Five forces model

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  • Five forces model

    1. 1. The purpose of Five-Forces Analysis• The five forces are environmental forces that impact on a company’s ability to compete in a given market.• 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. Ch2
    2. 2. Porter’s Five ForcesModel of Competition Threat of Threat of New New Entrants Entrants Ch2
    3. 3. Threat of New Entrants Economies of ScaleBarriers to Product Differentiation Entry Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Expected Retaliation Ch2
    4. 4. Porter’s Five Forces Model of Competition Threat of Threat of New New Entrants EntrantsBargaining Power of Suppliers Ch2
    5. 5. Bargaining Power of Suppliers Suppliers are likely to be powerful if: Supplier industry is dominated by aSuppliers exert power few firmsin the industry by: Suppliers’ products have few substitutes* Threatening to raise prices or to reduce quality Buyer is not an important customer to supplierPowerful supplierscan squeeze industry Suppliers’ product is an importantprofitability if firms input to buyers’ productare unable to recovercost increases Suppliers’ products are differentiated Suppliers’ products have high switching costs Supplier poses credible threat of forward integration Ch2
    6. 6. Porter’s Five Forces Model of Competition Threat of Threat of New New Entrants EntrantsBargaining Bargaining Power of Power of Suppliers Buyers Ch2
    7. 7. Bargaining Power of BuyersBuyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to seller’s sales Buyers compete Purchase accounts for a significant with the supplying fraction of supplier’s sales industry by: Products are undifferentiated * Bargaining down prices Buyers face few switching costs * Forcing higher quality * Playing firms off of Buyers’ industry earns low profits each other Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information Ch2
    8. 8. Porter’s Five Forces Model of Competition Threat of Threat of New New Entrants EntrantsBargaining Bargaining Power of Power of Suppliers Buyers Threat of Substitute Products Ch2
    9. 9. Threat of Substitute Products Keys to evaluate substitute products:Products Products with improvingwith similar price/performance tradeoffsfunction relative to present industrylimit the productsprices firmscan charge Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery Ch2
    10. 10. Porter’s Five Forces Model of Competition Threat of Threat of New New Entrants EntrantsBargaining Rivalry Among Bargaining Power of Competing Firms Power of Suppliers in Industry Buyers Threat of Substitute Products Ch2-
    11. 11. Rivalry Among Existing CompetitorsIntense 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 introductionsOccurs 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 Ch2-
    12. 12. Rivalry Among Existing CompetitorsCutthroat 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 Ch2-
    13. 13. The Five Forces are Unique to Your Industry• Five-Forces Analysis is a framework for analyzing a particular industry. – Yet, the five forces affect all the other businesses in that industry. Ch2-
    14. 14. Competitor Analysis The follow-up to Industry Analysis iseffective analysis of a firm’s Competitors Industry Environment Competitive Environment Ch2-
    15. 15. Competitor AnalysisAssumptions What assumptions do our competitors hold about the future Response of industry and themselves? What will ourCurrent Strategy competitors do in the Does our current strategy support future? changes in the competitive Where do we have a environment? competitiveFuture Objectives advantage? How do our goals compare to our How will this change competitors’ goals? our relationship with our competition?Capabilities How do our capabilities compare to our competitors? Ch2-
    16. 16. Competitor AnalysisFuture Objectives What Drives the How do our goals competitor? compare to our Where will emphasis competitors’ goals? be placed in the future? What is the attitude toward risk? Ch2-
    17. 17. Competitor AnalysisFuture Objectives What is the competitor doing? How do our goals What can the competitor do? compare to our Where Current be competitors’ goals?Strategy will emphasis placed in the future? currently How are we What is the attitude competing? toward risk? Does this strategy support changes in the competitive structure? Ch2-
    18. 18. Competitor AnalysisFuture Objectives What does the competitor believe How do our goals about itself and the industry? compare to our Where Current be competitors’ goals?Strategy will emphasis placed in the future? How are we currently What is the attitude competing? toward risk? Assumptions Does this strategy Do we assume the future support changes in the will be volatile? competition structure? What assumptions do our competitors hold about the industry and themselves? Are we assuming stable competitive conditions? Ch2-
    19. 19. Competitor AnalysisFuture Objectives What are the competitor’s How do our goals capabilities? compare to our Where Current be competitors’ goals?Strategy will emphasis placed in the future? How are we currently What is the attitude competing? toward risk? Assumptions Does this strategy Do we assume the future supportwill be volatile? changes in the competition structure? What assumptions do our Capabilities competitors hold about the industry and themselves? What are my competitors’ Are we operating under strengths and weaknesses? a status quo? How do our capabilities compare to our competitors? Ch2-
    20. 20. Competitor AnalysisFuture Objectives Response How do our goals What will our competitors compare to our do in the future? Where Current be competitors’ goals?Strategy will emphasis Where do we have a placed in the future? competitive advantage? How are we currently What is the attitude competing? How will this change our toward risk? Assumptions relationship with our Does this strategy Do we assume the future competition? supportwill be volatile? changes in the competition structure? What assumptions do our Capabilities competitors hold about the industry and themselves? What are my competitors’ Are we operating under strengths and weaknesses? a status quo? How do our capabilities compare to our competitors? Ch2-

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