Chapter 2 - Identifying Competitive Advantages

What is Competitive Advantages ? 

• A feature of a product or service on which customers place a greater value than they do on similar offerings from competitors. For example, Air Asia give a promotion of low price ticket to everyone hence they affordable to buy.

First-mover advantage is a occurs when a organization can significantly impact its market share by being first to market with a competitive advantage. An examples the first company that introduce about the cheap of ticket to those want going to oversea is Air Asia. The other examples is Sony. Sony is the first one that introduce audio player with small size so that the other people can bought the accessories everywhere.

Organizations watch their competition through environmental scanning.

Environmental scanning is the acquisition and analysis of events and trends in the environment external to an organization.

             Three common tools used in industry to analyse and develop competitive includes Porter’s Five Forces Model, Porter’s three generic strategies and value chains.

        Porter’s five forces model determines the relative attractiveness of and industry :

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1.          Buyer Power
2.           Supplier Power
3.           Threat of Substitute Products or Services
4.           Threat of New Entrants 
5.         Rivalry Among Existing Competitors

1. Buyer Power

• Buyer power is 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 is rewards to customers based on the amount of business they do with a particular organization. For example they can choose with whom they want to buy.

2. Supplier Power

• Supplier power is high when buyers have few choices of whom to buy from and low when their choices are many.
• Supply chain is consists of all parties involved in the procurement of a product or raw material.

Organizations that are buying goods and services in the supply chain can create a competitive advantage by locating alternative supply sources (decreasing supplier power) through B2B marketplaces.

• Business to Business (B2B) marketplace is an internet based service that brings together many buyers and sellers.

    

 Two types of business to business (B2B) marketplaces.

• Private exchange is a single buyer posts its needs and then opens the bidding to any supplier who would care to bid.
• Reverse auction is 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.

3.Threat of Substitute Products or Services

• Threat of substitute or services is high when there are many alternative to a product or service and low when there are few alternatives from which to choose.
• Switching cost is costs that can make customers reluctant to switch to another product or services. Such as , we change the other tailors but they do not do the same as what we want it. 

4.Threat of New Entrants

• 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 entering a market.
• Entry barrier is a product or services features that customers have come to expect from organizations in a particular industry and must be offered by an entering organization to compete and survive.

   

      5. Rivalry Among Existing Competitors

• Rivalry among existing competitors is 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 i just about every industry.

The Three Generic Strategies-Creating a Business Focus

Organization typically follow one of porter's three generic strategies when entering a new market.

1) Cost leadership- Focus selling cheap products.It is a broad market and Walmart (Tesco                                          and Mydin).

2) Differentiation- The unique product and the price of these product is quick higher.It is more                                   to shopping complex and Neiman Marcus (purchase of furniture items-                                           IKEA).

3) Focused strategy- It divide 2. First is low cost and second is high cost.For a low cost                                                  is Payless Shoes (Bata) and high cost is Tiffany & CO (purchases and                                          gold).

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 is a standardized set of activities that accomplish a specific task, such as processing a customer's order.
• Value chain is views an organization as a series of processes each of which adds value to the product or service for each customer.  
• The competitive advantages is to target high and low adding activities to further enhance their value and to increase their value.