What is Competitive advantage ?
- A product or service that an organization's customers place a greater value on than similar offerings from a competitor.
- Unfortunately, CA istemporary because competitiors keep duplicate the strategy.
- Then, the company should start the new competitive advantage.
~Five Forces Model by Michael Porter - useful tools to aid organizations in challenging decision whether to join a new industry or industry segment.
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.
~For example, 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.
# Supplier power is the converse of buyer power.
~Best practices of IT to create competitive advantage.
~For example, B2B marketplace - private exchange allow a single buyer to post it need and then open the bidding to any supplier who would care to bid. Reverse auction is an auction format in which increasingly lower birds.
3. 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.
>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.
-For example, 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.
-For example, new bank must offers online paying bills, account monitoring to compete.
5. RIVALRY AMONG EXISTENCE COMPETITORS:
>High - when competition is fierce in a market.
>Low - when competition is more complecent.
>Best Practices of IT.
~Wal-mart and its suppliers using IT-enable system for communication and track product at aisles by effective tagging system.
~Reduce cost by using effective supply chain.
ThE ThReE GeNeRiC StRaTeGiEs:~
1. Cost Leadership - becoming a low cost producer in the industry allows the company to lower prices to customers. Competitors with higher cost cannot afford to compete with low cost leader on price.
2. Differentiation - Create competitive advantage by distinguish their products on one or more features important to their customers. Unique features or benefits may justify price differences and/or stimulate demand. Ex: i-care by Proton.
3. Focused Strategy - Target to a niche market, concentrates on either cost leadership or differentiation.