Threat of Substitute Products or Services
(high when there are many alternatives to a product or service and low when there are few alternatives from which to choose)
Ideally, an organization wants to be in a market in which there are few substitutes for its
products or services.This is difficult to achieve, and most organizations create a competitive
advantage through switching costs the more painful it is for a customer to switch suppliers,
the less likely they are to switch. If a customer has to experience pain when switching to a
different service provider, then they are unlikely to switch. For example, switching doctors
usually involves sending all medical records and explaining all past medical history to the new
doctor. Insurance also has to be transferred, along with detailed forms that the customer will
be required to complete (such as family history, personal history, HIPAA, etc.) For these
reasons customers have to be extremely dissatisfied with a doctor before they will endure the
pain of finding or switching to a new doctor.
Threat of New Entrants
(high when it is easy for new competitors to enter a market and low when there are significant entry barriers to entering a market)
Entry barrier - is a product or service feature that customers have come to expect from
organizations in a particular industry and must be offered by an entering organization to
compete and survive
What is an industry that has a high entry barrier?
Energy – the organization has to have the infrastructure
to support energy
Telecommunications –
the organization has to invest in a telecommunications infrastructure prior to offering
services
Banking – the bank
must offer its customers an array of IT-enabled services including ATMs and
online account services
What is an industry that has a low entry barrier?
- Restaurants – simply lease a space, obtain a license, and you can sell food
- Catering – simply offer food and deliver
- Movie rental – simply buy the movies, pay the licensing fee, and offer the movies for rental (although if you want to be a Netflix the entry barrier is high because you have to have the facilities and systems to mimic their movie supply chain)
Rivalry Among Existing Competitors
(high when competition is fierce in a market and low when competition is more complacent)
Competition is always more intense in some industries than in others, the overall trend is toward increased competition in just about every industry
Porter’s Three Generic Strategies
• Broad cost leadership : Broad strategies reach a large market segment
• Broad differentiation : Focused strategies target a niche market
• Focused strategy : Focused strategies concentrate on either cost leadership or differentiation
Value Chains
Once an organization chooses its strategy, it can use tools such as the value chain to
determine the success or failure of its chosen 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
• Primary value activities acquire raw materials and manufacture, deliver, market, sell, and provide after sales services
• Support value activities support the primary value activities
• Customers determine the extent to which each activity adds value to the product or service
• The competitive advantage is to:
§ Target high value-adding activities to further enhance their value
§ Target low value-adding activities to increase their value
§ Perform some combination of the two
Value chains with Porter’s Five Forces
If an organization wants to decrease its buyer’s or customer’s power, it can construct its value chain activity of “service after the sale” by offering high levels of quality customer service. This will increase the switching costs for its customers, thereby decreasing their power (buyer power)
Okay girls and guys . This all about Chapter 2: Identifying Competitive Advantages . Have a nice reading and have a nice days . Assalamualaikum .
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