Chapter 2 – Identifying Competitive Advantage
-Competitive advantage – a product or service that an organization’s customers place a greater value on than similar offerings from a competitor.
•Buyer power – assessed by analyzing the ability of buyers to
directly impact the price they are willing to pay for an item
•Supplier power – assessed by the
suppliers’ ability to directly impact the price they are charging for supplies
(including materials, labor, and services).
•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
•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
•Rivalry among existing competitors – high
when competition is fierce in a market and low when competition is more
complacent
-Buyer
power can also be called customer power
•Calling
buyer power customer power sometimes helps students understand the difference
between buyer power and supplier power
•To reduce
buyer power (and create a competitive advantage), an organization must make it
more attractive for customers to buy from them than from their competition
•Ways to reduce buyer power include–Switching costs – costs that can make customers reluctant to switch to another product or service –Loyalty program – rewards customers based on the amount of business they do with a particular organization