Five Competitive Forces That Can Destroy Your Product

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• Do you have many competitors offering similar products? …

• Do you have many competitors offering similar products?
• Is it easy for new competitors to enter your market?
• Can your customers bully you into lowering your price?

This discussion shows you how to use Porter’s five competitive forces model to identify potential positive and negative impacts to your industry that can erode your product’s revenue and profitability.

Hector Del Castillo will draw upon a few practical case studies to compare the profitability of different industries. This session will help you understand both the strength of your product’s current competitive position, and the strength of a position you're considering moving into. This is a must-attend session for the modern product manager, marketer, intrapreneur and entrepreneur.

You will learn to apply this strategic analysis tool to quickly assess the strength of your product’s position and your ability to maintain its profitability in your industry.

Would you like to attend a live discussion? Reserve your seat here: http://bit.ly/1tKRvYs.

About the Speaker
Hector Del Castillo has over 15 years of experience transforming ideas to products, and products to wealth for technology-based companies by building and directing high performing product teams, improving core business processes and establishing strategic partnerships. He has launched several profitable technology-based products and solutions. He provides services as a consultant, contractor, coach, or trainer to companies that want to grow by strengthening their product portfolio and creating new revenue streams.

Connect with me to learn more about powerful tools for product managers, product marketing managers and brand managers. Let me know how I can help you become an exceptional product leader.

Regards,
Hector Del Castillo
http://linkd.in/hdelcastillo

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  • 1. © 2014 H. Del Castillo, All Rights Reserved. Hector Del Castillo linkd.in/hdelcastillo
  • 2. © 2014 H. Del Castillo, All Rights Reserved. Thanks everyone who attended this discussion at ProductCamp Boston 2014. I welcome your feedback regarding this topic. Contact me with any comments or questions. I look forward to seeing you again soon.
  • 3. © 2014 H. Del Castillo, All Rights Reserved. Special Thanks
  • 4. © 2014 H. Del Castillo, All Rights Reserved. Hector: @hmdelcastillo AIPMM: @AIPMM ProdBOK: #ProdBOK Tweet!
  • 5. © 2014 H. Del Castillo, All Rights Reserved. • One Starbucks gift card • ProdBOK® Guide Must be present to win! Participate and Win!
  • 6. © 2014 H. Del Castillo, All Rights Reserved. What We Will Discuss 1. Porter’s Five Forces Model 2. How To Use It 3. Key Takeaways
  • 7. © 2014 H. Del Castillo, All Rights Reserved. Gain strong understanding of the external marketing environment in which your company operates.
  • 8. © 2014 H. Del Castillo, All Rights Reserved. • What’s going on out there in your industry? • What matters most to remain competitive? • What deserves your attention?
  • 9. © 2014 H. Del Castillo, All Rights Reserved. A framework for analyzing an industry in order to develop a business strategy
  • 10. © 2014 H. Del Castillo, All Rights Reserved. 5 Forces That Shape Competition Source: “Competitive Strategy: Techniques for Analyzing Industries and Competitors,” June 2008, Michael E. Porter.
  • 11. © 2014 H. Del Castillo, All Rights Reserved. 5 Competitive Forces • The strength of competition in the industry.Competitive Rivalry • The ease with which new competitors can enter the market if they see that you are making good profits.Threat of New Entrants • The extent to which different products and services can be used in place of your own.Threat of Substitutes • The power of your customers to drive down your prices.Power of Buyers • The power of suppliers to drive up the prices of your inputs.Power of Suppliers
  • 12. © 2014 H. Del Castillo, All Rights Reserved. US Airline Industry Threat of New Entrants Buyer Power Threat of Substitute Products Supplier Power Competitive Rivalry ? Threat of New Entrants: Competitive Rivalry: Supplier Power: Buyer Power: Threat of Substitutes: ? ? ??
  • 13. © 2014 H. Del Castillo, All Rights Reserved. Assessing Direction and Strength Strongly in your favor 5 In your favor 3 Somewhat in your favor 1 Neither 0 Somewhat against you -1 Against you -3 Strongly against you -5
  • 14. © 2014 H. Del Castillo, All Rights Reserved. Competitive Rivalry 2014 Number of competitors Product differences Switching costs Customer loyalty Level of advertising expenses Cost of exiting market
  • 15. © 2014 H. Del Castillo, All Rights Reserved. Threat of New Entrants 2014 Time and cost of entry Specialist knowledge Economies of scale Cost advantages Technology protection Barriers to entry
  • 16. © 2014 H. Del Castillo, All Rights Reserved. Threat of Substitutes 2014 Substitute performance Cost of change
  • 17. © 2014 H. Del Castillo, All Rights Reserved. Power of Buyers 2014 Number of customers Size of each order (ARPU) Differences between competitors Ability to substitute Cost of switching vendors
  • 18. © 2014 H. Del Castillo, All Rights Reserved. Power of Suppliers 2014 Number of suppliers Size of suppliers Uniqueness of service Your ability to substitute Cost of changing Number of suppliers
  • 19. © 2014 H. Del Castillo, All Rights Reserved. US Airline Industry Threat of New Entrants Buyer Power Threat of Substitute Products Supplier Power Competitive Rivalry Threat of New Entrants: Competitive Rivalry: Supplier Power: Buyer Power: Threat of Substitutes: ? ? ? ? ?
  • 20. © 2014 H. Del Castillo, All Rights Reserved. Global Market • 2000 Airlines operating more than 23,000 aircraft, providing service to over 3700 airports. • In 2006, there were 28 million scheduled flight departures and carried over 2 billion passengers • Growth of world air travel has averaged • approximately 5% per year over the past 30 years • Annual growth in air travel has been about twice the annual growth in GDP • Expected to double over next 10 – 15 years Source: Airline Industry Overview, Eric Henckels, Columbia University.
  • 21. © 2014 H. Del Castillo, All Rights Reserved. US Market • 100 passenger airlines operate over 11 million flight departures per year • Carry over one‐third of the world’s total air traffic • 745 million passengers in 2006 • $160 billion in total revenues • 545,000 employees and over 8,000 aircraft operating 31,000 flights per day • Commercial aviation contributes 8% of the US Gross Domestic Product, according to recent estimates Source: Airline Industry Overview, Eric Henckels, Columbia University.
  • 22. © 2014 H. Del Castillo, All Rights Reserved. US Airline Industry Threat of New Entrants Buyer Power Threat of Substitute Products Supplier Power Competitive Rivalry Threat of New Entrants: -5 • Additional competitors from abroad Competitive Rivalry: -5 • Large number of competitors • Little customer loyalty Supplier Power: -5 • Boeing, Airbus and Embraer own majority market share Buyer Power: • Many alternatives to buy based on low priceThreat of Substitutes: • Alternative modes of transportation between major metro areas -5 -5 -5 -5 -3
  • 23. © 2014 H. Del Castillo, All Rights Reserved. Airline Industry Profitability • During 2004–2011, the airline industry worldwide averaged a ROIC of 4.1%. • This is an improvement on the average of 3.8% generated in the previous business cycle 1996–2004 • Nowhere near Weighted Average Cost of Capital (WACC) of 7.5%. • Concerns regarding rising costs, safety and growth • Significant consolidation through M&A – United and Continental (2010) – largest airline – Delta acquired Northwest (2009) – 2nd largest airline – Southwest acquired AirTran (2013) Source: International Air Transport Association (IATA) Airline Profitability Report, Aug 2013.
  • 24. © 2014 H. Del Castillo, All Rights Reserved. Pick Your Industry Threat of New Entrants Buyer Power Threat of Substitute Products Supplier Power Competitive Rivalry Threat of New Entrants: Competitive Rivalry: Supplier Power: Buyer Power: Threat of Substitutes: ? ? ? ? ?
  • 25. © 2014 H. Del Castillo, All Rights Reserved. Profitability of U.S. Industries Source: “The Five Competitive Forces That Shape Strategy” Michael E. Porter, Harvard Business Review Magazine, Jan 2008. Profitability of Selected U.S. Industries, Average ROIC, 1992-2006
  • 26. © 2014 H. Del Castillo, All Rights Reserved. Key Takeaways • Understand the competitive landscape1 • Allows you to gauge profitability and risk2 • Can be applied to any established industry3 • Helps align business and product strategies4 • Allows you to anticipate disruption5
  • 27. © 2014 H. Del Castillo, All Rights Reserved. Hector Del Castillo • Senior consultant with over 15 years of experience transforming products to wealth for technology-based companies • AIPMM Body of Knowledge (ProdBOK®) Contributor • Certified instructor for AIPMM and the 280 Group • Established companies – Jet Propulsion Laboratory, Lucent Technologies, MEI Technologies • Small companies and startups – Nextone Communications, Smith Micro Software • Launched 27+ Products for global deployment – HW/SW, Telecom, Enterprise Mobility, Information Security Services, Professional Development • Certified PMP®, CPM® and CPMM® • University of California at Santa Barbara, MS EE • University of Texas at El Paso, MS EE, BS EE 27
  • 28. © 2014 H. Del Castillo, All Rights Reserved. Questions? Hector Del Castillo, CPM, CPMM Product Innovation Consultant hmdelcastillo@aipmm.com linkd.in/hdelcastillo
  • 29. © 2014 H. Del Castillo, All Rights Reserved. Upcoming Courses Course & Location Dates Days Time CPM® Certification Prep Course & Exam McLean, VA June 9-10, 2014 M, T 8:30 am – 5 pm CPMM® Certification Prep Course & Exam McLean, VA June 11-12, 2014 W, Th 8:30 am – 5 pm ACPM® Certification Prep Course & Exam McLean, VA June 13, 2014 F 8:30 am – 5 pm For more information, visit: Transform Your Career.
  • 30. © 2014 H. Del Castillo, All Rights Reserved. May 12-13 - Bellevue, WA June 16-17 - McLean, VA Upcoming Courses AIPMM is offering several scholarships to these courses to reach those who are serious about learning these skills but have budget constraints. For more information visit: http://bit.ly/CILCourse.
  • 31. © 2014 H. Del Castillo, All Rights Reserved. Athens, Greece Belgrade, Serbia Athens, Greece Follow the links above for more information, or contact: certification@aipmm.com. Upcoming Courses
  • 32. © 2014 H. Del Castillo, All Rights Reserved. Please Join Us Again! Missed this session? Join us again online! Five Competitive Forces That Can Kill Your Product May 9th, 12-1 pm ET AIPMM Webinar Series: http://aipmm.com/aipmm_webinars Global Product Management Talk http://www.blogtalkradio.com/prodmgmttalk Call For Speakers: http://www.boldpm.com/call_for_speakers Announcements: http://www.aipmm.com/subscribe LinkedIn: http://www.linkedin.com/company/aipmm Membership: http://www.aipmm.com/join.php Certification: http://aipmm.com/html/certification/