Chapter Two - 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.

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

• Porter’s Five Forces Model determines the relative attractiveness of an industry

       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
•  Add value to its products and services that support a profit margin for the firm

       

        Supply Chain Diagram

                     A chain or series of processes that adds value to product & service for customer

 

         

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