Competitive Advantage To survive and thrive, an organization must create a competitive advantage. A competitive advantage is a product or service that an organization’s customers place a greater value on than similar offerings from a competitor. Unfortunately, competitive advantages are typically temporary because competitors often seek ways to duplicate the competitive advantage. In turn, organizations must develop a strategy based on a new competitive advantage.
When an organization is the first to market with a competitive advantage, it gains a first-mover advantage. The first-mover advantage occurs when an organization can significantly impact its market share by being first to market with a competitive advantage. As organizations develop their competitive advantages, they must pay close attention to their competition through environmental scanning. Environmental scanning is the acquisition and analysis of events and trends in the environment external to an organization. Information technology has the opportunity to play an important role in environmental scanning.
1. Business Dilemma
The Broadway Cafe has been in business since 1952 and has never had a single competitor in the neighborhood. One of your employees has heard a rumor that Starbucks might be opening a store a few blocks away. Your staff is worried and is looking to you to provide reassurance that the competition will not affect your business.
1.1 Determine a strategy for addressing your employees concerns, building loyalty among your customers, and remaining competitive in a changing market
1.2 Be sure to use information technology in your solutions including environmental scanning, competitive advantages, and first-mover advantages.
The threat of a new competitor in a market brings a lot of undue stress and angst to an already established business. A strategy needs to be established to address concerns of the employees and guiding them through the process of how to tackle new competition.
The first thing I would do is to hold a management meeting with my assistant managers and supervisors. They need to know all of the information first, as employees will look to them for guidance throughout this transition period. Ensure the management team that a new Starbucks opening in the area, isn’t a threat to our business, but a chance to improve and enhance our already successful operation.
The good thing about it being a Starbucks Coffee shop, is that they are a brand, meaning every single Starbucks globally operates the same, with a very similar menu, and identical policies and procedures. I would take the management team to another Starbucks and get them to sit and analyse how Starbucks operates. What do they do differently to us? What is their customer service like? How does their menu differ to ours? Do they prepare their food fresh on site like we do? By doing this environmental scanning we will be able to see what Starbucks is going to offer our neighborhood and what changes we can implement before they open that will minimize the potential damage to The Broadway Café. In terms of customer loyalty, we already have the upper hand in that we have a loyal customer base, but Starbucks is a big brand that is known all over the world and naturally our customer’s will be interested and will want to try it out. After the management team’s concerns have been met and dealt with I would hold a staff meeting for all staff to attend. Present the findings of how Starbucks operates and how we are going to bring the Broadway café into the 21st century with powerful technology and a stronger focus on customer service.
This is the perfect time to introduce a Broadway Café loyalty card that links with technology through the use of a smart phone app. By introducing a loyalty system, our customer’s are rewarded with their loyalty by receiving a free drink of their choice for every 10 drinks they purchase. By having an app that the customers can use they can keep track of how many drinks they have left until they receive their free one. It is also a chance for us to market specials, promotions and create an online feedback tool for customers to provide us with feedback, so we are able to enhance the customer experience even further. This app will give us a competitive edge in our area. Starbucks do have an app but it is only a loyalty program. It doesn’t involve feedback, specials or buy-in from their customers. The app is there to use for smartphone users however the loyalty program is designed for everyone. It will be a plastic card with a magnetic strip so customers can swipe it in our system to see how many drinks they have accrued and how many more need to be purchased until they receive a free drink. The card will also link up with a website, so customers who don’t use smart phones can still access the feedback and customer section.
Weekly training sessions will be held with the staff with an emphasis on coffee training and performing coffee tastings and samplings throughout the café to really improve our coffee knowledge and increase our customer service offering to our customers. By providing this to our customers and having a loyalty system in place it will hold us in good stead for when the Starbucks does open up nearby.
2. Making Decisions I
Michael Porter’s Five Forces Model is a useful tool to aid organizations facing the challenging decision of entering a new industry or industry segment. The Five Forces Model helps determine the relative attractiveness of an industry and includes:
Buyer Power Supplier power Threat of substitute products or services Threat of new entrants Rivalry among existing competitors
2.1 Perform a detailed Porter's Five Forces analysis for The Broadway Cafe.
The Broadway Café is located just outside central London. For years it has been the only coffee shop for locals to get their fresh cup of coffee or tea, however a Starbucks is opening up a few blocks away. To be able to compete with this new business competition and to bring the café into the 21st century I have performed a detailed analysis using Michael Porter’s Five Forces Model.
Michael Porter’s Five Forces Model is a tool that is used to determine industry profitability by analyzing five competitive forces. Using this tool will help us analyse the current market and The Broadway Café to determine a competitive strategy moving forward, making The Broadway Café a profitable business again.
According to Porter's model, if there are fewer buyers in a business industry, the bargaining power of buyers increases. (Dowlatshahi, S. 1999) The Broadway Café has been the only café in this area since 1952 so the Buyer Power has been extremely low, however business has been declining over the past 5 years, pushing the buyer power higher and this will increase even more with the introduction of a big brand name like Starbucks opening a few blocks away. Having a low buyer power means there is more buyers in the area then there are sellers, meaning virtually no competition. Having a low buyer power has kept The Broadway Café a successful venture, until now.
We can’t stop competitors opening up stores nearby, but we can change our business practices to ensure we retain our loyal customer base. One way of doing this is establishing a loyalty program that focuses on retaining our regular customers, and incentivizing new customers to stick with us, instead of going to Starbucks. A loyalty program rewards customers based on how much they spend. Customers stay with the provider who has been loyal to you. (Cline, J. R. 2013). By introducing a loyalty program, we can incentivize both new and old customers with free drinks, and the opportunity for them to leave feedback to improve the service aspect of the café.
Research has proven that loyalty member clients return more often than non-members. They also spend much more money than non-members and they are less likely to switch to the competition.
Supplier Power or the bargaining power of suppliers is the pressure suppliers can put on buyers when there is limited competition or the cost of switching companies is too high, which will increase the supplier power. The Broadway Café is based just outside Central London so it has access to many different suppliers, making the supplier power low. Previously it was using a manual inventory system of a notepad and pen. With the introduction of a computer and internet access I can make the café digital, allowing research to be performed on different local suppliers. A basic cost analysis can be completed using a spreadsheet program like Microsoft Excel. This will give me the choice of which supplier to start using, based on speed of delivery, product availability and cost effective to my business.
Threat of substitute products or services
Threat of substitute products or services is when other businesses offer a similar product or service and you may lose potential business to that company. With The Broadway Café, the threat of substitutes has always been low to medium as it was the only café in this area. There is a few local petrol stations that also serve coffee and sandwiches which draws a little of our business. With the new Starbucks opening it increases the threat of substitute products to high as their café menu consists of sandwiches, Panini’s and sweet treats, same as The Broadway Café. This is a huge area of concern. To ensure we stay ahead of the competition we will hire a casual cook who will write a hot lunch menu, including burgers, pasta dishes, pies and parmagiana’s. This will give us a competitive edge over our local competition by offering a complete all-round café experience that Starbucks can’t offer by only having pre-packaged food.
Threat of New Entrants
The threat of new entrants is the potential for a competitor to open up a business similar to yours within a certain local distance from you, putting you in direct competition. The threat of new entrants in this report is high. Starbucks are moving in just down the road as they can see the location is perfect for a new coffee shop. With the right amount of capital and a strong business plan, opening a café can be quite a common occurrence. The entry barriers someone would face moving into this market and location would be that The Broadway Café already has 100% market share, and customer loyalty being the only café in the area so a new entrant faces that as a high risk challenge and would have to offer a product or service that sets them apart.
Rivalry Among Existing Competitors
Rivalry among existing competitors doesn’t exist in this case as The Broadway Café is the only café in this area and has full market share. It will, however be in direct competition with Starbucks when it opens up soon only a few blocks away and will put into action this business plan to ensure we stay as the market leader and a favourite for all our regular customers and their families.
2.2 Be sure to highlight entry barriers, switching costs, and substitute products.
Entering the hospitality market is a decision that should not be taken lightly. There is a lot of risks associated with the decision, and without enough capital to fully support the venture it can lead to bankruptcy very quickly. There are quite a few entry barriers involved in opening a new café and coffee shop.
The first barrier is the location. When opening a new café, the location is critical. You have to instantly compete with other cafes in the area and an already established loyal customer base. The Broadway Café already is already in the perfect location as it has been the only café in the area for the last 60 years. It will now have to compete with a big brand name entering the market in the same location.
Another entry barrier is marketing. The marketing for the café up until now has been word of mouth, but this is not an effective means of marketing as the café has been in decline for the past 5 years. With the introduction of an advanced loyalty card system, we will become the first in the area to have such a program, giving us a competitive advantage in the market and setting us up for success with the new Starbucks venture opening a few blocks away.
Capital is another example of an entry barrier that can really limit who enters the hospitality market and who is successful. To be successful you need enough capital and an entrepreneurial business plan that is followed. The Broadway Café has neither, but is establishing business plan that will bring it in to the 21st century, making it an extremely profitable enterprise.
When upgrading a cafe there can be significant switching costs involved. All the current suppliers have been recorded on pieces of paper and are the same companies that have been used for the past 60 years. There will be costs involved in switching suppliers, but in the ling run the costs will become cheaper as suppliers will be switched and a complete analysis done on the options available in the current market.
When the suppliers are changed, it will mean that some of the products will have to be substituted and this could potentially lose a few customers but we will do everything in our power to ensure the substitute products are of an extremely high quality and that recipes are not changed too dramatically. It is all in the aim of producing better quality meals and coffees which will draw business in, not having it decline as it has been doing recently.
Having performed the Porter’s Five Forces Analysis, it is evident there is a lot of work to be done on bringing the café into the 21st century, however if the plan is followed, the café will start becoming very profitable again.
2.3 Determine which of Porter's Three Generic strategies you will use as you rebuild The Broadway Cafe for the 21st century.
To rebuild The Broadway Café and bring it in to the 21st century, we need to develop a business strategy based on having a competitive advantage over the competition. To do this we need to select a strategy that will not only ensure the business becomes profitable, but that it is affordable and continues to build loyalty amongst our current customers.
Differentiation Strategy is a business strategy in which a company or business tries to gain a competitive advantage by providing a unique product or service, or providing a unique brand of customer service.
After analyzing The Broadway Café in detail, it is clear that a differentiation strategy is what is needed to give the café a competitive advantage over the new Starbucks entering the same neighborhood. Starbucks is a global brand, which means they are restricted to their own brand standards when it comes to their pricing structure, customer service, strategic operations and competitive strategy. The Broadway Café being a privately owned independent café means we can come up with a strategy that sets us apart from our competition. A differentiation strategy will focus on creating an environment in The Broadway Café that sets us apart from the competition. From the world class customer service, to the in depth loyalty system and smart phone app with a customer feedback section. Another aspect of The Broadway Café that differentiates us from the competition is full table service delivered to all customers dining in. The Broadway Café will become renown for its service with a smile attitude.
By also establishing a customer loyalty program through the implementation of an Information Technology system, we will have a first mover competitive advantage. First-mover can gain advantage through sustainable leadership in technology (Lieberman. Montgomery. 1988, p. 42).
The Broadway Café will undergo a complete business redevelopment to modernize the structure and business strategy of the cafe, making it a dominating force in the local market. The analysis involves Michael Porter’s Five Forces, which looks at the Five Forces involved in gaining a competitive edge in a market place, through environmental scanning, first mover advantages and a focused differentiation strategy in line with the business goals and ideals.
By focusing on differentiating ourselves from the local competition, namely a Starbucks in the neighborhood, we can provide a point of difference for our customers. This point of difference is the introduction of an in depth loyalty scheme where customers are given a loyalty card, that builds up points every time they purchase a drink. After 10 drinks they receive a free drink. The loyalty program is linked to an app for the café, where customers can log in, check their points balance, provide feedback on the café and offer any suggestions.
Another point of difference in our differentiation strategy will be the full time floor service provided. Customers will no longer have to come up to the counter to place their orders, but waitstaff will meet, seat and greet the customers and take their orders at their tables, or lounge area. By providing this level of service, we aim to be the dominating force in the local café scene and a first choice for local customers. We aim to create the ”home away from home.”