Identifying 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.

• But, CA is temporary because competitors keep duplicate the strategy.

• Then, the company should start the new competitive advantage.

Michael Porter, a university professor at Harvard Business School, identified the following pressures that can hurt potential sales :-

> Knowledgeable customer can force down prices by pitting rivals against each other

> Influential suppliers can drive down profits by charging higher prices for supplies.

> Competition can steal customers.


> New market entrants can steal potential investment capital.

> Substitute products can steal customers.


The Five Forces Model

> This is useful tool to aid organization in challenging decision whether to join a new industry or industry        segment.

• 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)

• Supplier Power.

         > High -  when buyer 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 pose 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.

• Threat of substitute products 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 service.

        * Best practices of IT

        * E.g. Electronic product - same function different brands.

• 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 entering organization to                 compete and survive.

         > Best practice of IT.

         * E.g. new bank must offers online paying bills, acc monotoring to complete.

• Rivals 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 value chains - targeting business processes.

• Supply chain -  a chain or series of processes that adds value to product and service for customer.

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