A competitive advantage is a feature of a product or service on which customers place a greater value than they do on similar offerings from competitors.Competitive advantages provide the same product or service either at a lower price or with additional value that can fetch premium prices.
The introduction of Apple's iPod and iTunes,a brilliant merger of technology, business and entertainment, offers an excellent example.
When a company is the first to market with a competitive advantage, it gains a particular benefit, such as Apple did with its iPod. This first-mover advantage occurs when a company can significantly increase its market share by being first with a new competitive advantage.FedEx created a first-mover advantage by developing its customer self-service software,which allows people to request parcels online.Other parcel delivery companies quickly began creating their own online services.Today,customer self-service on the Internet is a standard feature of the parcel delivery business.
FedEx created a first-mover advantage.
Competitive intelligence is the process of gathering information about the competitive environment, including competitors' plans, activities and products, to improve a company's ability to succeed.It means understanding and learning as much as possible as soon as possible about what is occurring outside the company to remain competitive.For example Frito-Lay,a premier provider of snack foods such as Cracker Jacks and Cheetos.
Frito-Lay,a premier provider of snack foods such as Cracker Jacks and Cheetos.
Managers use three common tools to analyze competitive intelligence and develop competitive advantages including:
- The Five Forces Model
- The three generic strategies
- Value chain analysis
Porter's Five Forces Model
Buyer Power is the ability of buyers to affect the price they must pay for an item. Factors used to assess buyer power include number of customers,their sensitivity to price, size of orders, differences between competitors, and availability of substitute products.If buyer power is high,customers can force a company and its competitors to compete on price,which typically drives prices down.
Supplier Power is the supplier's ability to influence the prices they charge for supplies.
Threat of Substitute Products or Services is high when there are many alternatives to a product or service and low when there are few alternatives from which to choose.
Threat of New Entrants is high when it is easy for new competitors to enter a market and low when there are significant entry barriers to joining a market.
Rivalry Among Existing Competitors is high when competition is fierce in a market an low when competitors are more complacent.
The Three Generic Strategies-Choosing a Business Focus
Broad market and low cost: Its business strategy is to be low-cost provider of goods for the cost- conscious consumer.
Broad market and high cost: Its business strategy offers a variety of specialty and upscale products to affluent consumers.
Narrow market and low cost: Its business strategy is to be low-cost provider of goods.
Narrow market and high cost: Its business strategy allows it to be a high cost provider.
Value Chain Analysis- Executing Business Strategies
Inbound logistic: acquires raw materials and resources and distributes to manufacturing as required.
Operations: transforms raw materials or inputs into goods and services.
Outbound logistics: distributes goods and services to customers.
Marketing and sales: promotes, prices and sells products to customers.
Service: provides customer support after the sale of goods and services.
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