Tutorial Chapter 2

True/False:

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

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

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

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

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

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

7. Competitive advantage occurs when an organization can significantly impact its market  

share by being first to market with a an advantage.
(FALSE)

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.
(TRUE)

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

Long Essay.

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

There are three Porter Generic Strategies. Firstly, 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 is Tesco. The central goal of Tesco is to keep retail prices low and the company has been very successful at this. Secondly, differentiation. Create competitive advantage by distinguishing their products on one or more features important to their customers. Unique features or benefits may justify price differences and/or stimulate demand. For example is McDonald's. Thirdly, focused strategy. It's target to a niche market and concentrates on either cost leadership or differentiation. For example is Habib Jewels.

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)

a) Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.

b) Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.

c) Rivalry Among Existing Competitors: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.

d) Threat of Substitute Products or Services: This is affected by the ability of your customers to find a different way of doing what you do. for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.

e) Threat of New Entrants: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.