Description
structural determinants of the intensity of competition, Porter’s Five Forces Model and structural analysis and competitive strategy.
An Abstraction From The Book “COMPETITIVE STRATEGY” by Michel Porter
Contents
? Introduction ? Structural Determinants Of The Intensity Of
Competition
? Threat Of Entry ? Barriers To Entry ? Expected Retaliation ? Bargaining Power Of Suppliers
? Bargaining Power Of Buyers ? Pressure From Substitute Product ? Intensity Of Rivalry Among Existing Competitors
? Entry Barriers And Exit Barriers
? Structural Analysis And Competitive Strategy ? Conclusion
Introduction
? What is Industry?
?Why Structural Analysis is needed?
? Formulation Of competitive Strategy ? Intensity Of Competition
Structural Determinants Of The Intensity Of Competition
? Return On Investment
? Five Competitive Forces ? Short Run Factors
Porter’s Five Forces Model
Porter’s Five Forces Model
Threat of Threat of New New Entrants Entrants
Threat of New Entrants
Economies of Scale
Barriers to Entry
Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Expected Retaliation
Porter’s Five Forces Model
Threat of New Threat of Entrants New Entrants
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
Supplier industry is dominated by a few firms Suppliers’ products have few substitutes Buyer is not an important customer to supplier
Suppliers’ product is an important input to buyers’ product
Suppliers’ products are differentiated Suppliers’ products have high switching costs
Porter’s Five Forces Model
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Bargaining Power of Buyers
Buyer groups are likely to be powerful if: ? Buyers are concentrated or purchases are large relative to seller’s sales
? Purchase accounts for a significant fraction of
supplier’s sales
? Products are undifferentiated
? Buyers face few switching costs
? Buyer has full information
? Product unimportant to quality ? Buyer presents a credible threat of backward
integration
Porter’s Five Forces Model
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products
Threat of Substitute Products
? Products that can perform the same functions.
? All firms in the industry compete with each other. ? Can limit the potential returns. ? More attractive price –performance alternatives get
industry profits. Eg: High fractose corn syrup
Threat of Substitute Products
Keys to evaluate substitute products: Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery Products with similar function limit the prices firms can charge
Porter’s Five Forces Model
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products
Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position Using price competition Staging advertising battles Increasing consumer warranties or service
Making new product introductions
Occurs when a firm is pressured or sees an opportunity :
Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors
Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
Numerous or equally balanced competitors Slow growth industry
High fixed costs
High storage costs Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors High strategic stakes
High exit barriers
Structural Analysis And Competitive Strategy
Approaches For An Effective Competitive Strategy :
? Positioning The Firm ? Influencing the Balance Of Forces ? Exploiting Change ? Diversification Strategy
Conclusion
? It is common to find people getting confused between
industry definition and business definition.
? The Business Definition is about focusing on the products,
customers and markets that the firm competes in.
? According to Industry Definition It encapsulates not only
the process by which the products are made and delivered but also alternate processes that can be adopted for making similar products so that efficiencies and effectiveness of various processes can always be monitored.
doc_647939972.pptx
structural determinants of the intensity of competition, Porter’s Five Forces Model and structural analysis and competitive strategy.
An Abstraction From The Book “COMPETITIVE STRATEGY” by Michel Porter
Contents
? Introduction ? Structural Determinants Of The Intensity Of
Competition
? Threat Of Entry ? Barriers To Entry ? Expected Retaliation ? Bargaining Power Of Suppliers
? Bargaining Power Of Buyers ? Pressure From Substitute Product ? Intensity Of Rivalry Among Existing Competitors
? Entry Barriers And Exit Barriers
? Structural Analysis And Competitive Strategy ? Conclusion
Introduction
? What is Industry?
?Why Structural Analysis is needed?
? Formulation Of competitive Strategy ? Intensity Of Competition
Structural Determinants Of The Intensity Of Competition
? Return On Investment
? Five Competitive Forces ? Short Run Factors
Porter’s Five Forces Model
Porter’s Five Forces Model
Threat of Threat of New New Entrants Entrants
Threat of New Entrants
Economies of Scale
Barriers to Entry
Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Expected Retaliation
Porter’s Five Forces Model
Threat of New Threat of Entrants New Entrants
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
Supplier industry is dominated by a few firms Suppliers’ products have few substitutes Buyer is not an important customer to supplier
Suppliers’ product is an important input to buyers’ product
Suppliers’ products are differentiated Suppliers’ products have high switching costs
Porter’s Five Forces Model
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Bargaining Power of Buyers
Buyer groups are likely to be powerful if: ? Buyers are concentrated or purchases are large relative to seller’s sales
? Purchase accounts for a significant fraction of
supplier’s sales
? Products are undifferentiated
? Buyers face few switching costs
? Buyer has full information
? Product unimportant to quality ? Buyer presents a credible threat of backward
integration
Porter’s Five Forces Model
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products
Threat of Substitute Products
? Products that can perform the same functions.
? All firms in the industry compete with each other. ? Can limit the potential returns. ? More attractive price –performance alternatives get
industry profits. Eg: High fractose corn syrup
Threat of Substitute Products
Keys to evaluate substitute products: Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery Products with similar function limit the prices firms can charge
Porter’s Five Forces Model
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products
Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position Using price competition Staging advertising battles Increasing consumer warranties or service
Making new product introductions
Occurs when a firm is pressured or sees an opportunity :
Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors
Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
Numerous or equally balanced competitors Slow growth industry
High fixed costs
High storage costs Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors High strategic stakes
High exit barriers
Structural Analysis And Competitive Strategy
Approaches For An Effective Competitive Strategy :
? Positioning The Firm ? Influencing the Balance Of Forces ? Exploiting Change ? Diversification Strategy
Conclusion
? It is common to find people getting confused between
industry definition and business definition.
? The Business Definition is about focusing on the products,
customers and markets that the firm competes in.
? According to Industry Definition It encapsulates not only
the process by which the products are made and delivered but also alternate processes that can be adopted for making similar products so that efficiencies and effectiveness of various processes can always be monitored.
doc_647939972.pptx