A.N. Professor Ofer Meilich Bus 444 9/23/2016 5F5I 21. When perishability of items is high, so too is rivalry among firms. An obvious example of this is with grocery stores. Nearly every item sold at a grocery store has a shelf life. Companies must compete to sell these perishable items before they become useless and unmarketable. Because of the small window of time to sell a tomato, for example, grocery stores will use aggressive sales tactics to incentivize the buying of their products. When walking through the produce section, one might see a buy one get one free offer on blueberries or an offer to buy five packs of cherry tomatoes for five dollars when a single pack is sold for two dollars. Items such as kitchen supplies, on the other hand, do not perish easily and thus we will likely never see a deal for buying three ladles for the price of one. 32. Buyers have high power when an industry’s products have little cost saving value. When an industry has low cost savings in regards to its product, they do not have much leverage over the buyer, and thus the buyer has more power over the seller. A buyer will be highly price-sensitive to products that do not save them much money. For example, printers have a high up keep, and thus those products have a low cost saving value. Because of this, a buyer will take a lot of time deciding on a printer, and will weigh their options before buying a company’s printer that has the potential of having a higher upkeep then another printer. 36. If switching costs of the focal industry is high, supplier power is high. An example of this is if two firms were engaged in just-in-time manufacturing, in which suppliers must be highly reliable and consistent with their shipments. If a company were to switch from a reliable supplier, they would potentially incur the costs of having to find a new, reliable supplier that could handle their just-in-time supplying needs. Another example could be with electricity. It is extremely costly to leave an electricity company’s service in lieu of solar energy. Thus many people who want to have a smaller carbon footprint can’t do so due to financial reasons. 8. If incumbents’ control over distribution is low, threat of entry is high. An example of a new entrant struggling to come into an industry could be that of accessing a retail store. If a new brewery opens up, it will be difficult for the brewery to get its beer to be sold at retail stores across the US. An example of a distribution channel that is easy to access could be online jewelry websites. It is quite easy to make jewelry and sell it on a website like Etsy, thus many new entrants can be allowed entrance into the jewelry industry. 3. If economies of scale are high, it is very difficult for a new entrant to enter the market. If a burger restaurant wanted to compete against McDonalds, they would have an exceptionally, or nearly impossible, .

1. A.N. Professor Ofer Meilich Bus 444 9/23/2016
5F5I
21. When perishability of items is high, so too is rivalry among
firms. An obvious
example of this is with grocery stores. Nearly every item sold at
a grocery store has a shelf life.
Companies must compete to sell these perishable items before
they become useless and
unmarketable. Because of the small window of time to sell a
tomato, for example, grocery stores
will use aggressive sales tactics to incentivize the buying of
their products. When walking
through the produce section, one might see a buy one get one
free offer on blueberries or an offer
to buy five packs of cherry tomatoes for five dollars when a
single pack is sold for two dollars.
Items such as kitchen supplies, on the other hand, do not perish
easily and thus we will likely
never see a deal for buying three ladles for the price of one.
32. Buyers have high power when an industry’s products have
little cost saving

2. value. When an industry has low cost savings in regards to its
product, they do not have much
leverage over the buyer, and thus the buyer has more power
over the seller. A buyer will be
highly price-sensitive to products that do not save them much
money. For example, printers have
a high up keep, and thus those products have a low cost saving
value. Because of this, a buyer
will take a lot of time deciding on a printer, and will weigh
their options before buying a
company’s printer that has the potential of having a higher
upkeep then another printer.
36. If switching costs of the focal industry is high, supplier
power is high. An
example of this is if two firms were engaged in just-in-time
manufacturing, in which suppliers
must be highly reliable and consistent with their shipments. If a
company were to switch from a
reliable supplier, they would potentially incur the costs of
having to find a new, reliable supplier
that could handle their just-in-time supplying needs.
Another example could be with electricity. It is extremely
costly to leave an electricity

3. company’s service in lieu of solar energy. Thus many people
who want to have a smaller carbon
footprint can’t do so due to financial reasons.
8. If incumbents’ control over distribution is low, threat of
entry is high. An example
of a new entrant struggling to come into an industry could be
that of accessing a retail store. If a
new brewery opens up, it will be difficult for the brewery to get
its beer to be sold at retail stores
across the US. An example of a distribution channel that is easy
to access could be online
jewelry websites. It is quite easy to make jewelry and sell it on
a website like Etsy, thus many
new entrants can be allowed entrance into the jewelry industry.
3. If economies of scale are high, it is very difficult for a new
entrant to enter the
market. If a burger restaurant wanted to compete against
McDonalds, they would have an
exceptionally, or nearly impossible, task of competing with
McDonalds’ prices. This is due to
McDonalds having economies of scale. Because of their
undeviating menu options, production

4. costs are kept low and predictable. They also mass produce their
raw materials and a vertically
integrated on many levels, allowing for them to save costs and
thus keep prices low. They
purchase massive amounts of raw materials as well, which allow
for cost savings with bulk buys.
All of these factors would stifle the competitive ability of a
start up fast food restaurant.
1 Meilich, BUS444
Porter’s 5-Forces Model
Threat of POTENTIAL ENTRY is high when:
Product/Service differentiation is low perceived / real
uniqueness (brand loyalty
Buyers’ switching costs are
(3 types: Monetary, Cognitive, Emotional)
low for the buyers, after purchase! [Mac vs PC]
(for the next purchase)
Economies of scale are low Increased efficiency in Volume per
Period
In: production, R&D, marketing,
distribution, service.
Capital requirements are low plants & equipment, working K,

5. R&D
Incumbents’ proprietary knowledge is low patents, trade secrets
Experience curve effects are low experience curve: labor
component, or complex production; Effect of cumulative
volume; need be non-transferable
Incumbents’ control of access to raw materials /
inputs is
low [e.g., mines]
Incumbents’ control of distribution channels is low
Securing favorable location easy
Incumbents’ access to government subsidies is low Note: These
subsidies are assumed not to be
available for any new entrants
Expected retaliation low
Government policy: regulation is low
attractive industry = high profit potential => more new entrants
=> more rivals, more rivalry
2 Meilich, BUS444

6. Intensity of RIVALRY is high when:
Competitors = firms in the same industry, competing over same
customer base
[usually: similar products; utilizing similar production
techniques]
Number of competitors is
Their size & power is
Diversity of competitors is
many
equal
extensive
mentality differences, hard
to cooperate
Industry demand growth rate is low win/lose situation
Product / service differentiation is low easy to compare
Buyers’ switching costs are low switching costs for
BUYERS after purchase!
Fixed costs are high need high volume to spread
costs/ break even
Capacity increases are in increments that are large Incentive to
over-produce ->
dumping

7. Perishability high perishable: produce,
fashion, movies, airline
seats
Strategic stakes (opportunities) are high High chance to make
big $$
increase willingness to take
risks and fight
Exit barriers are: high too many desperate &
inefficient competitors
Specialized assets sunk costs
High cost of exit
strategic inter-relationships needed for other business
Emotional barriers
Government / social restrictions
3 Meilich, BUS444
Power of a BUYERS group is high when:
Volume of purchase is (% of industry’s capacity) high relative
to the focal industry, not

8. buyer industry! [whatever each
buyer/decision maker buys]
Percentage of total buyer’s cost spent on the
industry’s product/service is
high = price sensitivity
Product / service differentiation of the industry is low easy to
shop and compare
Buyer’s switching costs are low After the purchase
Threat of backward integration by buyers is high [tapered
integration]
Buyer’s knowledge about industry’s cost structure is high
information = $$
Extent of buyer’s profits is low = price sensitivity
Cost savings from the industry’s product are low Same effect as
buyer’s profits
extract lower prices from the focal industry.
buyers:
Buyers can be divided into several types [e.g., young vs old,
educated vs. not, businesses vs. consumers];
Within each type, we are looking at the typical group – a group
therefore may contain a single buyer, or

9. more than one. What’s important is that each group acts as a
single decision maker [to buy or not to buy,
etc.]. A group of buyers may contain a single person/company,
or a collection of persons/companies.
Reduce buyer power by:
- make buyer’s business more profitable
- diversify buyer base
- differentiate, improve quality
• Important to identify both the direct buyer and the final
customer/consumer
4 Meilich, BUS444
Power of a SUPPLIERS group is high when:
Concentration of suppliers relative to industry is
(i.e., supplier group is dominated by fewer companies)
high
Availability of substitute supplies is low Substitute! (eg – for
cola,
sugar vs. high fructose
corn syrup)
Differentiation of the supplier’s products/services is high
Uniqueness of raw material
/ inputs
Switching costs of the focal industry are high For the industry,
after
purchasing supplies

10. Threat of forward integration by the supplier is high i.e.,
supplier moving into
the focal industry
Concentration = % of market share held by largest 2, 4, 8, ..
firms.
• Suppliers of: raw material, components, labor, …
charge more from, or deliver less to, the focal
industry.
of suppliers:
Suppliers can be divided into several types [look again at your
PVCh!]. Within each type, we are looking
at the typical group – a group therefore may contain a single
supplier, or more than one. What’s
important is that each group acts as a single decision maker [to
sell or not to sell to our industry, etc.]. A
group of suppliers may contain a single person/company, or a
collection of persons/companies.
Power of SUBSTITUTES is high when:
substitute = any product that satisfies similar need/s, but in a
different way
Available substitutes many
(If there are any substitutes -) These substitutes are
good/superior
-

11. for the substitutes.
- Improvements: new technology can make the whole industry
obsolete!
Porter’s 5-Forces ModelThreat of POTENTIAL ENTRY is high
when:Intensity of RIVALRY is high when:Power of a BUYERS
group is high when:Power of a SUPPLIERS group is high
when:Power of SUBSTITUTES is high when:
E.W.
14. Rivalry: Their size and power is
When the companies’ size and power is equal, intensity of
rivalry is high. For example,
when two sandwich shops opened in the same town, they do not
compete with franchise
restaurants such as Benihana or Olive Garden. The companies’
size is different and the power is
different, besides, their target competitors are different. Since
both sandwich shops are family
owned businesses, they compete with each other and they think
they will make a profit against
each other. If there are many similar restaurants there, you will
have many competitors;
therefore, the intensity of rivalry is high. Benihana or Olive
Garden are not their rivals or
competitors. They need to compete with the same size and

12. power and they will think they will
make more profits.
23. Rivalry: Exit barriers are
Exit barriers are opposite side of barriers to entry. There are
five categories of exit
barriers such as specialized assets, high cost of exit, strategic
interrelationship, emotional
barriers, and government/ social restrictions. I would like to
explain exit barriers applying into
the car industry. A company makes only a car roof for a specific
car, but the company has to
close their business. Since the company is not making
sufficiently high profits, which is zero
asset, most likely they cannot sell the machine to any
companies. The shape and the size of the
roof were created for a specific car model; therefore, the
intensity of rivalry is high. There is a
huge risk if they cannot resell to another companies or anybody
their compressors and machines
after they closed their business. On the other hand, if other
companies are able to repurchase the
compressors and machines, then exit barriers are low as well as
the intensity of rivalry is low.

13. Another example is that when a family own business, you have
no choice to leave the company
then emotional barriers are high which means the intensity of
rivalry is high. Government/ social
restrictions are when the government wants you to stay in the
business even though you do not
want to stay there, exit barriers are high. When the exit barriers
are high then the intensity of
rivalry is high. It is not common these problems in the US, but
it happened in different countries.
When a company has one of these categories is high, then exit
barriers are high.
30. Buyers: Buyers’ knowledge about the industry’s cost
structure is
When a buyer knows the price of products, the industry’s cost
structure is high, the power
of a buyers group is high. If a buyer knows the cost of coffee
beans, for example, the buyer
knows about the 10% of profit margin is reasonable, then the
power of a buyers group is high.

14. 37. Suppliers: Threat of forward integration by the supplier is
Suppliers can make an industry more competitive and decrease
profit potential for the buyers if
they are strong. One the other hand, weak suppliers are less
competitive and increase profit
potential for the buyers. For instance, retail clothing outlets
who owned by the manufacture is
one of the forward integration. When retail clothing companies
start producing their own clothes
and sell them directly to their buyers instead of purchasing from
their suppliers and then sell to
their customers, the supplier’s power is high. In addition, their
buyers are not price sensitive and
uneducated regarding the product, then supplier power is high.
38. Suppliers: Available substitutes/ if there are good/
suppliers?
If there are no substitutes for the products, there is no option
for new entrants to doing the
business. For example, the cigarette industry. Substitutes of
cigarettes are the patch, the nicotine,
the cigarette gum, the e-cigarette, the hookah, the cigarette
mint, etc. If many substitutes in the
cigarette industry are good, then the power of substitutes is
high. The cigarette, the nicotine, and

15. the patch are not the same product, but those are meeting the
same need with work in a different
way. Again, substitute is any product that satisfies the same
need, but in a different way.
S.L. Bus 444 Meilich
Porter’s 5 Forces
Item 1: Availability of Substitute Supplies (power of a
Suppliers group)
When there is a low availability of substitute supplies the
suppliers for an industry the
supplier has more power than if there was a high availability of
substitute supplies. For
example, there are not many substitutes (i.e. different makers
of) for anesthesia, a supply used in
operating rooms. Doctors, hospitals and insurance companies
must pay whatever those few
companies charge because you cannot operate on a person
without it. However if there is a high
availability of substitute supplies—like lumber the supplier has
less or no power and must

16. accept either what the purchaser is willing to pay or at the very
least, be willing to negotiate the
price of the supply needed.
Item 2: Incumbents’ control of access to raw materials/inputs
(Threat of potential entry)
The threat of new entry is very low if the firms already in the
industry already have
control of the raw materials needed to produce the outputs of
that industry. For example if
you need iron to make cast iron pans, you have to get the iron
from a mine, quarry or refinery
that deals in the production of iron. However, if your
competitor(s) own(s) or has/have contracts
with most of these sources of iron, there is a very low chance
that you will be able to break in to
the cast iron market, unless you have the capital required to
find, open and operate the sources
yourself. On the other hand the threat of new entry is very high
if there is an abundance of the
materials needed and there is no incumbent control of those
resources. For example plastic
pellets for creating different plastic products are very generic.
Wet ‘n’ wild uses plastic pellets in

17. its lipstick cases but it doesn’t have complete control over those
plastic pellets and if I decided I
wanted to make a line of lipsticks I could go to the same plastic
pellet producer to get raw
material for my lipstick cases.
Item 3: Concentration of suppliers relative to industry (power of
a Suppliers group)
This is common sense, if there are many firms within an
industry asking for supplies
from a small number of suppliers the power of the suppliers is
very high. I’ll use the same
example from before, with the anesthesia. There are very few
companies that actually produce
anesthesia and many hospitals, surgeons and patients that
require it for their use. Those suppliers
S.L. Bus 444 Meilich
of anesthesia can effectively charge whatever they want and
they’ll get it. The opposite is true
for an industry that is run by an oligopoly or monopoly. The
fewer firms there are in
comparison to suppliers the less power the suppliers will have.
Item 4: Product/Service differentiation (Threat of potential

18. entry)
If an industry is offering a unique product it is very difficult to
break in to it making
the threat of potential entry very low. A good example of this is
screws for space craft in
NASA, there is probably very few people who could make a
screw that is that specialized—and
who NASA would trust to make those screws—entry in to this
market would be very difficult. In
contrast, Home Depot carries a wonderful variety of screws that
no one cares anything about;
virtually anyone can use these screws interchangeably—there’s
low differentiation between them
and therefore a higher threat of entry. If you have a factory and
startup capital you can make
your own brand of generic screw just as easily.
Item 5: Available Substitutes (power of substitutes)
The number of available substitutes that are good/superior
greatly increases the power of
the substitutes. For example if you have a small wood working
shop that has power tools that
require electricity to work and the power goes out but you have
a backup generator that kicks in

19. almost immediately and allows you to continue your work
uninterrupted, that backup generator
is a powerful substitute. In addition to this you could also have
back up solar power, tesla
batteries etc. to get the electricity you need to run your
business. But if all you have are few, poor
substitutes like using hand tools (the non-electric kind) when
the electricity goes out that counts
as a poor substitute.
J.R.
Meilich BUS 444
5 Forces 5 items Assignment
#4 New entry: Capital requirements are
The threat of potential entry is high when capital requirements
are low. This means that
any new entrant who is interested in entering the market can do
so easily because the start
up costs may be very low. An example of this type of industry
would be at-home
businesses that can sell their products online and require very

20. little to no money to sell
the products. For example, a person who knits sweaters at home
and then sells them
through online sites does not have the same start up costs as a
firm who rents a local retail
space to sell products and overhead costs such as electricity. It
is for this reason, that
firms or people in this industry face a higher threat by new
entrants as they bring new
options to the marketplace. As more new entrants enter the
industry, rivalry also
increases and profitability decreases.
#9 New entry: Securing favorable location
The threat of potential entry is high when securing a favorable
location is easy for new
firms in the industry. Most of the incumbents have selected
their location strategically
and the locations that remain for new start-ups may be low. In
this case, the threat of
potential entry is lower. An example of a firm that does very
well in reducing the threat
of potential entry by making it difficult to find favorable
locations is McDonald’s. They

21. often take the most favorable locations for themselves.
#12 New entry: Government policy: regulation is
The threat of potential entry is high when regulation is low.
This means that when there is
little government regulations imposed on a certain industry, it
makes it more attractive
and much easier for new entrants to enter the market. A good
example of an industry that
has well-established policies that make it difficult for new
entrants to enter the market is
the physician and health care industry. It is regulated with laws
that require many licenses
and other approvals before a firm can enter the market. The
existing firms in the industry
are benefitting from this as there are fewer rivals.
#19 Rivalry: Fixed costs are
The intensity of rivalry is higher when fixed costs are high
because there is a need to sell
in higher volume to spread the costs or break even. An example
of an industry that has

22. high fixed costs could be one in which a company produces cell
phones. They must sell
higher volumes in order to cover the fixed costs but the problem
is that the other firms in
the industry are in the same situation so rivalry heats up when
all the firms in the industry
try their hardest to gain the most market share.
#34 Suppliers: Availability of substitute supplies is
The power of a supplier is high when the availability of a
substitute is low. When there
are fewer substitutes, the supplier is in control because the
buyer cannot easily change to
something different and thus must continue to make business
with the supplier. An
example for this can be a company that supplies paint for cars
that are manufactured. The
buyer, which is the manufacturer of cars in this example, has
very little choice of other
materials that it can apply to a car instead of paint. So here, the
availability of substitutes
is low and the car manufacturer most likely remains in business
with the paint supplier.