What is Competitive Advantage ?
♦ A product or service that an organization’s customers place a greater value on
than similar offerings from a competitor.
♦ There are three(3) common tools used industry to analyze and develop competitive advantage
include:
1. Porter’s Five Forces Model
2. Porter's Three Generics Strategies
3. Value chains
The Five Force Model
Buyer Power
♦High when buyers have many choices of whom to buy from and low when their
choices are
♦Low when their choices are few reduce buyer power.
Supplier Power
♦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 product or raw material
Threat of Substitute Product and Services
♦High - when there are many alternatives to a product or service
♦Low – when there are few alternatives from which to choose
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
Rivalry among Existence competitors
♦High when competition is fierce in a market
♦Low – when competition is more complacent
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 or stimulate demand
Focus Strategy
♦Target to a niche market
♦Concentrates on either cost leadership or differentiation
Relationships Between Business Process and Value Chain
♦The Value Chains - Targeting Business Process
♦Supply Chain - a chain or series of processes that adds value to product &
service for customer
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