00 PORTERS FIVE FORCE MODEL of INDUSTRY ANALYSIS

PORTERS FIVE FORCE MODEL of INDUSTRY ANALYSIS:

PORTERS FIVE FORCE MODEL of INDUSTRY ANALYSIS

Porter’s 5 Forces Model:

Porter’s 5 Forces Model Allows the development of a competitive strategy Suggests 5 main forces may be decisive in helping shape the outcome: Suppliers New Entrants Substitutes Buyers Industrial competitors

Threat of new entrants:

Threat of new entrants New entrants bring increased capacity to the industry Example: low cost airlines New entrants can be deterred by ‘barriers to entry’

Barriers to new entrants:

Barriers to new entrants Economies of scale Patents Product differentiation Capital requirements (financial & specialist equipment) Skills Access to distribution channels Reaction/strategic decisions of incumbents (ex- all undercut new entrant) Government policy (ex- de-regulation)

The Bargaining Power of Suppliers:

The Bargaining Power of Suppliers Suppliers exert power in the industry by threatening to raise prices or reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers - likely to be powerful if:

Suppliers - likely to be powerful if 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 buyer’s product Supplier’s products have high switching costs

The Bargaining Power of Buyers:

The Bargaining Power of Buyers Buyers compete with the supplying industry by: Bargaining down prices Forcing higher quality Playing firms off of one another

Buyer groups are likely to be powerful if:

Buyer groups are likely to be powerful if Buyers are concentrated They purchase a significant fraction of the seller’s goods Products are undifferentiated Buyers face few switching costs Buyers present a credible threat of backward integration

The Threat of Substitute products:

The Threat of Substitute products Products with similar function limit the prices firms can charge Keys to evaluating substitute products: Products with improving price/performance tradeoffs relative to present industry products Examples: Electric security system replaces a security guard Fax machine replaces overnight delivery Digital camera replaces the need for film Handy Cam replaces need for digital camera

The threat of substitute products.....Questions:

The threat of substitute products.....Questions How many substitute products/services have appeared in your industry in the last 5 years? What are they? How different are they? Were they introduced by your organisation or others? Which organisation in your industry does the most Research and Development? What happens to price, profits and market share when substitutes are introduced?

Rivalry among Existing Competitors:

Rivalry among Existing Competitors Intense rivalry often plays out in the following ways: Price competition Advertising battles Increasing consumer warranties and service New product roll-outs Price competition often leaves the entire industry worse off

Coca Cola:

Coca Cola Traditional competition: Prices of Pepsi, local brands Market share Promotional actions of competition New entrants: New “look-a-like” manufacturers Substitute products: Fashionable new drinks, milk drinks, coffee, beer, water, smoothies ...

Coca-cola:

Coca-cola Suppliers: Price and availability of ingredients on world market Quality, speed, safety, traceability, flexibility of supply chain Buyers/consumers: High as a result of intense competition both among branded and unbranded products. Combined purchase power of shops, bars, supermarkets

Slide 15:

MARKET ANALYSIS INDUSTRY ANALYSIS - Porters 5 force theory (Industry attractiveness) Rivalry among existing firms Zen, Santro, Alto, WagonR, Palio, Indica Entry/ Exit barriers High capital costs No initial scale economics Established player and image Substitutes Honda, Toyota, Cheverlet, Ford, Buyer Latest international design More precision timed ignition Higher fuel efficiency Engine power Passenger safety roominess Supplier Motor India Goetze, CEAT,Bridgestone, MRF, Modi, Engine Valves, Steering systems