Chapter 2 : Identifying Competitive Advantages

• To survive and thrive an organization must create a competitive advantage.
• Competitive advantage-a product or service that an organization's customers place a greater value on than similiar offerings from a competitor.
• First-mover advantage-occurs when an organization can significantly impact its market share by being first to market with a competitive advantage.
• Organization watch their competition through environmental scanning.
• Environmental scanning-the acquisition and analysis of events and trends in the environment external to an organization.

Three common tools used in industry to analyze and develop competitive advantages include:
-Porter's Five Forces Model
-Porter's three generic strategies
-Value chains


Porter's five forces:

1. Threat of substitute
2. Supplier power-bargaining power of suppliers
3. Threat of new entrants
4. Buyer power-bargaining power of channels end users
5. Rivalry among existing competitors.

• Buyer power-high when buyers have many choices of whom to buy from and low when their choices are few.
• One way to reduce buyer power is through loyalty programs.
• Loyalty program-rewards customers based on the amount of business they do with a particular organization.
• Supplier power-high when buyers have few choices of whom to buy from and low when their choices are many.
• Supply chain-consists of all parties involved in the procurement of a product or raw material.
• Organizations that are buying goods and services in the supply chain can create a competitive advantage by locating alternative supply sources through B2B marketplaces.
• Business-to-business (B2B) marketplace-an internet-based service that brings together many buyers and sellers.

Two types of business-to-business (B2B) marketplaces:

1. private exchange-a single buyer posts its needs and then opens the bidding to any supplier who would care to bid.
2. Reverse auction-an auction format in which increasingly lower bids are solicited from organizations wiling to supply the desired product or service at an increasingly lower price.

• Threat of substitute products or services-high when there ae many alternatives to a product or service and low when there are few alternatives from which to choose.
• Switching cost-costs that can make customers reluctant to switch to another product or service.
•  Threat of new entrants-high when it is easy for new competitors to enter a market and low when there are signficant entry barriers to entering a market.
• Entry barrier-a product or service feature that customers have come to expect from organizations in a particular industry and must be offered by entering organization to compete and survive.
• Rivalry among existing competition is high when competition is fierce in a market and low when completition is more complacent.

Three generic business strategies:

1.  Cost leadership.
2.  Differentiation.
3.  Focused strategy.

• Business process-a standardized set of activities that accomplish a specific task, such as processing a customer's order.
• Value chain-views an organization as a series of processes, each of which adds value to the product or service for each customer.

The competitive advantage is to:

• Target high value-adding activities to futher enchance their value.
• Perform some combination of the two.
• Target low value-adding activities to increase their value