CHAPTER 2: IDENTIFYING COMPETITIVE ADVANTAGE

INTRODUCTION

• What is competitive advantage?
• A product or service that an organization's customers place a greater value on than similar offerings from a competitor.

THE FIVE FORCES MODEL

• Introduced by Michael Porter, which is useful tool to aid organization in challenging decision whether to join a new industry or industry segment.

Figure 2.1 Porter's Five Forces Model

• 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.

• Supplier Power
• High - when buyers(the owner) have few choices of whom to buy from.
• Low - when their choices are many.
• Supply chain:

Figure 2.2 The Supply Chain

• Threat of Substitute Products and Services
• High - when there are many alternatives to a product or service.
• Low - when there are few alternatives from which to choose.
• The threat: 
• Customers can use different products. E.g: electronic product (same function but different brands)
• Switching cost - costs can make customer reluctant to switch to another product or service.

• Threat of New Entrants
• High - when it is easy when new competitors to enter a market.
• Low - when there are significant entry barriers to entry a market.
• The threat forces top management to monitor the trends, especially in technology. E.g: new bank (online paying bills)

• Rivalry Among Existence Competitors
• High - when competition is fierce in a market.
• Low - when competition is more complacent.
• Rivalry among existence firms:
• Changes in management, ownership, or "the rules of the game" can give rise to serious threat to long term survival from existing firms.

THE THREE GENERICS STRATEGIES

• 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.

• 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.

• Focused Strategies
• 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.

END OF CHAPTER 2