Chapter 2 Identifying Competitive Advantages

What is competitive advantage?

 A product or services that an organization’s customers place a greater value on than similar           offerings from a competitor.

What is First-mover advantages ?

Occurs when an organization can significantly impact its market share by being first to market with a competitive advantage.

What is Environmental scanning ?

The acquisition and analysis of events and trends in the environment external to an organization.

Three Common tools

• Porter's five forces model
• Porter's three generic strategies
• Value chains

Porter’s Five Forces Model 

Porter’s Five Forces Model determines the relative attractiveness of an industry.

• Buyer power - high when buyers have many choices of whom to buy from and low when their choices are few.

• 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 - high when buyers have few choices of whom to buy from and low when their choices are many.

• Supply chain - consist of all parties involved in the procurement of a product or raw material.

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

•  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 - high when there are many alternatives to a product or services 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 - 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 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 - high when competition is fierce in a market and low when competition is more complacent.

The overall trend is increased competition in just about every industry.

Three Generic Strategies 

Value Creation

Value chain 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.