Scribd
Upload
95 views33 pages

7L. Porter Five Forces Model

The document discusses how exploiting an opponent's weaknesses can be key to success in competition. Rather than solely relying on one's own strengths, finding and taking advantage of flaws or vulnerabilities in one's rivals can provide an important edge. Success may lie not just in what you do well but also in what your competitors do poorly.

Uploaded by

Tanpreet Benipal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
95 views33 pages

7L. Porter Five Forces Model

The document discusses how exploiting an opponent's weaknesses can be key to success in competition. Rather than solely relying on one's own strengths, finding and taking advantage of flaws or vulnerabilities in one's rivals can provide an important edge. Success may lie not just in what you do well but also in what your competitors do poorly.

Uploaded by

Tanpreet Benipal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 33

The secret of success in competition lies often not so

much in the use of one's own strength but in the


exploitation of the other side's weaknesses.

LEARNING OBJECTIVES

Understand the importance of the external context


for strategy and firm performance

Identify the major features of an industry and the


forces that affect industry profitability

Understand the dynamic characteristics of the


external context

COMPONENTS OF THE GENERAL ENVIRONMENT

Economic

Demographic

Sociocultural
Industry
Environment

Competitive
Environment
Political/
Legal

Global

Technological

THE EXTERNAL ENVIRONMENT OF THE ORGANIZATION

Macro Environment
Political, Economic, Sociocultural,
Technological, Environmental, Legal
Industry Environment
Strategic Group

The Organization

FORMS OF COMETITION

Generic Competition
Form Competition
Industry Competition
Brand Competition

INDUSTRY FRAGMENTATION AND CONCENTRATION

Monopoly

Duopoly

Fragmented

KEY QUESTION TO ASK

What macro environmental


conditions will have a material
effect on our ability to implement
our strategy successfully?

How stable are these


characteristics?

What is our
firms industry?

What are the


characteristics of the
industry?

EXTERNAL CONTEXT OF STRATEGY

An internal analysis is
Internal

Strengths

just half of what is


needed to build
strategy

Weaknesses

The SWOT and more

Capabilities

complicated
frameworks help us
understand the full
picture

Relationships
Etc.

THE COLA WARS (TIMELINE)


Coca-Cola
Coca-Cola invented

Kick Pepsi's can


Diet Coke
New Coke

Pepsi
1886
1950

Beat Coke

1960

Pepsi Generation

1970

Pepsi Challenge

1980

Foster entrepreneurial
spirit of Pepsis people

1990
Repair Coke and restore
Stock price
Diversify product line

2000

Diversify beyond
soft-drinks
10

FIVE-FORCES ANALYSIS

1. The five forces are environmental forces that impact on a


companys ability to compete in a given market.

2. The purpose of five-forces analysis is to diagnose the


principal competitive pressures in a market and assess
how strong and important each one is.

PORTERS FIVE FORCES MODEL OF COMPETITION

Threat of
Threat
Newof New
Entrants
Entrants

THREAT OF NEW ENTRANTS

Economies of Scale

Barriers to
Entry

Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Government Policy
Expected Retaliation

PORTERS FIVE FORCES MODEL OF COMPETITION

Threat of
Threat
Newof New
Entrants
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

Supplier poses credible threat of forward


integration

SUPPLIER POWER

Diamond supply
Percent

Others

Diamond
Retailers

50
When firms in the supply
industry can dictate
terms, they can extract
greater profits

DeBeers

50

18

PORTERS FIVE FORCES MODEL OF COMPETITION

Threat of
Threat
Newof New
Entrants
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 sellers sales

Buyers compete with the


supplying industry by:

Purchase accounts for a significant fraction of


suppliers sales
Products are undifferentiated
Buyers face few switching costs
Buyers industry earns low profits
Buyer presents a credible threat of backward
integration
Product unimportant to quality
Buyer has full information

* Bargaining down prices


* Forcing higher quality
* Playing firms off of
each other

BUYER POWER

ILLUSTRATIVE

Industry A
Suppliers

Profits

Buyers

Industry B
Suppliers

Profits

Buyers

In industries
characterized with
many suppliers
and few buyers,
buyers often
capture a greater
share of profits

23

PORTERS FIVE FORCES MODEL OF COMPETITION


Threat of
Threat
Newof New
Entrants
Entrants

Bargaining
Power of
Suppliers

Bargaining
Power of
Buyers

Threat of
Substitute
Products

THREAT OF SUBSTITUTE PRODUCTS

Keys to evaluate substitute products:


Products with
similar function
limit the prices
firms can charge

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

THREAT OF SUBSTITUTES
Soft drinks

Movie rentals
Block buster

Coke

Pepsi

Cable TV

Bottled water

Hollywood video

26

CAUSES OF RIVARLY
Barriers to Entry

Barriers to Exit
In addition to entry
and exit barriers,
many factors drive
rivalry

History of price wars


Level of fixed costs
Industry
concentration

Strong brands
Proprietary technology
Start-up costs
Etc.,

Market growth
Few other opportunities
Sunk investments
Etc.,

Etc.

27

PORTERS FIVE FORCES MODEL OF COMPETITION

Threat of
Threat
Newof New
Entrants
Entrants

Bargaining
Power of
Suppliers

Rivalry Among
Competing Firms in
Industry

Threat of
Substitute
Products

Bargaining
Power of
Buyers

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
Lack of differentiation or switching costs
Diverse competitors
High strategic stakes
High exit barriers

IMPACT OF COMPLEMENTOR
Complementor:

Three Examples

Any factor that makes it more attractive


for suppliers to supply an industry on
favorable terms or that makes it more
attractive for buyers to purchase
products or services from an industry
at prices higher than it would pay on
absence the complementor

Hot dogs
+

More sales

Buns
Music
+

More attractive offering

MP3 player
Delta plane
orders
+

Lower costs from Boeing

American
Airlines
plane orders
33

You might also like