TUTORIAL CHAPTER 2

TRUE/FALSE

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LONG ESSAY

1. Three Porter Generic Strategies are cost leadership, differentiation and focused strategy.

Cost leadership

-         Becoming a low-cost producer in the industry allows the company to lower prices to customers. Competitors with higher costs cannot afford to compete with the low-cost leader on price. For example, company A sold its goods RM10 but company B sold its goods more cheaper on the same goods. This will make customer more prefer to buy goods from company B.

Differentiation

-         Create competitive advantage by distinguish their products on one or more features important to their customers. Unique features or benefits may justify price differences and stimulate demand. For example, i-care by proton.

  Focused strategy

-         Target to a niche market. Concentrates on either cost leadership or differentiation. Focused of what we really good at it. For example, if we good in making dress we can making income by do so.

2. Five forces in Porter’s Five Forces are buyer power, supplier power, threat of substitute products and services, threat of new entrants and rivalry among existence competitors.

Buyer power

-         It will be high when buyers have many choices of whom to buy. It becomes low when their choices are few. To reduce buyer power, an organization must take it more attractive to buy from the company not from the competitors.

Supplier power

-         It will be high when buyers have few choices of whom to buy from. It becomes low when their choices are many. For example, if the supplier do not have the goods we can exchange to another supplier or if the prices is expensive we can transfer to another supplier that is more cheaper.

Threat of substitute products and services 

-         It will be high when there are many alternatives to a product or service. It becomes low when there are few alternative from which to choose. Ideally, an organization would like to be on a market in which there are few substitutes of their product or services.

Threat of new entrants

-         It will high when it is easy for new competitors to enter a market. It becomes 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.

Rivalry among existence competitors

-         It will high when competition is fierce in a market. It becomes low when competition is more complacent. For example, Wal-mart and its supplier using IT-enabled system for communication and track product at aisles by effective tagging system.

3. Information technology can develop a competitive advantage for each force in Five Forces Model.

Buyer power

-         Customer can grow large and powerful as a result of their market share. Many choices of whom to buy from. Low when comes to limited items. For example, used loyalty programs such as jusco cards, tesco card to being a members to get the discount.

Supplier power

-         Supplier power is the converse of buyer power. Supplier – organization : organizations want supplier power to be low here. Organization – customer : organizations want supplier power to be high here.

Threat of substitute products and services

-         To the extent that customers can use different products to fulfill the same need, the threat of substitutes exists. For example, electronic product that have same function but different brands. Switching costs is the costs that can make customer reluctant to switch to another product or service.

Threat of new entrants

-         Many threats come from companies that do not yet exist or have a presence in a given industry or market. The threat of new entrants forces top management to monitor the trends, especially in technology, that might give rise to new competitors. For example, new bank such as online paying bills.

Rivalry among existence competitors

-         Existing competitors are not much of the threat : typically each firm has found its niche. However, changes in management, ownership can give rise to serious threats to long term survival from existing firms. For example, the airlines operating in bankruptcy, who do not pay on the debts while slashing fares against those healthy airlines who do pay on debt.