Welcome back to part two week to chapter 8 "the competition." The weakness of an
enemy forms part of your own strength to overcome the competition or even compete
with it
you must have a straight as strategy that takes advantage of their weaknesses
before we continue on with this chapter i want to give you some background and
Harvard Business School professor michael Porter's five forces I brought
this up earlier and I don't think I addressed where it came from
some people use SWAT and as you learn in business people are moving to the five
forces SWAT tends to look internally whether five forces looks externally
swot analysis as a useful technique to understanding your strengths weaknesses
and for identifying both opportunities open to you and the threats you may face
on the next slide there's gonna be a short video from Harvard Business Review
explaining Porter's five forces much more elegant than i can but really
porous five forces in a nutshell looks at everything
externally that will impact how well your business works looks at the power
suppliers and buyers the threat of substitutions another different product
that may do something similar or take away your customers the threat of new
entrance as things start to really look really good and profitable more and more
people jump in the market like that because it causes prices to go down and
then there's the robbery a month existing competitors
most people think of business competition as a tug-of-war between
rivals with each competing for more sales or market share but according to
Harvard Business School professor michael porter competition is more
complex than that it's not about who's the biggest it's about who is the most
profitable and profitability is defined by five competitive forces let's start
with your buyers or customers who would always be happier to pay less and get
more in the airline industry price competition is fierce
because so many travelers just want the cheapest flight then there are your
suppliers would ideally like to be paid more and deliver less powerful suppliers
will use their clout to raise prices or insist on other more favorable terms a
third source of competition comes from substitute products or services that
meet the same basic need you do these aren't always obvious rivals the
toughest competitors may come from different industries new entrance can
also create tension for instance Southwest Airlines challenge the
industry by flying just one kind of airplane reducing costs and allowing it
to offer better ticket deals this pushed other carriers to spend more to retain
their customers
finally you still have to fight your existing rivals and intense competition
reduces everyone's profitability the major airlines have been in this
position for years forcing them to defend increasingly narrow profit
margins with these four exit row upgrades checked bags even snacks
these five forces define every industry structure and shape your company's
future once you understand them you can make better predictions create more
competitive strategies and increase your profits one of the worst statements you
can make in a business plan is we have no competition in knowledgeable investor
will immediately disregard the plan was such a statement because it indicates
either you have not fully examine the realities of your business or be there
is no market for your concept every business has competition many people new
to business excited about their concept and motivated by their perceived opening
in the market tend to underestimate the actual extent of competition and failed
to properly assess the impact of the competition has on their business even
if there is not a direct competition for your product or service there are always
substitutes learn from your computer shun the basic concept of competition is
responsiveness to customers and watch your competitors can help you understand
what customers want as you begin your competitive assessment keep in mind that
you'll need to evaluate honor those competitors a mean for your same target
market ask yourself how can you position your business to have a competitive
advantage over your competitors
what are your competitors missing out on look online see what people are saying
on the help and Twitter internal operating factors can increase your
competitiveness evaluate the internal operating factors of both your company
and your competition the chart here is michael Porter's value chain that's
different from supply chain
the items on the lower half the primary activities are the ones that can be
observed externally above-the-line our support activities
these are their trade secrets are kept typically you're not able to see the
details of your competitors support activities unless you're inside the
business as an officer or a strategic employee you will need to determine what
your secret sauces that gives your company a competitive advantage of your
competition in addition to your competitive position the factors listed
here can affect your ability to compete
you may have heard a first-mover advantage but is that good or bad
i have added a white paper on first-mover advantage to this week's
module first mover is the first one to the marketplace with a product or
service because of this you get the lion's share the customers moving into
the marketplace that first movers not always best
sometimes a fast follower has a better advantage but with second or late mover
there are barriers and moving these customers over to your company such as
the price to pay to create a substitute product by our loyalty with the
first-mover patents and economies of scale if the other company is so large
now it would be very difficult for you to produce the same product think about
it if you wanted to start an automotive company
how difficult would it be for you to compete with Ford GM or toyota next I
have another short video for you is less than two minutes
it's Alex gross and he's going to talk about first mover advantage and what
really catches my eye on this video
as the fact that he can write backwards
hi my name is Alexis Guerrero's i'm a business consultant today I'm going to
talk to you a little bit about the first-mover strategy now there are some
pros and cons to being the first mover really what that means is the first one
to do something
the first one to be involved in a specific market maybe come out with a
new technology or just create something now being the first gives you a lot of
advantages one all the users are going to come to you too
you're going to have all the technological advantage basically
meaning will you create the product so there's any type of technology that you
created to create that product that you need you're going to be able to retain
all of that first and one obviously having the advantage of the experience
you're going to learn along the way the problem with it could be others are
learning the same time you're learning so many mistakes you might have made
along the way the person who comes in second or next is gonna have to make
those mistakes they already understand exactly what the users are looking for
I understand what exactly did you do and what advantages they may have over you
and also they're gonna know exactly where to go to get exactly what you're
doing so all the mistakes you've made along the way they've watched the big
problem that comes in from not being the first mover or the second mover is going
to be the users is going to be a specific type of costs involved in
trying to get users to switch from them to you or vice versa something to keep
in mind when you're considering whether you want to enter the market first
really adapt on something that's already been done to look at that market
the future competition
this takes us back to porter's five forces and the threat of new entrance in
your competitive analysis you'll have to do a little fortune telling you must
take a few reasonable predictions of what the competition will look like in
the future the threat of new competitors entering the market is a big concern but
we'll keep companies from copying what you're selling
do not take comfort in the fact that other companies have overlooked a
particular product or service once you show you can be successful
someone will want to take a piece of the market from you just like you're taking
a piece of market from somebody else who are your new competitors likely to be
how long will you have the field to yourself before the competitors start to
jump in barriers to entry this is how difficult it is for someone to take over
your market an online store has very little barriers to entry there's very
little cost to start up a new store online unless you're competing with
amazon and like I mentioned before there's companies like automotive
companies they have very high barriers to entry because there's huge startup
costs
there's labor there's the buildings there's distribution so many hurdles to
get over to start that business few barriers to entry last very long
particularly in a new industry even patents don't provide nearly as much
protection as is generally assumed that this you need to realistically project
the period of time in which competitors will breach these barriers one way to
protect your company
and to increase barriers is to innovate your product or service so how do
companies protect themselves and threats at noon entrance when they cannot
protect the product forever when patents run out they need to innovate their
product Ivory soap was invented in the eighteen seventies by team led by James
Norris gamble
that's right Procter & Gamble made from vegetable oils the inexpensive white
soap that floats was advertised as being 99.4 percent pure it floats because it
was whipped with air during the production and innovation itself from
the original partner Gamble's bar soap
where's ivory today it is at many innovations if you looked at some other
partner and Gamble's products such as tied 15 years ago you would have found
for the most part ordinary bottles and boxes of detergent now you'll see the
tide name on dozens of products all with different sense and capabilities for
example in 2009 Procter & Gamble introduced a line of laundry additives
called time tide stain release within a year building on 26 patents it
incorporated these additives into a new detergent tied with a cleft the first
major redesign of tides liquid laundry detergents and a decade the product
launch drove immediate market growth in the tide brand in the United States due
this week
read chapter seven and eight also do saturday is your proposal on paper and
outline of your business plan due next week
read chapters 9 and 10
and also do is the rough draft of your business industry analysis target market
and competitor analysis
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