- Competitive advantages s a feature of a product or service on which customers place a greater
value than they do on similar offerings from competitors.
- Competitive advantages provide same product or service either at lower price with additional
value.
- Competitive advantages are typically temporary.
What is First-Mover advantages?
- Occur when an organization can significantly impact its market share by being first to market with a competitive advantages
- First-mover advantages also are typically temporary because other company/competitors can
duplicate them.
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Organization watch their competition through environmental scanning
*Environmental scanning is the acquisition and analysis of events and trends in the environment external to an organization.
There are 3 common tools used in industry to analyze and develop competitive advantages
1. Porter's Five Forces Model
Bargaining power of buyers ( Buyer power)
- Buyer power is the ability of buyers to affects the price they must pay for an item.
- The ability of customer's to put the firm under pressure, which also affects the customers sensitivity to the prices changes
- If large number of customers will act with each other and ask to make prices low the company will have no other choice because of large of customer pressure.
- A firm can reduce buyer power through:-
a. Loyalty program- Rewards customers based on the amount of business they do with a particular organization
b. Switching cost- Costs that can make customers reluctant to switch to another product or service. For example we can make produce a product that have good quality than other similar product
Bargaining power of supplier (Supplier power)
- A supplier can be relate to various parties directly or indirectly, in obtaining raw materials or a product.
- Supplier power is the suppliers' ability to influence the prices they charge for supplies.
- Supplier power high when buyers have few choices of whom to buy from and low when their choices are many.
- Organization that are buying goods and services in the supply chain can create a competitive advantage by locating alternative supply sources (decreasing supplier power) through Business-to-business (B2B) marketplaces.
a. What is Business-to-business (B2B) marketplace?
- An internet-based service that brings together many buyers and sellers
- By using this based we can decrease buyer power.
- This process occur in industrial field only. Not to end-users (custsomer)
b. There are 2 types of Business-to-business (B2B) marketplaces:-
- Private exchanges- 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
-Threat of substitute products or services high when there are many alternatives to a product or services
- It can become low when there are few alternatives from which to choose.
Threat of new entrants
- In Porters five forces, threats of new entrants refers to the threat new competitors pose to existing competitors an industry.
- 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 barriers- A product or service feature that customer 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
-The rivalry among existing competitors is high when competition is fierce in a market.
- And low when competition is more complacent.
-A company can reduce rivalry with product differentiation.
*Product differentiation occur when a company develops unique differences in its products or services with the intent to influence demand.
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The Three Generic Strategies
Porter has identified three generic business strategies for entering a new-market:-
a. Broad cost leadership
b. Broad differentiation
c. Focused Strategy
Cost Leadership
There are two main ways of achieving this within Cost leadership strategy.
1. Increasing profits by reducing costs, while charging industry-average prices.
2.Increasing market share through charging lower prices, while still making reasonable profit on each sale because you've reduced costs.
- Broad market and low cost- Walmart competes by offering a broad range of products at low prices. Its business strategy is to be low-cost provider of goods for the cost-conscious consumer.
Differentiation
To make a success of a differentiation strategy, organizations need:
1. Good research, development and innovation
2. The ability to deliver high-quality products or services.
3. Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.
- Broad market and high cost- Neiman Marcus competes by offering a broad range of differentiated products at high prices. Its business strategy offers a variety of specialty and upscale products to affluent consumers.
Focused strategy
Companies that use focus strategy concentrate on particular market and by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market. because they serve customers in their market uniquely well, they tend to build strong brand loyalty among their customers. This makes their particular market segment less attractive to competitors.
- Narrow market and low cost- Payless compete by offering a specific product, shoes, at low prices. Its business strategy is to be the low-cost provider of shoes. Payless competes with Walmart, which also sells low-costs shoes, by offering far bigger selection of sizes and styles.
- Narrow market and high cost: Tiffany & Co. competes by offering a differentiated product, jewelry, at high prices. Its business strategy allows it to be a high-cost provider of premier designer jewelry to affluent customers.
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Value Creation
Once an organization chooses its strategy, it can use tools such as the value chain to 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
- Customers determine the extent to which each activity adds value to the product or service
- The competitive advantage is to:
- Target high value-adding activities to further enhance their value
- Target low value-adding activities to increase their value
- Perform some combination of the two
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