UNIT 1 : CHAPTER 2

Chapter 2 – Identifying Competitive Advantages

 

BUSINESS STRATEGY is a leadership plan that achieves a specific set of objective or goals.

COMPETITIVE ADVANTAGE is a feature of a product or service on which customers place a greater value than they do on similar offerings from competitors. It also provide the same product or service either at lower price or with additional value that can fetch premium prices. Typically temporary because competitors often quickly seek ways to duplicate them.

FIRST-MOVER ADVANTAGE occurs when a company can significantly increase its market share by being first with a new competitive advantage.

COMPETITIVE INTELLIGENCE is process of gathering information about the competitive environment, including competitors’ plans, activities, and products, to improve company’s ability to be successful. Meaning, understanding and learning as much as possible as soon possible about what is occurring outside the company to remain competitive.

Managers use three common tools to analyze competitive intelligence and develop competitive advantages including:

a.       The Five Forces Model (for evaluating industry attractiveness)

b.      The Three Generic  Strategies (for choosing a business focus)

c.       Value Chain Analysis (for executing business strategies)

The Five Forces Model

Michael Porter, identified the following pressure that can hurt potential sales:

i.                    Knowledgeable customers can force down prices by pitting rivals against each other.

ii.                  Influential suppliers can drive down profits by charging higher prices for suppliers.

iii.                Competition can steal customers.

iv.                New market entrants can steal potential investment capital.

v.                  Substitute products can steal customers.

  

                                      Porter’s Five Forces Model

BUYER POWER is ability of buyers to affect the price they must pay for an each   items. Factors used to access buyer power include number of customers, their sensitivity to price size of orders, differences between competitors, and availability of substitute products.

Reduce buyer power by switching cost which is make customers reluctant to switch to another product or service. This is include financial as well as intangible values. Next by loyalty programs which reward customers based on their spending. Keeping track of the activities and accounts of many thousands or millions of the customers covered by loyalty programs is not practical without large-scale business systems.

SUPPLIER POWER is the suppliers’ ability to influence the prices they charge for supplies (materials, labour, and services). Factors used to appraise supplier power include number of suppliers, size of suppliers, uniqueness of services, and availability of substitute products.

Suppliers can influence the industry by:

i.                    Charging higher prices

ii.                  Limiting quality or services

iii.                Shifting costs to industry participants.

When supplier raises prices, the buyers will pass on the increase to their customers by raising prices on the end of the product. When supplier power is high, buyers lose revenue because they cannot pass on the raw material price increase to their customers.

THREAT OF SUBSTITUTE PRODUCTS OR SERVICE is high when many alternatives to a product or service and low when there are few alternatives from which to choose. Ideally, company would like to be in a market in which there are few substitute for the products or service it offers. Companies can also offer various add-on services making the substitute product less of a threat.

Traditional Supply Chain

E.G :

1. Travellers have numerous substitutes for airline transportation including automobiles, trains, and boats.

2. Soft-drink manufacturers distribute their products through vending machine, gas station, and convenience stores.

THREAT OF NEW ENTRANTS is high when it is easy for new competitors to enter a market and low when there are significant entry barriers to joining a market. An entry barriers is features of a product or service that customers have come to expect and entering competitors must offer the same for survival.

RIVALRY AMONG EXISTING COMPETITORS is high when competition is fierce in a market and low when competitors are more complacent. Although competition is always more intense in some industries than in others, the overall trend is toward increased competition in almost every industry.

Product differentiation occurs when company develops unique differences in its products or services with the intent to influence demand and companies can use differentiation to reduce rivalry.

The Three Generic Strategies

Porter’s Three Generic Strategies

Example of Porter’s Three Generic Strategies

Broad market and low cost

Walmart competes by offering a broad range of products a low prices. Its business strategy is to be the low-cost provider of goods for the cost-conscious consumer.

Broad market and high cost

Neiman Marcus competes by offering a broad range of differentiated products at high prices. Its business strategy offer a variety of specialty and upscale products to affluent consumers.

Narrow market and low cost

Payless competes by offering a specific product, shoes, at low prices. Its business strategy is to be the low-cost provider of shoes. Payless competes with Walmart which also sells low-cost shoes by offering a far bigger selection of sizes and styles.

Narrow market and high cost

Tiffany & Co. competes by offering a differentiated product, jewellery at high prices. Its business strategy allows it to be a high-cost provider of premier designer jewellery to affluent consumers.

Value Chain Analysis

Business process is a standardized set of activities that accomplish a specific task. Once a firm identifies the industry it wants to enter and the generic strategy it will focus on, it must then choose the business processes required to create its products or services.

Value chain analysis is useful tool for determining how to create the greatest possible value for customers. Value chain groups a firm’s activities into two categories:

a.       Primary value activities were acquire raw materials and manufacture, deliver, market, sell, and procide after-sale services.

i.                    Inbound logistics.

ii.                  Operations

iii.                Outbound logistics

iv.                Marketing and sales

v.                  Service

b.      Support value activities include firm infrastructure, human resource management, technology development, and procurement.

i.                    Firm infrastructure

ii.                  Human resource management

iii.                Technology development

iv.                Procurement

 

The Value Chain