Speaker 1: Hello everyone, we are going to analyze the competitive situation of each competitor. So now it's not the analysis of the overall industry. Now we are going to analyze each competitor and this leads to the concept of strengths and weaknesses. So if one company is stronger than another one in competitive terms, or a competitive advantage that is practically a synonym. Strengths and weaknesses is an older concept. Competitive advantage is the name that Michael Porter gave to the strengths and weaknesses. Let's try to understand what is this concept of competitive advantages, strengths and weaknesses, way Porter defined it. He provided a lot of insights that will help us a lot to determine the strengths and weaknesses or competitive advantages. First of all, Porter spoke of the following. The customers, the clients, they look at the value chain that is something that Michael Porter developed and also cost chain, but now practically everyone calls value chain and basically what the customers look is what is the value that the different competitors can provide to the customer and what is the price that the customer will have to pay and based on this you have the value chain for the different values that the competitors provide and costs change by the way the costs are generated and lead to some part of the determination of the price. Based on this, you have like four situations. If a company has a very high price and very low perceived value, this is a problem. Nobody will want to buy these products. If a company has a high price and a high perceived value, okay, fine. This is what you would expect. A company has a low perceived value and a low price, okay, that's fine. Again, this is what everyone would expect. But if a company has a very high perceived value and very low price, that's excellent. This is what everyone is going to buy. So based on the value chain and the cost chain, the customer can understand where are the different companies that provide the products or services that he or she is buying or is willing to buy or thinking about buying, he can place this company, position these companies in this graph. And to do that, this is the insight of Michael Porter, is the customer compares the different value chains and also cost chains both. So what are the perceived value that he or she may receive from the from the different companies and the price that he or she has to pay. Okay, so you need to analyze three things. You need to analyze number one, the customer side, number two, the competitive side, and number three, the dynamics between all of them. So, to analyze the first side, that is the customer side, you need to analyze what the customer is looking for. What are the attributes that the customer is will in this example is about the university I made it up this example students expect to receive knowledge from the university when they study reputation network and premises or technology or whatever but also the customers have a different weight so for them 40% of their weight is in the knowledge and the reputation only 15% of the network that the friends that they can make in the university and only 5% to the technology. But this is only just to give an example. The second thing is the competitive side. So what are the different competitors? You have here several universities. What are the values that they deliver to the customers? And here you have the different value chains. So these are the value chains of each competitor. So Herbert University has this value change and what happens is that the customers, and you need to do some market research in all the cases, perceive that for each one of these attributes, Herbert University is delivering the best, 10, 10, 10, 10, that is the maximum possible perceived value. Then you have Goodwill University that delivers all these different values and these are the perception of the customers according to each value and you do the same with all the universities. And Cheap University has a much lower values perceived by the customers. But as a counter counter side of this, you have also the prices. So all these values you see here, the average of all the perceived values, 10, 10, 10, the average value is 10, 8788, the average value is 7.7, the perceived value and so on. So here you have all the perceived values that come from here, the average, and all the prices that the different universities are charging to each student. And all of this is aligned with the weights that each student is expecting to receive from the university. So based on this and this I gave you an Excel file and that you can use so all these data come from the Excel. Based on this Excel creates this graph and this graph is exactly Michael Porter. Remember the graph that I showed you two slides ago. Here you have the perceived value and here you have the prices and here you have all the prices that the students pay and here you have all the perceived value that the students perceive from the different universities. So, good university is the winner, it's kind of above the average line. So, according to Porter, remember this is the university that provides the highest perceived value with comparatively a lower price price. And then the worst university would be middle country because middle country has a relatively higher price with a lower value. Consequently, nobody will want to buy. No students will go to middle country. And Cheap University and Herbert University are in the average, in the middle. So you see that this is the way that you can understand what is all the complexity of the concept of strengths. It depends on the perception of the customers of what the customers expect from the university and it depends also on whether the universities can deliver a high perceived value with a relatively low price. And definitely this strength depends on the actions, I'm sorry, on the resources, not on the actions, on the resources, while normally weaknesses mean that the different companies, the different competitors are unable to have the right resources. And there is a dynamic aspect here in the sense that eventually all the students will move to GoodDeal because it's the one that provides a best mix of perceived value versus price and middle country universities will disappear because slowly all the students will migrate to good universities. So there is a dynamic aspect that you have to look at this and eventually this dynamic aspect will lead middle country to change and eventually develop new resources and slowly move to this situation here otherwise the company will die. Similarly, Harvard University and Cheap University, they will have to raise above this average line and consequently, otherwise they will lose their customers and eventually good deal one day will also improve their quality in order to keep all the edge that they have and be able to succeed. So, you see that you have these three aspects and this leads to your conclusions and in the conclusions you have to be very clear of what why are you doing this? You are analyzing the profits. Remember that competitiveness is responsible for the profits. So you need to analyze the profits and the EVA and eventually assess the EVA to see if your analysis matches with the reality that is the EVA. The second is that you can assess what are the strengths and weaknesses, What are the unique resources? Remember that strength depends on the resources. If a company doesn't have unique resources, the company cannot have strengths. And that leads to a positive EVA. The third is, can the company modify its positioning? Positioning in the previous graph, if the companies can move up eventually in order to survive or to succeed, then you will define the pricing strategy versus differentiation. okay, okay, what is the best for me? Because maybe the customers want a low cost product, probably all the customers are expecting to have a low cost product, or there is a lot of demand on that side. It's like if you compare a Fiat with a BMW, okay, a lot of people want Fiat, not because they wouldn't prefer a BMW, but because Fiat is more affordable. So you need to analyze where are are the customers in all this graph. And finally, if all part of this dynamic aspect is that all the decisions have a game theory aspect that whatever I do, the competition is going to react. And eventually I will have to react to the reaction of the competitors and so on. So this is when you introduce all game theory and all the possibilities that the possible strategies. Okay.