First of all , we must know the meaning of competitive advantage , what is competitive advantage ? A product or service that an organization’s customers place a greater value on than similar offerings from a competitor or in a simple way we can say that the benefit of a product or service that can wins customer attraction in order to fullfill their needy . This competitive advantage are really good in business and the company will keep changing their business strategy to gain customer . They will keep duplicate the strategy and then make a new one .
Michael Porter’s Five Forces Model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment .
Professor Michael Porter
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.
Best practices of IT-based:
-Loyalty program in travel industry (e.g. rewards on free airline tickets or hotel stays)
2. Supplier Power
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. 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.
Best practices of IT:
-E.g. Electronic product -same function different brands
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.
Best practices of IT:
-E.g. new bank must offers online paying bills, acc monitoring to compete.
5. Rivalry among existence competitors
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
1. 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.
2. 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.
-Example: i-care by Proton
3. Focused Strategy
-Target to a niche market
-Concentrates on either cost leadership or differentiation.
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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Supply Chain Diagram
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A chain or series of processes that adds value to product & service for customer .
That's all for today , i will update again soon . =)
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