Mgt 300- Tutorial chapter 2

Mgt 300- Tutorial chapter 2

True/False:

1. A competitive advantage is typically temporary, unless its a first-mover advantage.

2. An entry barrier is typically used to influence the threat of new entrants.

3. Switching cost are typically used to influence the threat of substitute products or services.

4. The Five Forces Model helps to determine the relative attractiveness of an industry.

5. Organizations can add value by offering lower prices or by competing in a distinctive way.

6. An entry barrier is typically used to influence the rivalry among existing competitors.

7. Competitive advantage occurs when an organization can significantly impact its market share by being first to market with a an advantage.

8. Buyer power, supplier power, threat of products or services, threat of new entrants and rivalry among existing competitors are all included in Porter's Five Forces Model.

9. Switching costs are typically used to influence the threat of substitute products or services.

10.

Answer

1.True

2.True

3.True

4.True

5.True

6.False

7.True

8.True

9.True

10.

Long Essay

1. Describe three (3) Porter Generic Strategies. Support your answer with examples. (12 marks)

Three porter generic strategy:

       Firstly, cost leadership. Cost leadership means it becoming low-cost producer in industry allows the company make lower prices of product to customer. Competitor with higher cost of product cannot afford to compete with the low cost leader on price because many customer are unable to buy expensive product. For example, For example, a local restaurant in a low rent location can attract price-sensitive customers if it offers a limited menu, rapid table turnover and employs staff on minimum wage. Innovation of products or processes may also enable a startup or small company to offer a cheaper product or service where incumbents' costs and prices have become too high. 

      Secondly, differentiation. Differentation means it creates the competitive advantage by distinguishing their product on more features which are important to their product. Unique features or benefits on product may justify different prices or stimulate the demand. As example there is i-care by Proton.  

      Thirdly, focused strategy. This dimension is not a separate strategy for big companies due to small market conditions. Big companies which chose applying differentiation strategies may also choose to apply in conjunction with focus strategies. On the other hand, this is definitely an appropriate strategy for small companies especially for those wanting to avoid competition with big ones.Examples of firm using a focus strategy include Southwest Airlines, which provides short-haul point-to-point flights in contrast to the hub-and-spoke model of mainstream carriers, United, and American Airlines.

2. Porter's Five Forces Model is a one of common tools used in industry to analyze and develop competitive advantages. List and describe each of the five (5) forces in Porter's Five Forces Model. (20 Marks)

Michael Porter's Five Forces Model:

       

         Michael Porter’s five forces model is useful to aid organization in challenging decision whether to join a new industry or industry segment. First force model is buyer power. Buying power becomes high when buyers have many choices of whom to buy but becomes low when their choices are few. To reduce buyer power and create competitive advantage, an organization must make it more attractive to buy from the company not from the competitors. The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program

       Second force model is supplier power. Supplier power become high when buyers have few choices of whom to buy and become low when their choices are many. For example, is B2B market place. It is private exchange allow a single buyer to posts it needs and then open the bidding to any supplier who would care to bid. Reverse auction is an auction format in which increasingly lower bids.

         After that is threat of substitute products and services. It becomes high whereby there are many alternatives to a product or service and it becomes low when there are few alternatives from which to choose. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), albeit while giving Pepsi a larger slice at Coke's expense. 

         

         Then, there is threat of new entrants. It becomes high when it is easy for new competitors to enter a market and become low when there are significant entry barriers to entering a market. Entry barriers is a product or service feature that customers have come to expect from organizations and must be offered by entering organization to compete and survive

          Lastly is rivalry among existence competitors. It becomes high when competitors is fierce in a market and become low when competition is more complacent. Existing competitors are not much of the threat; typically each firm has found its “niche”. As example, the airlines industry faces serious threats from airlines operating in bankruptcy, who do not pay on the debts while slashing fares against those healthy airlines who do pay on debt.

3. Michael Porter's Five Forces Model is one of the tools used by the organization to analyze and develop competitive advantages. Explain how information technology can develop a competitive advantage for each force in Five Forces Model. (20 marks)