Chapter 2 - Identifying Competitive Advantages

A competitive advantages is a feature of a product or service on which customers place greater value than they do on similar offering from competitors.
Competitive advantages provide the same product or service either at lower price or with additional value that can fetch premium prices.

Competitive intelligence is the process of gathering information about the competitive environment, including competitor's plans, activities, and products, to improve a company's ability to succeed.
It is mean that understanding and learning as much as possible as soon as possible about what is occurring outside the company to remain competitive.

Common tools to analyze competitive intelligence and develop competitive advantage :

• The Five Force Model (for evaluating industry attractiveness)
• The Three Generic Strategies (for choosing a business focus)
• Value Chain Analysis (for executing business strategies) 

THE FIVE FORCE MODEL

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 advantages.
• 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.

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 brand

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 services features 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 practice 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 generic 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-costs leader on price

2. Differentiation

• Create competitive advantage by distinguishing their product 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

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