This document discusses Porter's five forces model and competitive strategies. It explains the five forces that shape competition - rivalry, threat of substitutes, buyer power, supplier power, and barriers to entry. It also outlines generic competitive strategies like cost leadership, differentiation, and focus. The strategies a market leader, challenger, and follower can employ are described, including attacking competitors frontally, flanking, encircling, and bypassing them.

1. CREATING COMPETETIVE
ADVANTAGE
COMPETETIVE ADVANTAGE IS SAID TO EXIST WHEN A CO USES ITS
DISTINCTIVE SKILL/RESOURCES TO CAPITALISE ON THE
OPPORTUNITIES PRESENT IN THE MARKET.
PORTERS FIVE FORCE MODEL
FACTORS EFFECTING COMPANY ADVANTAGE
EXTENT/INTENSITY OF RIVALRY
THREAT OF SUBSTITUTES
BUYER POWER – BARGAINING
SUPPLIER POWER
DIFFICULTIES FOR ENTRANTS

2. RIVALRY
1.
NO. OF PLAYERS
2.
SLOW GROWTH
3.
COSTS LARGELY FIXED
4.
HEAVY INVENTORY-PERISHABLE GOODS
5.
LOW SWITCHING COSTS
6.
LOW DIFFERENTIATION OF PRODUCTS
7
HIGH STRATEGIC STAKES—when a co is losing mkt share
or anticipates hugh growth
8
HIGH EXIT BARRIERS

3. RIVALRY….contd/ 9 SHAKE OUT IN INDUSTRY
 10 CULTURAL DIFFERENCES

4. THREAT OF SUBSTITUTES
WHAT IS A SUBSTITUTE?
 Porter’s Model-A substitute is a product from another industry
 Economics-When demand is affected by price change of a
substitute
 The threat of substitutes generally comes from products outside
the industry due to price advantage
 There are, however, other threats of substitutes not related to
price advantage

5. BUYER BARGAINING POWER
 Broadly speaking, when buyers are strong, the Industry tends to
function as a monopsony.
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Buyers are powerful:--If they are concentrated
-- Buy a significant proportion of the output
-- Possess capacity for backward integration
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Buyers are weak:--Scattered and fragmented
-- Switching costs are high
--Producers capable of forward integration
--Producers supply critical portion

6. SUPPLIER POWER
 Just as buyers can be powerful under certain set of circumstances
,suppliers also can be strong under certain set of conditions
 Suppliers are strong when: --They are in a position for forward integration
 -- Suppliers concentrated
 -- Switching costs are significant
 --Customer is powerful
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Suppliers are weak when;--Many competitive suppliers e g cardboard boxes for packaging
--Trend towards commodity purchase eg grocery vs branded grocery
--Backward integration by purchasers eg tobacco cultivation by cig cos

7. BARRIERS TO ENTRY
 Barriers reduce the entry rate of new entrants and thus help the
existing players to maintain their competitiveness
 Govt Barriers
 Patents
 Asset specificity
 Economies of scale

8. ANALYSING
COMPETITION
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STRATEGIES
OBJECTIVES
STRENGTHS / WEAKNESS
REACTION PATTERN
a) MILD REACTION
b) SELECTIVE REACTION
c) TIGER REACTION
d) STOCHASTIC REACTION

9. STRATEGIES
 In an industry cos which follow similar strategies constitute a strategic
group
 Prior to entering an industry the Co must study the strategies of
various players-e g Amul, Britannia, Baron
 By studying the various groups the co will be able to identify its major
competitors
 It will also be able to identify the level of entry barriers
 After studying the strategies of various players cos can decide what is
the best strategy for it.

10. OBJECTVES
 After identifying its main competitors, the co must try to find out the
objectives of its competitors Position in industry (BAL),

Market Share--Coke

Size
 Technological leadership
 Best service (Titan/ITC/Banks)

11. STRENGTHS AND WEAKNESSES
 When studying the strengths and weaknesses of the competitors,
the co must concentrate on the following:
 Market Share-To what extent is the co in control and command in
the segment?
 Mind Share-To what extent can the consumers recall a particular
competitor in an industry
 Heart Share- To what extent do the consumers name the
competitor from whom they would like to buy the products

12. REACTION PATTERN
 Laid Back Competitor—A competitor who does not react fast
enough to a move by the co
 Selective Competitor --- A competitor who does not react to every
move but only to certain moves
 Tiger Competitor—A competitor who reacts immediately with speed
and strength
 Stochastic competitor—A competitor who’s reaction cannot be
predicted.

13. COMPETETIVE
INTELLIGENCE
SYSTEM
INTELLIGENCE DATA
- ANNUAL REPORTS
- FIELD
- TRADE
- MEDIA
- PUBLIC ADDRESSES

14. SETTING UP A SYSTEM
--IDENTIFY THE DATA REQUIRED
--DATA COLLECTION
--DATA ANALYSIS
--FORMULATING A RESPONSE

15. SELECTING COMPETETORS TO
ATTACK/AVOID
 Which competitor to attack, which to avoid—CUSTOMER
VALUE ANALYSIS
 CUSTOMER VALUE ANALYSIS-process of identifying Cos
strengths and weaknesses vis-à-vis the competitor
 --Identification of those attributes that customer value most
 --Prioritize the attributes vis-a-vis competitors
 --Assess attribute performance among competing brands
 --Monitor competitors standing and customers changing
values

16. PORTERS GENERIC
COMPETITIVE STRATEGIES
 COST LEADERSHIP STRATEGY
--The company consciously tries to be a low cost player
--Sells at an average price to make profit
--Sells at low price to gain market share
What will happen in event of a price war?-case of music
Cos acquire cost advantage by efficient processes,
exclusive access to large supply of raw material, optimal
outsourcing, etc
Low cost cos usually have to invest heavily in assets. Relation
to entry?

17. DIFFERATION STRATEGY
 In such a situation the firm tries to differentiate its products
and services by adding some unique features and attributes
that are valued by the customers
 Such products should be perceived better than the
customers.
 The value added by the firm enables it to charge it the extra
price
 The differentiation may help the co to charge extra in case
some supplier raises its price.
 There is a risk to the co in case a competitor copies its
attributes or the customer tastes change.

18. FOCUS STRATEGY
 A co following this strategy caters to a narrow segment in which it tries
to gain advantage through cost or differentiation.
 Under such conditions, a firm tends to enjoy a very high degree of
customer loyalty and this discourages others from entering this
segment.
 As the focus is on a narrow segment, the volumes are low and therefore
its bargaining power with its suppliers is low.
 If the company is following focused-differentiation strategy the it can
pass on the increase in cost of supplies as close substitutes do not
exist.
 Some risk does exist as customer target segment may change and
imitations may come in the market

19. COMPETETIVE
STRATEGY DESIGN
MARKET LEADER
NEW USERS
1) EXPAND THE MARKET NEW USERS
MORE USAGE
2) DEFEND THE MARKET – DEFINE
CAREFULLY AREAS YOU WISH TO
DEFEND
3) EXPAND MARKET SHARE

20. MARKET CHALLENGER
STRATEGIES
1) ATTACK THE LEADER
2) ATTACK FIRMS OF ITS OWN SIZE –
ECONOMICALLY WEAK
3) ATTACK SMALL / REGIONAL PLAYERS
ATTACK STRATEGIES
FRONTAL / FLANK / ENCIRCLEMENT /
BYPASS / GUERILLA PRICE DISCOUNTS /
CHEAPER GOODS / PRESTIGE GOODS /
PRODUCT EXTN. DISTRIBUTION / COST
REDUCTION

21. ATTACK STRATEGIES
 FRONTAL ATTACK
 In a frontal attack you hit out directly at your competitor-product,
pricing, distribution, packaging.
 FLANK ATTACK
 The essence of flank attack is to attack the leader where he is weak.
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Flank attack have two major aspects to them
--Geographical
--Market dimension
 Such a strategy is very helpful when the attacker has very limited
resources.

22.  ENCIRCLEMENT ATTACK
 In an Encirclement Attack an attempt is made to capture a part of
the competitors market by launching a surprise attack on several
fronts
 The attack is usually dispersed.
 BY-PASS ATTACK
 This means to by-pass the competitor and capture the market to
widen your resource base Can be achieved in three ways
 --diversifying into unrelated products
 -- diversfying into new geographical areas
 --quantum jump in technology

23. MARKET FOLLOWER
STRATEGIES
MARKET LEADER INITIATES – OTHER
FOLLOW
- PRODUCT DIFFERENTIATION LOW
- CAPITAL INTENSIVE INDUSTRY –
STEEL / FERTILIZERS
- PRICE BASED COMPETITION

24.  Market follower strategies can result in
 --Counterfeiter
 --Clover: copying the leaders design, packaging
 --Imitator : copies certain aspects of the competitor product but
retains different design and packaging
 --Adaptors: such cos adapt their products to the market needs as
indicated by the leading products. Adapters have the potential to
emerge as market challangers.