1 Basic Definitions Intro a Competitive advantage customers place a greater value on than similar competitor b IR AC IS Increase Revenue Avoid Costs Improve Service 2 Five Forces Model averages a Sustainable competitive advantage financial performance that consistently outperforms industry b Fast follower problem exists when savvy rivals watch pioneer s efforts learn from their successes and missteps then enter the market quickly with a comparable or superior product at a lower cost before first mover can dominate i Technology is the primary way to seek competitive advantage but the difficulty is that if someone can build it other people can buy it iPhone swipe screen competitors have identical technology c Resource based view of competitive advantage i The strategic thinking approach suggests that if a firm is to maintain sustainable competitive advantage it must control an exploitable resource s that have four characteristics 1 Valuable 2 Rare 3 Imperfectly imitable 4 Non substitutable d Imitation resistant value chain a way of doing business that competitors struggle to replicate and that frequently involves technology in a key enabling role e Forces vs Profitability i What is Five Forces model Defines industry structure and how a business competes ii Structure of industry shapes forces 1 Drives competition and profitability 2 Industry structure grows out of a set of economic and technical characteristics that determine the strength of each competitive force iii Forces profitability f What are the Five Forces Applied to particular industry 3 Value Chain a What is Value Chain Views an organization as a series of processes each of which adds value to the product or service for each customer the business dies if the value added is insufficient i Note also that people do not buy products and services they buy a BENEFIT ii It seems that a lot of marketing is to identify or create a benefit b Primary vs Support activities i Primary activities Inbound logistics 1 2 Ops 3 Outbound logistics 4 Mktg and sales 5 Service product s value Supply Chain touches the product receiving storing and disseminating inputs to the product Transforming inputs into final product collecting storing and physically distributing the product to buyers Inducing buyers to purchase and provide means for them to do so assisting customer s use of the product and thus maintaining and enhancing the ii Support activities across supply chain 1 Contribute to Margin Value but in an indirect often hard to measure way 2 3 Examples Firm infrastructure HR Technology Development Procurement c First mover advantage Occurs when an organization can significantly impact its market share by IS Technology is embedded in all activities being first to market with a competitive advantage d Ways to obtain sustainable competitive advantage Needed to survive and thrive i Organization must examine the parts of the value chain and see if there are opportunities to do better than the competition ii A factor or set of factors can lead to sustainable competitive advantage if 1 Affects firm value in a positive way advantage 2 Not too many competitors can imitate it competitive 3 Can keep it up sustainable 4 Examples of sustainable competitive advantage Patents Pfizer Viagra Market control De Beers diamonds OPEC oil Superior procedures Wal Mart supply chain iii Sustainable Competitive Advantage is hard to achieve and even harder to hold onto iv Can be achieved through a variety of ways superior customer service superior product quality superior cache image 1 Product and processes differentiating yourself from other competitors 4 Info Goods a What is an information good Utility of symbols It is not the medium CD paper it is the information that has value not the medium and where the utility comes from i An information good is a collection of symbols also known as a digital good ii Its utility is a function of the arrangement of the symbols NOT on the material form they take iii What is NOT an info good Patent for new machine New edition of a travel guide Advice from a financial advisor Oil painting Website with data on leading economic indicators CD of interesting photos Infinitely replicable b Properties of info goods 7 of them i High fixed costs sunk costs ii Virtually zero marginal costs iii iv Easy to distribute v Experience goods value only discovered after good has been consumed vi Often time dependent example weather forecasts news Indestructible quality does not deteriorate over time vii viii Public goods 1 Non rival one person s consumption does not diminish amount available to another 2 Non excludable costly to exclude people who do not pay from consuming the good ix Private goods specific copies c Markets for info goods near monopoly usually i Traditional goods often have many competitors example retail ii Are there many competitors for information goods Operating systems Office productivity iii Monopoly or near monopoly suppliers are often a natural outcome in markets for information software Music downloads goods We don t need more than one eBay iv Considering the properties of information goods a monopoly could actually benefit customers 1 Standards compatibility network effects 2 Patents copyrights 5 Content vs Conduit The Internet changed everything People have always been creating content but it needs to get the people that want it It needs a way to get there Publisher CONDUIT is the way it gets there Had a greater power before the Internet Technology has driven the cost of publishing down due to minimal marginal costs a Author publisher customer relationship content conduit consumer b Value role of publisher before Internet Publisher decided what printed now anyone can put anything out in public c Role of publisher impact of Internet on who is in control d Technology and the cost of publishing No marginal cost of production 6 Network Effects Metcalf s Law a What is Metcalf s Law The value of a network increases with the square number of users b What is an externality Examples An externality is when the behavior of an individual affects the utility of another Negative smoking pollution Positive online games web 2 0 c Standards and network effects Standards promote network effects i The more people agree to build something using a common standard the more likely the item will benefit from network effects ii The owner of the standard usually obtains the most benefit iii As network effect builds value of network increases at
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