5. Porter’s 5 Competitive Forces Model
Power of BuyersPower of Suppliers
Threat of New Entrants
Threat of Substitutes
Degree
of
Rivalry
6. •Large purchases, especially when fixed costs high
•Unimportant to buyer
•Standard products
•Low switching costs
•Buyer earns low profits
•Threaten backward integration
•No threat of forward integration
•Buyer has full information
Buyers Power is Strong When
7. Powerful Buyers: in UK
UK Degree of Buyer Concentration
Supermarkets (1) Tesco Asda Sainsbury Morrisons Total
% Mkt Share 29 17 16 11 73
Banks (2) Lloyds RBS HSBC Barclays
% Mkt Share 30 16 14 13 73
(1) Kam City, 21 October 2014
(2) OFT
Supermarkets and Banks
8. •Suppliers highly concentrated
•Government is a supplier
•No substitutes
•Buyer has high switching costs
•Threatens forward integration
•Not an important customer of supplier
•Supplier product important
•Supplier’s products differentiated
Supplier Power (Mirror of Buyer) is Strong
9. Powerful Suppliers: in UK
UK Energy Market Share (%)
Electricity Gas Total
British Gas 12 24 18
E.ON 19 17 18
ScottishPower 10 10 10
EDF Energy 12 10 10
RWE nPower 12 12 12
Scottish &Southern Energy 25 13 13
Totals 85 66 81
Source: http://www.academia.edu/555316/UK_Energy_Market_Overview
Big Six Energy Suppliers in the UK
10. •Scale: Toyota
•Differentiation: Apple
•Capital requirements: Rolls Royce
•Switching costs: Microsoft
•Access to distribution channels: Coke
•Non-scale advantages
•Proprietary technology: Dolby
•Favourable location: Norwegian electricity
•Government help: Chinese industry
•Experience: Oxford publishing
•Reactions from incumbents: Predatory pricing
6 Major Barriers to Entry
11. •Other products/services which
perform the same function
•Place a ceiling on the price
Product/Service Substitutes
Movie Television, DVD, stage play
Telephone call Letter, fax, email
CD bought from retailer Download, Stream
Ferry journey
Aeroplane, tunnel plus car, rail
tunnel
Product catalogue CD, download from web
Substitutes
12. •Slow industry growth: House Building
Intensity of Rivalry
•Numerous equally balanced competitors: Web Page Designers
•High fixed costs: Rolls Royce
•Lack of differentiation: Office Stationery
•Large increments in capacity: Oil Refining
•Diverse competitors: Recorded Music
•High strategic stakes: Military
•High exit barriers: Shipyards
14. How?
Appraise each force
Then
Compete using a generic strategy
Find a position in the industry where you can
best defend yourself
Goal of Competitive Strategy
18. Lever Effects Difficulty
Price
Lower profits,
Disloyal buyers,
No skill
Retaliation
Easy
Promotion
Expand overall
market
Difficult
Distribution Maintain margins Difficult
Innovation
Higher and more
sustained profits
Difficult
Service
Price and cost
advantage
Difficult
Quality
Price and cost
advantage
Difficult
Sources of Differentiation: The Marketing Levers
Or why low price is a terrible weapon
20. Major Global Advertising Spend : A Paradox?
Samsung: World’s biggest advertising spend 2014
Yet its Phone profits declined 78% in Q4
Apple: Lowest % advertising spend
Yet its profits soar
Microsoft spend 8.0% of sales
Apple spend 0.7% of sales
8.0%
0.7%
x 11 times
Why?
21. The Reason
One is selling a product
The other is marketing a brand
Product Brand
Product
Price
Advertising
Product + Associated Services
Promotion
Design
Warranty
Quality
Customer service
Innovation
Distribution
Uniqueness
25. Source: Forbes
0
20
40
60
80
Revenue Growth
EBITDA Grth
Mkt Cap Growth
Top 10 Innovators Top 10 Spenders
Top 10 innovators outperform their peers in 3 key
financial metrics (5 years CAGR)
Real Innovation Pays
26. Lever Effects Difficulty
Price
Lower profits,
Disloyal buyers,
No skill
Retaliation
Easy
Promotion
Expand overall
market
Difficult
Distribution Maintain margins Difficult
Innovation
Higher and more
sustained profits
Difficult
Service
Price and cost
advantage
Difficult
Quality
Price and cost
advantage
Difficult
The Marketing Levers
Reminder
27. •Buyer power reduced – alternatives denied
Differentiation
•Price premiums + loyal buyers give
margins to deal with supplier power
•Brand loyalty protects
31. •More important than ever
•Generic strategies vital – the basis of
much successful e-business
The big changes:
•Switching costs reduced
•Fantastic opportunities to resolutely
pursue a generic
Competitive Forces in the Internet Ear
32. Force Threats Our strategy
Power of Buyers
Power of Suppliers
Threat of New Entrants
Threat of substitutes
Degree of rivalry
Our generic strategy:
Practical Application
33. Creating and Presenting Strategic Plans
Competitive Analysis and Strategies (B.2.4.)
Firm Competitive Position
34. Characteristic Comment
Sales (£) The larger the better
Market share (%) The larger the better
RMS The larger the better
RPQ The larger the better
Price rel to comp (%) The larger the better
New prod/sales (%) *The larger the better
R&D/Sales (%) The larger the better
Degree of Competition The more benign the better
Determinants of Firm Competitive Position
* Assuming firm is already No. 1 in RPQ
Which is
best?
39. •Predictions
Actual Competitors: Wide discussion
•History:
•Leader/Follower
•Growth
•Focus on Leaders - past behaviours
•Focus on Insurgents and Barons
•HVLC versus Diff. versus Focus
•Organic versus Acquisition
Existing
•New diverse entrants or threatsNew
40. Competitor
name
Main person Growth rate
Leader/Follo
wer
Strategy:
HVLC/Diff/F
ocus
Strategy:
Org/Acq
Our strategy
1
2
3
4
5
6
Comments
Actual Competitor Analysis