Competitive Advantage
Competitive Advantage
Competitive advantage is a product or service that an organisation’s customers place a greater value on than similar offerings from a competitor
Strategic Planning is when organisations watch their competition through environmental scanning, often using technology
Common Conceptual Frameworks/tools that are used in industry to analyse and develop competitive advantages include: o o o
Porter’s five forces model Porter’s three generic strategies Porter’s value chain
Porter’s Three Generic Strategies
Organisations typically follow one of Porter’s three generic strategies when entering a new market to achieve and maintain competitive advantage: o o o
Cost leadership Differentiation strategy Market segmentation (focussed strategy)
Porter’s Five Forces Model
Determines the relative attractiveness of an industry
1.
Buyer power: high when buyers have many choices of whom to buy from, and low when their choices are few
2.
Very strong buyer power is similar to a monopsony where there are many suppliers and one buyer Switching costs, which make customers reluctant to switch. These may be financial e.g. the fee for cancelling a phone plan, or intangible, e.g. the effort of switching medical information to a new doctor o Loyalty programs, which reward customers for the amount they use their goods or services, e.g. frequent flyer points Supplier power: high when one supplier has concentrated power over an industry o o
3.
o Suppliers with high supplier power can charge higher prices, limit quality or services and shift industries o Example of high supplier power is Microsoft Threat of substitute products or services: high when there are many alternative, low when there are few alternatives
4.
Threat of new entrants: high when its easy to enter a market and low when there are significant barriers
5.
o Barriers may include set up costs, government policies, licenses Rivalry among existing competitors: high when competition is fierce in the market and low when it is not o o
Some industries are always competitive, such as the retail market with Coles and Woolworths A strategy to reduce rivalry include product differentiation where companies develop unique differences in their products
Competitive advantage is a product or service that an organisation’s customers place a greater value on than similar offerings from a competitor
Strategic Planning is when organisations watch their competition through environmental scanning, often using technology
Common Conceptual Frameworks/tools that are used in industry to analyse and develop competitive advantages include: o o o
Porter’s five forces model Porter’s three generic strategies Porter’s value chain
Porter’s Three Generic Strategies
Organisations typically follow one of Porter’s three generic strategies when entering a new market to achieve and maintain competitive advantage: o o o
Cost leadership Differentiation strategy Market segmentation (focussed strategy)
Porter’s Five Forces Model
Determines the relative attractiveness of an industry
1.
Buyer power: high when buyers have many choices of whom to buy from, and low when their choices are few
2.
Very strong buyer power is similar to a monopsony where there are many suppliers and one buyer Switching costs, which make customers reluctant to switch. These may be financial e.g. the fee for cancelling a phone plan, or intangible, e.g. the effort of switching medical information to a new doctor o Loyalty programs, which reward customers for the amount they use their goods or services, e.g. frequent flyer points Supplier power: high when one supplier has concentrated power over an industry o o
3.
o Suppliers with high supplier power can charge higher prices, limit quality or services and shift industries o Example of high supplier power is Microsoft Threat of substitute products or services: high when there are many alternative, low when there are few alternatives
4.
Threat of new entrants: high when its easy to enter a market and low when there are significant barriers
5.
o Barriers may include set up costs, government policies, licenses Rivalry among existing competitors: high when competition is fierce in the market and low when it is not o o
Some industries are always competitive, such as the retail market with Coles and Woolworths A strategy to reduce rivalry include product differentiation where companies develop unique differences in their products
