Applying Porter’s Five Forces To Your Business & Product by Wayne Chen Pocket Square Media
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Applying Porter’s Five Forces To Your Business & Product by Wayne Chen Pocket Square Media

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Learn how to quickly apply Michael Porter's Five Forces for your business and product strategy to capitalize in the market today. By Wayne Chen @MobiWayne @WayneChenNY @PocketSQRMedia ...

Learn how to quickly apply Michael Porter's Five Forces for your business and product strategy to capitalize in the market today. By Wayne Chen @MobiWayne @WayneChenNY @PocketSQRMedia www.pocketsquaremedia.co

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Applying Porter’s Five Forces To Your Business & Product by Wayne Chen Pocket Square Media Applying Porter’s Five Forces To Your Business & Product by Wayne Chen Pocket Square Media Presentation Transcript

  • Consulting  Toolkit  Series   By:  Wayne  Chen,  @MobiWayne   © 2013! @POCKETSQRMEDIA | POCKETSQUAREMEDIA.CO!
  • Threat  of   New  Entry   Supplier   Power   Competitive   Rivalry   Buyer   Power   Threat  of   Substitution   © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!
  • ¡  ¡  A  framework  that  helps   you  identify  where   power  lies  in  most   business  situations.     Useful  to  understand   both  the  strength  of   your  current  competitive   business  or  product   situation,  and  the   strength  of  an   opportunity  that  you  are   seeking  to  move  to.   © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!
  • Competitive  Rivalry   Threat  of  New  Entry   •  •  •  •  •  Time  &  cost  of  entry   Cost  advantages   Tech  protection  (IP/Patents)   Economies  of  scale   Specialist  knowledge   •  •  •  •  •  •  Threat  of   New  Entry   #  of  competitors   Quality  differences   Switching  costs   Customer  loyalty   Cost  advantages   Cost  of  abandonment   Buyer  Power   Supplier   Power   Competitive   Rivalry   Buyer   Power   •  •  •  •  •  #  of  customers   Size  of  each  order   Difference  between   competitors   Price  sensitivity   Cost  of  switching   Supplier  Power   Threat  of  Substitution   •  •  •  •  •  •  •  •  #  of  suppliers   Size  of  suppliers   Service  uniqueness   Cost  of  switching  or   substitute   © 2013 POCKET SQUARE MEDIA! Threat  of   Substitution   Substitute’s  Performance   Quality  of  Substitute   Market  Share   Cost  of  Change   @MOBIWAYNE!
  • ¡  ¡  Managers  and   executives  can  take   advantage  of  a  situations   such  as  strength,   weakness  areas  to  avoid   costly  missteps.     The  Five  Forces  Analysis   assumes  that  there  are   five  important  forces   that  determine   competitive  power  in  a   business  situation.   © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!
  • ¡  ¡  ¡  ¡  Assesses  how  easy  it  is  for   suppliers  to  drive  up  prices  and   cost.     Driven  by  the  number  of   suppliers  of  each  key  input,  the   uniqueness  of  their  product  or   service   Identifies  their  strength  and   control  over  you,  the  cost  of   switching  from  one  to  another,   and  so  on.     Suppliers  are  more  powerful  if   you  have  fewer  supplier  choices   and  require  their  help.     © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!
  • ¡  ¡  ¡  © 2013 POCKET SQUARE MEDIA! Ask  yourself  how  easy  it  is  for   buyers  to  drive  prices  down  in   the  market?     Consider  the  importance  of  each   individual  buyer  to  your   business,  the  end  cost  to  them  of   switching  from  your  products/ services  to  those  of  someone   else,  and  so  on.   If  you  deal  with  few,  powerful   buyers,  then  they  are  often  able   to  dictate  terms  to  you.   @MOBIWAYNE!
  • ¡  ¡  ¡  ¡  What  is  important  here  is  the   number  and  capability  of  your   competitors.     Review  number  of  competitors   and  if  they  offer  equally   attractive  products  or  services   Suppliers  and  buyers  can  go   elsewhere  if  they  don’t  get  a   good  deal,  meaning  little  power.   If  no-­‐one  else  can  do  what  you   do,  then  you  can  often  have   tremendous  power  in  your   position  for  your  product  or   service.   © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!
  • ¡  ¡  ¡  ¡  Affects  the  the  ability  of  your   customers  to  find  a  different   way  of  doing  what  you  do   If  you  supply  a  unique  software   product  that  automates  an   important  process,  people  may   substitute  by  doing  the  process   manually  or  by  outsourcing  it.     If  substitution  is  easy  and   substitution  is  viable,  then  this   weakens  your  power.   Substitution  comes  in  physical   forms  of  replicas  i.e.  watch   manufacturing  to  store-­‐brand   items.   © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!
  • ¡  ¡  ¡  ¡  © 2013 POCKET SQUARE MEDIA! Power  is  also  affected  by  the   ability  of  people  to  enter  your   market.     If  it  costs  little  in  time  or  money   to  enter  your  market  and   compete  effectively   If  there  are  few  economies  of   scale  in  place,  or  if  you  have  little   protection  for  your  key   technologies,  then  new   competitors  can  quickly  enter   your  market  and  weaken  your   position.   If  you  have  strong  and  durable   barriers  to  entry,  then  you  can   preserve  a  favorable  position   and  take  fair  advantage  of  it.   @MOBIWAYNE!
  • ¡  ¡  ¡  ¡  ¡  ¡  ¡  Review  each  forces  one-­‐by-­‐one  and   write  it  down.   Brainstorm  the  factors  for  your  situation,   and  check  against  the  factors  listed.   Summarize  the  size  and  scale  of  the   force  on  the  diagram.   A  "+"  sign  for  a  force  moderately  in  your   favor,  or  "-­‐-­‐"  for  a  force  strongly  against   you   Review  your  worksheet  and  think   through  how  it  affects  you.     Looking  at  things  in  this  way  helps  you   think  through  what  you  could  change  to   increase  your  power  with  respect  to  each   force.     If  you  find  yourself  in  a  structurally  weak   position,  this  tool  helps  you  think  about   what  you  can  do  to  move  into  a  stronger   one.   © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!
  • Threat  of  New  Entry   •  •  •  •  •  Inexpensive  entry  point   Some  economies  of  scale   No  tech  or  IP  issues   Low  barrier  to  entry   New  entry  is  easy   Competitive  Rivalry   •  •  •  •  •  Threat  of   New  Entry   15  competitors   Low  switching  costs   Low  customer  loyalty   Customer  loyalty   High  cost  to  abandon  market   Buyer  Power   Supplier   Power   Competitive   Rivalry   Buyer   Power   •  •  •  •  •  Few  &  large  retailers   Large  purchase  orders   Online  distribution   Price  can  be  sensitive   High  buyer  power   Supplier  Power   Threat  of  Substitution   •  •  •  •  5  suppliers  (moderate)   Suppliers  are  large  and   neutral   Able  to  switch  or  substitute   quickly   © 2013 POCKET SQUARE MEDIA! Threat  of   Substitution   •    Some  cross-­‐product   substitutes   Ability  to  import  foreign   products   @MOBIWAYNE!
  • ¡  Threat  of  new  entry  is  quite   high   §  If  anyone  looks  as  if  there  are   making  a  substantial  profit,   new  competitors  will  enter  the   market  easily.     ¡  Competitive  rivalry  is   extremely  high   §  If  someone  raises  prices,  they   will  quickly  undercut.  Market   competition  applies  downward   pressure  on  prices  from  raising   ¡  ¡  Overall  Recommendation   §  A  tough  industry  for  the   product  or  service  to  flourish   unless  there  there  is  a  new  way   to  find  to  profit.   §  Company  may  need  to   specialize  in  a  sector  of  the   market  that  is  protected  from   some  of  these  forces,  or  find  a   related  business  that's  in  a   stronger  position   Buyer  Power  is  strong   §  Implying  strong  downward   pressure  on  prices.   ¡  Some  threat  of  substitution     © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!
  • Porter's  Five  Forces  Analysis  is  an  important  tool  for  assessing  the  potential   for  profitability  in  an  industry.    It  works  by  looking  at  the  strength  of  five   important  forces  that  affect  competition:   §  Supplier  Power:  The  power  of  suppliers  to  drive  up  the  prices  of  your  inputs.   §  Buyer  Power:  The  power  of  your  customers  to  drive  down  your  prices.   §  Competitive  Rivalry:  The  strength  of  competition  in  the  industry.   §  The  Threat  of  Substitution:  The  extent  to  which  different  products  and  services  can  be   used  in  place  of  your  own.   §  The  Threat  of  New  Entry:  The  ease  with  which  new  competitors  can  enter  the  market  if   they  see  that  you  are  making  good  profits  (and  then  drive  your  prices  down).     By  thinking  about  how  each  force  affects  your  business,  and  by  identifying   the  strength  and  direction  of  each  force,  you  can  quickly  assess  the  strength   of  your  position  and  your  ability  to  make  a  sustained  profit  in  the  industry   for  your  product  or  service.       © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!
  • Contact  information   ¡  Wayne  Chen   ¡  Wayne@PocketSquareMedia.co   ¡  @MobiWayne  or  @WayneChenNY   ¡  www.PocketSquareMedia.co   ¡  Blog:  www.Enovaminds.com     © 2013 POCKET SQUARE MEDIA! @MOBIWAYNE!