Learning Outcomes
- Explain why competitive advantages are typically temporary
- List and describe each of the five forces in Porter's Five Forces Model
- Compare Porter's three generic strategies
- Describe the relationship between business processes and value chains
Identifying Competitive Advantages
-To survive and thrive an organization must create a competitive advantage
- Competitive advantage - a product or service that an organization customer 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
- Environmental scanning - the acquisition and analysis of events and trend in the invironment external to an organization
Three common tools :
Porter's Five Forces Model (industry attractiveness)
Porter's Three Generics Strategies (business focus)
Value Chains (business strategy)
- High when buyers have many choices of whom to buy from and low when their choices are few
Way to reduce buyer power is though loyalty programs
- Loyalty program - rewards customers based on the amount of business they do with particular organization
- Switching costs - costs that can make customers reluctant to switch to another product or service
- High when buyers have few choices of whom to buy from and low when their choices are many
- Low when their choices are many
- Supply chain - consists of all parties involved in the procurement of a raw product or raw material
Two types of business-to-business (B2B) marketplaces
- Private exchange - single buyer posts its needs and then opens the bidding to any supplier who would care to bid
- Reverse auction - 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 of Service
- High when they are many alternatives about products service
- Low when there are few alternatives about products service
Threat of New Entrants
-High when it is easy for new competitors to enter market
-Low when they are significant entry barriers to enter market
Rivalry among Existence Competitor
- High when competition is fierce in market
- Low when competition is more complacent
The Three Generic Strategies
Cost Leadership
- Becoming a low cost producer in the industry allows the company to lower prices to the customer
- Competitors with higher costs cannot afford to compete with low costs reader on price
Focus Strategy
- Target to a niche market
- Concentrate on either cost on leadership or differentiation
Relationships between business process and value chain
Supply chain - a chain or series of processes that adds value to products and service for customer
Supply chain diagram