WHAT IS AN INDUSTRY?
•Industry consists of all those firms which produce
goods and services.
•In other words , industry is that part of the business
which creates form utility.
•An industry may be defined as a group of firms
competing against one another.
•For example-the tire industry is made up of all the tire
manufacturing firms like MRF, Dunlop,Ceat,J.K,Apollo
•Description of the current state of a product’s
(1) number of competitors
(2) relative strength of each competitor,
(3) level of demand and supply, and
(4) ease of entry into the market.
PORTERS 5 FORCES
•Porter's five forces analysis is a framework for
industry analysis and business strategy development
formed by Michael E.Porter of Harvard Business
School in 1979.
•It draws upon Industrial Organization (IO) Economics
to derive five forces that determine the competitive
intensity and therefore attractiveness of a market.
•Three of Porter's five forces refer to competition from
external sources. Remaining are internal threats.
FORCES IN DETAIL
1.THREAT OF NEW COMPETITION
•Profitable markets that yield high returns will
attract new firms.
•This results in many new entrants, which eventually
will decrease profitability for all firms in the
• Unless the entry of new firms can be blocked by
incumbents, the abnormal profit rate will tend
•The existence of barriers to entry (patents, rights,
etc.) The most attractive segment is one in which
entry barriers are high and exit barriers are low.
Few new firms can enter and non-performing firms
can exit easily.
•Industry profitability; the more profitable the
industry the more attractive it will be to new
•Customer loyalty to established brands
2.Threat of substitute products
•The existence of products outside of the realm of
the common product boundaries increases the
propensity of customers to switch to alternatives.
•Note that this should not be confused with
competitors' similar products but entirely different
•. For example, tap water might be considered a
substitute for Coke, whereas Pepsi is a
competitor's similar product.
•Increased marketing for drinking tap water might
"shrink the pie" for both Coke and Pepsi, whereas
increased Pepsi advertising would likely "grow the
pie" (increase consumption of all soft drinks).
•Relative price performance of substitute
•Number of substitute products available in the
3.Bargaining power of customers
Advantage that results where
(1) the buyers are concentrated or organized
(2) their purchases represents a large part of the
(3) their purchases represent a large part of their own
(4) there are too many suppliers chasing too few buyers.
Buyers in such position can (and do) put relentless
pressure on the suppliers by demanding higher
quality at lower prices
•It is very important aspect for customers to have an intense
bargaining power to sustain and remold their business
strategies effectively and remain in the competition.
• For this the customers need knowledge empowerment and need to
collect all the related information regarding the project they have
• This knowledge and information could help them to become project
specific and experienced enough to deal with suppliers and bargain
• But acquiring this knowledge and experience is very difficult unless
and until all the minute technical and calculative aspects are not
One of the essential requirements in
today’s business scenario is to realize
and evaluate the bargaining power of
customers. The word bargaining here
does not only mean price negotiation,
it is a much differentiated and broader
term. Bargaining can be
encompassed throughout the
process of deal.
4.Bargaining power of
•The bargaining power of suppliers is also described
as the market of inputs.
•Suppliers of raw materials, components, labor, and
services (such as expertise) to the firm can be a
source of power over the firm, when there are few
•Suppliers may refuse to work with the firm, or, e.g.,
charge excessively high prices for unique
•Strength of distribution channel
Supplier competition - ability to forward vertically
integrate and cut out the BUYER
Ex.: If you are making biscuits and there is only one
person who sells flour, you have no alternative but to
buy it from him.
5.Intensity of competitive rivalry
•A starting point to analysing the industry is to look at
•This term describes the intensity of competition
between existing players (companies) in an industry
If entry to an industry is easy then competitive rivalry
will likely to be high.
•If it is easy for customers to move to substitute
products for example from coke to water then again
rivalry will be high.
•Not all industries are equally competitive. Generally
competitive rivalry will be high if:
• There is little differentiation between the products
sold between customers. This reduces customers’
•If the competitors all have similar strategies.
•It is costly to leave the industry hence they fight to just
stay in (exit barriers). Examples of such high exit
barriers include redundancy payments, penalty clauses
or tax losses.
TATA VS MARUTI
•Maruti cars are leading the market for the special impact
they leave on the car owners.
•All the Maruti car owners experience minimum
problems when compared to other car owners. Another
key factor pushing Maruti cars to a height is the low-cost
of maintenance and easy availability of service stations.
•Low maintenance cost and high number of service
stations are the USPs of Maruti Cars.
•Tata cars are produced with unique design and style.
These cars have a performance that is par excellence
but yet fail to compete with the low maintenance costs
of Maruti cars.
• Also, the Maruti cars have topped the list of J.D.
Power survey on customer satisfaction for about eight
•J.D. Power is a global market research firm that ranks
different car models based on their services,
maintenance costs, running costs, performance and
customer response. Whereas, the Tata Motors
occupied the last position in the customer satisfaction
Index ranking (2007).
•The r unni ng cost s of Mar ut i car s ar e much l ower t han
Tat a car s.
• The r unni ng cost s of Tat a car s shoot up af t er
r unni ng a di st ance of ar ound 40,000 km due t o
r epl acement of spar e par t s and ot her essent i al
r epai r s i ncl udi ng t he br ake pads, br ake di scs and t he
t yr es.
•On t he ot her hand, t he r unni ng cost s of Mar ut i car s
do not wi t ness any i nf l ect i on poi nt even af t er
t r avel l i ng a di st ance of 40,000 km. Mar ut i car s ar e
capabl e of r unni ng a di st ance of ar ound 90,000 km
wi t hout any r epai r and mai nt enance
•All the car models require maintenance after three to five
years of survival on Indian roads.
• At normal conditions, the maintenance costs of Maruti
cars increases over a period of five years. Luxury cars
produced by Maruti need more maintenance as compared
to small and compact cars because these are loaded with
expensive accessories that need proper care.
•The maintenance costs of the car go up to around Rs
1,000 per month or Rs 12,000 after running successfully.
•On the other hand, Tata cars require maintenance
after running successfully for three years.
•The costs outgo Rs 8,500 per annum in the second
year, Rs 12,000 in the third year and around Rs
20,000 in the fourth year.
•This way the percentage of maintenance costs keep
on increasing after every year.
•Overall, the Maruti cars score high in terms of low
maintenance cost whereas Tata cars do not differ
much with Maruti cars with respect to the
maintenance or spare part costs. But the frequency
of changing the spare parts in Tata cars is more as
compared to Maruti cars.
•Slideshare.net/bargaining power of coustomer