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MGCR 331 Chapter Notes -Freshdirect, Personalization, Walmart

Management Core
Course Code
MGCR 331
Yasser Rahrovani

of 6
Five Forces Framework And Zara Case
Key points from last class:
Organizations can look for sustainable competitive advantage through operational
effectiveness or more likely through differentiation
Use IT to create or strengthen resources that can provide sustainable competitive
Resources have to be different (valuable, rare, imperfectly imitable, non-
Resources can be ways of doing things, assets, capabilities, skills, competencies, and
Discussed how FreshDirect gained advantage from its IT-enabled business model
Resources for Competitive Advantage
Imitation-resistant Value Chain
Brand (lowers search cost, inspire trust, viral mktg)
Scale (economies, bargaining power, entry barrier)
Switching cost and Data Differentiation Personalization
Network Effects
Distribution Channels ex: TiVo
Patents (Intellectual Property)
Porter’s Five Forces:
Threat of new competition: Profitable markets that yield high returns will attract new
firms. This results in new entrants, which eventually will decrease profitability for all
firms in the industry.
Threat of substitute products or services: The existence of products outside of the realm
of the common product boundaries increases the propensity of customers to switch to
Bargaining power of customers (buyers): The ability of customers to put the firm under
Bargaining power of suppliers:
Intensity of competitive rivalry: Major determinant of the competitiveness of the
Thread of substitutes: ex: if you are in the gps industry, smartphones now have this
capacity. (they overlap the gps industry)
Bargaining power of buyers: In entertainment industry, apple is their client (itunes) ->
strong buyer.
Thread of the new entrants: market level. Rivalry with other industries.
Bargaining power of supplies:
Bargaining power of buyers:
When your buyers have power, you can’t raise prices
Some factors that increase buyers’ power:
If buyers purchase in large volumes
If buyers can easily switch to a competing firm
If buyers know a lot about your cost structure
Examples of how IT affects buyer power
IT-administered loyalty programs foster “stickiness”
The Internet provides buyers with detailed information (commodities)
The Internet provides your firm with detailed information
Intra-Industry Rivalry:
Intra-industry rivalry decreases prices
Some factors that increase intra industry rivalry:
Lots of firms in the industry (especially of similar size)
Competing firms offer similar products
Slow industry growth
Examples of how IT affects rivalry between firms
The Internet globalizes commerce, increasing # of firms
Web-based personalization can reduce product similarity
Threat of Substitutes:
Lowers a firm’s ability to raise prices and may reduce demand
Some factors that increase threat of substitutes:
Convergence (of products/features) PDA, GPS, cameras vs. smartphones
Changing tastes/preferences high quality (CD) vs. high variety (iPod)
Radical Innovations landline vs. cell phones, books vs. e-books