INFORMATION TECHNOLOGY IN BUSINESS: Chapter 2 : IDENTIFYING COMPETITIVE ADVANTAGE

IDENTIFYING COMPETITIVE ADVANTAGE

definition of competitive advantages is :-

A product or service that an organization’s customers place a greater value on than similar offerings from a competitor.
Unfortunately, CA is temporary because competitors keep duplicate the strategy.
Then, the company should start the new competitive advantage.

1.1 The Michael Porter's Five Forces Model Of Competition.

credit to http://www.sqaki.com//11/PorterMichaelFiveCompetitiveForces/

1. 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.

The Competitive Environment

Bargaining Power of Customers./Buyer power

Customers can grow large and powerful as a result of their market share.
Many choices of whom to buy from
Low when comes to limited items
E.g.: used loyalty programs (Aeon member card,- being a members to get the discount)

2. Supplier Power

High – when buyers have few choices of whom to buy from.

Low – when their choices are many.

An organization within the Supply Chain

Supplier power is the converse of buyer power.

3. Threat of Substitute products & Services

High – when there are many alternatives to a product or service.
Low – when there are few alternatives from which to choose.

Ideally, an organization would like to be on a market in which there are few substitutes of their product or services.

The Competitive Environment

Threat of Substitutes.

To the extent that customers can use different products to fullfill the same need, the threat of substitutes exists.
E.g: electronic product - same function different brands
Switching cost- costs can make customer reluctant to switch to another product or service

4. Threat of new entrants

High – when it is easy for new competitors to enter a market.

Low – when there are significant entry barriers to entering a market.

Entry barriers is a product or service feature that customers have come to expect from organizations and must be offered by entering organization to compete and survive.

The Competitive Environment

Many threats come from companies that do not yet exist or have a presence in a given industry or market.
The threat of new entrants forces top management to monitor the trends, especially in technology, that might give rise to new competitors.
E.g. new bank (online paying bills, acc monitoring)

5. Rivalry among existence competitors

High – when competition is fierce in a market

Low – when competition is more complacent

The Competitive Environment

Existing competitors are not much of the threat: typically each firm has found its "niche".
However, changes in management, ownership, or "the rules of the game" can give rise to serious threats to long term survival from existing firms .
E.g: the airline industry faces serious threats from airlines operating in bankruptcy, who do not pay on the debts while slashing fares against those healthy airlines who do pay on debt. (MAS & AIR ASIA)

1.2 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 Strategy