Competitive Factors K-Foundation 2012 Like a G 9

Competitive Factors K-Foundation 2012 Like a G 9

Competitive Factors Basis of competition Competitive Factors Chapter learning objectives Introduction Competitive factors Competitive advantage Porter’s 5 forces Porter’s core values SWOT

Competitive Factors Basis of competition Competitive Factors Competitive Advantage Environmental analysis Key Issue The different ways a firm can achieve advantage Whether the firm has a sustainable competitive advantage The main competitive forces How different activities and departments within the firm contribute to its competitiveness Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT

Competitive Factors Basis of competition Competitive Factors Competitive Advantage Generic Strategies Choice one Competitive Advantage Choice two Porter’s 5 Forces Porter’s Value Chain SWOT

Competitive Factors Basis of competition Competitive Factors Basis of Competition Lower cost Broad target Differentiation Cost leadership Differentiation Cost focus Differentiation focus Competitive scope Narrow target Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT 5

Competitive Factors Basis of competition Competitive Factors Cost Leadership GENETIC STRATEGY “Price-sensitive” market Being the low-cost producer in an industry for a given level quality Firm’s price Average industry price WAYS TO ACQUIRE COST ADVANTAGES ØImproving process efficiencies, Below the average instry price ØGaining unique access to low cost materials ØMaking optimal outsourcing, Profit Market share Competitive Advantage Porter’s 5 Forces ØVertical integration decisions Porter’s Value Chain SWOT 6

Competitive Factors Basis of competition Competitive Factors Differentiation WAYS TO HAVE SUCCESSFUL DIFFERENTIATION STRATEGY ØTo reduce the ongoing cost to DEVELOPMENT OF PRODUCT OR SERVICE WITH UNIQUE AATTRIBUTES the customer of using the product ØTo increase customer satisfaction with the product ØTo modify the customer’s perception of value Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT 7

Competitive Factors Basis of competition Competitive Factors Focus AN IMPORTANT ADVANTAGE OF FOCUS STRATEGY NARROW SEGMENT ØCan be the only way into HIGH DEGREE OF CUSTOMER QUALITY market for a small company competing against larger ACHIEVEMENT OF A COST ADVANTAGE OR DIFFERENTIATION Competitive Advantage companies Porter’s 5 Forces Porter’s Value Chain SWOT 8

Competitive Factors Basis of competition Competitive Factors Competitive Advantage - Illustration Car Industry Differentiation Cost Leadership Competitive Advantage Porter’s 5 Forces Focus Porter’s Value Chain SWOT

10 Basis of competition Competitive Factors Competitive rivalry Porter’s five forces model Threats of entry Treats of substitute products Bargaining power of customers Bargaining power of suppliers Factors: Number and relative strength of competitors Rate of growth High fixed costs Buys switch easily between suppliers Exit barrier Presence in the market – strategic need High competitive rivalry Competitive Advantage Firms cut prices/improve quality Porter’s 5 Forces Reduced margins Porter’s Value Chain SWOT

Basis of competition Competitive Factors Competitive rivalry respon se of existin g compet Porter’s five forces model Treats of itors Treats of Bargaining power Source s of barrier s: Threatsentry Threats of of entry substitute Economi substitute products es of products scale Bargaining power of customers 11 Bargaining power of suppliers Product different iation Capital require ments Switchin g costs New entrants Access to Extra capacity distribut ion channels Cost advantag es Competitive Advantage indepen Porter’s 5 Forces More intense competition Porter’s Value Chain SWOT

12 Basis of competition Competitive Factors Competitive rivalry Porter’s five forces model Treats of substitute Threats of entry substitute products Across industries Good priceperformed alternative offer Competitive Advantage Customers switch between suppliers Porter’s 5 Forces Bargaining power of customers Bargaining power of suppliers Within an industry Limit potential returns Porter’s Value Chain SWOT

13 Basis of competition Competitive Factors Competitive rivalry Porter’s five forces model Threats of entry Competitive Advantage Treats of substitute products Porter’s 5 Forces Bargaining power of customers Porter’s Value Chain Bargaining power of suppliers SWOT

14 Basis of competition Competitive Factors Competitive rivalry Porter’s five forces model Threats of entry Competitive Advantage Treats of substitute products Porter’s 5 Forces Bargaining power of customers Porter’s Value Chain Bargaining power of suppliers SWOT

15 Basis of competition Competitive Factors Enterprise in economy Supplier Enterprise Competitive Advantage Porter’s 5 Forces Customer Porter’s Value Chain SWOT

16 How do suppliers & customers influence on your margin? Customers bargaining power Customers try to buy your goods as cheap as possible Your margin (Depends on managing these two factors) Suppliers bargaining power Suppliers tend to raise prices on what they provide Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT

17 High bargaining power of suppliers Lack of substitutes or high switching costs • (e. g. Transneft for Luk. Oil) Presence of dominant suppliers controlling prices • (e. g. Boing and Airbus for air transporters) Products of suppliers have a uniqueness of brand, technical performance or design • (e. g. Cosmetics producers for Specialised retailers)

18 High bargaining power of customers • Where a buyer’s purchases are a high proportion of the suppliers business • (e. g. Cocoa producers for farmers) • Where a buyer makes a low profit • (e. g. Auchan for goods producers) • Where the quality of purchases is unimportant • (e. g. Discount stores for food producers) Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT

19 Basis of competition Competitive Factors Porter’s value chain • How, if at all, a firm’s activities contribute towards its competitive advantage? Firm’s activities Primary activities Competitive Advantage Porter’s 5 Forces Support activities Porter’s Value Chain SWOT

20 Basis of competition Competitive Factors Primary activities Activity Description Example Receiving, storing and A just-in-time stock system Porter’s value chain: primary activities Inbound logistics handling raw material inputs could give a cost advantage Operations Transformation of the raw materials into finished goods and services Using skilled craftsmen could give a quality advantage Outbound logistics Storing, distributing and delivering finished goods to customers Outsourcing deliveries could give a cost advantage Marketing and sales Market research + 4 Ps (product, price, promotion, place) Sponsorship of a sports celebrity could enhance the image of the product Service All activities that occur after Friendly approach to the point of sale, such as returns could give a installation, training, repair perceived quality advantage Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT

21 Basis of competition Competitive Factors Support Activities Activity Description Example Porter’s value chain: support activities How the firm is Centralised buying could Firm infrastructure organised result in cost savings due to bulk discounts Technology development How the firm uses technology The latest computercontrolled machinery gives greater flexibility to tailor products to individual customer specifications Human resources development How people contribute to competitive advantage Employing expert buyers could enable a supermarket to purchase better wines than competitors Procurement Purchasing, but not just limited to materials Buying a building out of town could give a cost advantage over High Street Competitors Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT

22 Basis of competition Competitive Factors Porter’s value chain: results of analysis Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT

How different departments contribute to competitive advantage?

24 Basis of competition Competitive Factors Purchasing Cost advantages: • sourcing cheaper materials • bulk discounts • centralized buying Competitive Advantage Quality advantages: • sourcing higher quality materials • employing expert buyer Porter’s 5 Forces Porter’s Value Chain SWOT

25 Basis of competition Competitive Factors Production Cost advantages: • mass production lines • Standardization • just above min wages • low stock levels Quality advantages: • • • Competitive Advantage good quality of materials more quality control procedures highly skilled staff flexible manufacturing systems use of technologies ongoing training of staff Porter’s 5 Forces Porter’s Value Chain SWOT

26 Marketing Cost advantages: • word-of-mouth promotion • sell direct to cut distribution cost • centralized buying Quality advantages: • market research to meet customer needs • large promotional budgets • sponsorship • perceived quality pricing • brand development

27 Basis of competition Competitive Factors Service Cost advantages: • outsourcing • not offering service provision • low paid staff Quality advantages: • outsourcing • highly skilled staff

28 Basis of competition Competitive Factors SWOT Description v A SWOT analysis generates information that is helpful in matching an organization’s or a group’s goals, programs, and capacities to the social environment in which they operate Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT

29 Basis of competition Competitive Factors So, What is SWOT is a summary of your l. Strengths l. Weaknesses l. Opportunities l. Threats Competitive Advantage Porter’s 5 Forces Internal External Porter’s Value Chain SWOT

30 Basis of competition Competitive Factors SWOT vs. PEST Competitive Advantage Porter’s 5 Forces Porter’s Value Chain SWOT

31 Basis of competition Competitive Factors Starbucks SWOT Weaknesses Strength • global coffee brand • Higher prices compared to • 17, 000 stores in 49 countries • more than 6500 licenses shops • capture key locations the competitors • Too focus on US domestic market • Protest against the company on different issues Opportunities Threats • Product diversification • Co-branding with other food manufactures • Entry into new markets Competitive Advantage • Competition • Substitute products Porter’s 5 Forces Porter’s Value Chain SWOT

32 Basis of competition Competitive Factors 32 Competitive factors Part of external analysis Complements PEST analysis • • Competitive advantage Porter’s 5 forces • Competitive • • Cost leadership • • Differentiation • Focus • • rivalry Threat of Entry Threat of substitutes Power of suppliers Power of buyers Competitive Advantage Porter’s value Primary chain activities • Inbound logistics • Operations • Outbound logistics • Marketing • Service Support activities SWOT • • Strengths Weaknesses Opportunities Threats • Procurement • Infrastructure • Technology Porter’s 5 Forces Porter’s Value Chain SWOT

33 Your questions are welcomed