.
ü Procurement: purchase inputs such as raw materials, resources, equipment and supplies.
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