- 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.
Five forces Model
Michael Porter’s Five Forces Model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment
- Buyer power
- Supplier power
- Threat of substitute products or services.
- Threats of new entrants.
- Rivalry among existing companies.
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.
- Best practices of IT-based
- High – when buyers have few choices of whom to buy from.
- Low – when their choices are many.
- Best practices of IT to create competitive advantage.
- E.g. B2B marketplace – private exchange allow a single buyer to posts it needs and then open the bidding to any supplier who would care to bid. Reverse auction is an auction format in which increasingly lower bids.
- 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.
- Best practices of IT
- E.g. Electronic product -same function different brands
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.
- Best practices of IT
- E.g. new bank must offers online paying bills, acc monitoring to compete.
- High – when competition is fierce in a market
- Low – when competition is more complacent
- Best Practices of IT
- Wal-mart and its suppliers using IT-enabled system for communication and track product at aisles by effective tagging system.
- Reduce cost by using effective supply chain.
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.
- Ex: i-care by Proton
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
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