This document discusses industry analysis and Porter's Five Forces model. It explains that industry analysis is important for companies to understand opportunities and threats in their competitive environment. Porter's Five Forces model identifies five competitive forces that shape an industry's profitability: the threat of substitute products, the threat of new entrants, the bargaining power of suppliers, the bargaining power of customers, and competitive rivalry within an industry. The document provides details on each of these five forces and factors that determine the level of competition from each force.

1. UNIT 4-INTERNAL & EXTERNAL ANALYSIS
 PHILIP KOTLER DEFINED AN INDUSTRY AS ‘ A GROUP OF FIRMS THAT OFFER A PRODUCT
OR A CLASS OF PRODUCT THAT ARE CLOSE SUBSTITUTES FOR EACH OTHER’.
 COMPANIES HAVE TO LOOK AT WAYS TO GET & STAY AHEAD OF COMPETITION.
 HERE INDUSTRY ANALYSIS BECOMES IMPERATIVE(IMPORTANT)
 THIS ANALYSIS INVOLVES – DETERMINATION OF ATTRACTIVENESS OF INDUSTRY AS WELL
AS ITS DYNAMICS (progress) & STRUCTURE.
 THERE ARE TWO WAYS TO ACHIEVE THESE ENDS- ENVIRONMENTAL ANALYSIS & INTERNAL
ANALYSIS.
 IN ENVIRONMENTAL ANALYSIS IT IS POSSIBLE TO IDENTIFY OPPERTUNITIES & TAKE
NECESSARY ACTIONS TO EXPLOIT THEM.
 INTERNAL ANALYSIS INVOLVES FACTORS WITHIN ORGANISATIONS SUCH AS MARKETING,
FINANCE,PRODUCTION ETC. THE COMPANY HAS GREATER CONTROL OVER THESE
FACTORS & THEY AFFECT THE COMPANIES STRATEGY.

2. INDUSTRY ANALYSIS- IDENTIFICATION OF OPPERTUNITIES & THREATS
(MICHAEL POTER’S FIVE FORCE MODEL)
 MICHAEL PORTERS 5 FORCE ANALYSIS IS A FRAMEWORK FOR INDUSTRY ANALYSIS &
BUSINESS STRATEGY DEVELOPNENT DEVELOPED BY MICHAEL PORTER OF HAVARD
BUSINESS SCHOOL IN 1979
 PORTER’S REFERRED TO THESE FORCES AS THE MICRO ENVIRONMENT , TO CONTRAST IT
WITH THE MORE GENERAL MACRO ENVIRONMENT.

3.  THEY CONSIST OF THOSE FORCES CLOSE TO COMPANY THAT AFFECT ITS ABILITY TO
SERVE ITS CUSTOMER & MAKE A PROFIT.
 STRATEGY CONSULTANT USE PORTER’S FIVE FORCE FRAMEWORK WHEN MAKING A
QUALITATIVE EVALUATION OF A FIRMS STRATEGIC POSITION.
 PORTER’S 5 FORCES INCLUDE 3 FORCES FROM ‘HORIZONTAL COMPETITION’:-
• THREAT OF SUBSTITUTE PRODUCTS
• THREAT OF ESTABLISHED RIVALS
• THREAT OF NEW ENTRANTS
 & THE TWO FORCES FROM ‘VERTICAL COMPETITION’:-
• BARGAINING POWER OF SUPPLIERS
• BARGAINING POWER OF CUSTOMERS

4. 1) THE THREAT OF SUBSTITUTE PRODUCTS:-
• THE EXISTENCE OF CLOSE SUBSTITUTE PRODUCTS INCREASES THE PROPENSITY OF
CUSTOMERS TO SWITCH TO ALTERNATIVES IN RESPONSE TO PRICE INCREASE…DEPENDS
ON….
 BUYERS PROPENSITY(readiness) TO SUBSTITUTE
 RELATIVE PRICE PERFORMANCE OF SUBSTITUTE
 BUYER SWITCHING COST
 PERCEIVED LEVEL OF PRODUCT DIFFERENTIATION
2) THE THREAT OF ENTRY OF NEW COMPETITORS:-
PROFITABLE MARKETS THAT YEILD HIGH RETURN WILL DRAW FIRMS WHICH RESULTS
ENTRY OF MANY NEW ENTRANTS, WHICH WILL EFFECTIVELY DECREASE COMPANIES
PROFITABILITY.
UNLESS THE ENTRY OF NEW FIRMS CAN BE BLOCKED BY INCUMBENTS, THE PROFIT RATE
WILL FALL TOWARDS A COMPETITIVE LEVEL(NOT LETTING NEW FIRMS TO ENTER MARKET
WITH ISI RESTRICTIONS ETC)

5.  THE EXISTENCE OF BARRIER TO ENTRY(PATENTS, RIGHTS ETC(PROPERTY RIGHT OR
LICENCE AGREEMENT)
 ECONOMIES OF PRODUCT DIFFERENCES
 BRAND EQUITY
 SWITCHING COST OR SUNK COST
 CAPITAL REQUIREMENT
 ACCESS TO DISTRIBUTION
 ABSOULTE COST ADVANTAGE
 GOVERNMENT POLICIES
3. THE INTENSITY OF COMPETITIVE RIVALARY:-
SOME RIVALS COMPETE AGGRESSIVELY & SOMETIMES RIVALS COMPETE IN NON- PRICE
DIMENSIONS SUCH AS INNOVATION, MARKETING ETC.
 NO OF COMPETITORS(CONCENTRATION)
 RATE OF INDUSTRY GROWTH(COMPETITION CREATES INDUSTRY GROWTH)
 TO MUCH CAPACITY & EXIT BARRIERS

6.  DIVERSITY OF COMPETITORS
 INFORMATIONAL COMPLEXITY(CO CAN DECIDE ITS GROWTH IF IT IS ALONE BUT WITH
COMPETITION HAS TO FACE MANY COMPLEXITIES)
 LEVEL OF ADVERTISING EXPENSE(WILL INCREASE)
 DIFFERENTIATION OF THE PRODUCT
4. BARGAINING POWER OF CUSTOMER:- ALSO DESCRIBED AS MKT OF OUTPUT’S. THE
ABILITY OF CUSTOMER TO PUT THE FIRM UNDER PRESSURE & IT ALSO AFFECTS THE
CUSTOMER’S SENSTIVITY TO PRICE CHANGE.
 BUYER CONCENTRATION TO FIRM CONCENTRATION RATIO(BOTH SHD BE EQUAL)
 BARGAINING LEVERAGE(INVESTING THE BORROWED MONEY AS A WAY TO AMPLIFY
POTENTIAL GAINS)
 BUYER VOLUME
 BUYER SWITCHING COST RELATIVE TO FIRM SWITCHING COST
 BUYER INFORMATION AVAILABLITY
 AVAILABLITY OF EXISTING SUBSTITUTE PRODUCTS

7.  BUYER PRICE SENSTIVITY
 PRICE OF TOTAL PURCHASE
5. THE BARGAINING POWER OF SUPPLIER:- ALSO DESCRIBED AS MARKET OF INPUTS.
SUPPLIER OF RAW MATERIAL, COMPONENTS & SERVICES ( SUCH AS EXPERTISE TO THE FIRM
CAN BE A SOURCE OF POWER OVER A FIRM. SUPPLLIER MAY REFUSE TO WORK WITH THE
FIRM, OR CHARGE HIGH PRICES FOR UNIQUE RESOURCES:-
 SUPPLIER SWITCHING COST TO FIRMS SWITCHING COST
 DEGREE OF DIFFERENTIATION OF INPUTS
 PRESENCE OF SUBSTITUTE INPUTS
 SUPPLIER CONCENTRATION TO FIRM’S CONCENTRATION RATIO(BOTH SHD BE EQUAL)
 THREAT OF FORWARD INTEGRATION BY SUPPLIER RELATIVE TO THREAT OF BACKWARD
INTEGRATION BY FIRMS
 COST OF INPUTS RELATIVE TO SELLING PRICE OF THE PRODUCT.