Competitive advantages must be created to ensure an organization to survive and thrive.
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.
How do organizations analyze?
There are three common tools used in industry to analyze and develop competitive advantages :
- Porter’s Five Forces Model
- Porter’s three generic strategies
- Value chains
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.
* 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.
- Switching costs – costs that can make customers reluctant to switch to another product or service.
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 chain 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 are :
- Private exchange – a single buyer posts its needs 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
* Threat of substitute products or services – high when there are many alternatives to a product or service 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
* 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
* 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.
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 as a series of processes, each of which adds value to the product or service for each customer.
* Value chain :
* Customers determine the extent to which each activity adds value to the product or service.
* The competitive advantage is to:
- Target high value-adding activities to further enhance their value
- Target low value-adding activities to increase their value
- Perform some combination of the two
* Value chains with Porter’s Five Forces :
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