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Zee Prese

  1. 1. Porter’s Five Forces Model Zeeshan Qureshi 35727 MBA-C
  2. 2. Analyzing Industry Structure <ul><li>Opportunities and threats are competitive challenges arising for changes in industry conditions. </li></ul><ul><li>Analytic tools such as the five forces model help managers formulate appropriate strategic responses. </li></ul>
  3. 3. The Five Forces Model Source: Adapted and reprinted by permission of Harvard Business Review. An exhibit from “How Competitive Forces Shape Strategy” by Michael E.. Porter (March-April 1979), Copyright © 1979 by the President and Fellows of Harvard College: all rights reserved. FIGURE 3.1
  4. 4. Potential Competitors <ul><li>New entrants into an industry threaten incumbent companies. </li></ul><ul><li>Barriers to entry: </li></ul><ul><ul><li>Brand loyalty </li></ul></ul><ul><ul><li>Absolute cost advantages </li></ul></ul><ul><ul><li>Economies of scale </li></ul></ul><ul><ul><li>Switching costs </li></ul></ul><ul><ul><li>Government regulation </li></ul></ul><ul><li>Entry barriers reduce the threat of new and additional competition. </li></ul>
  5. 5. Rivalry Among Established Companies <ul><li>The intensity of competitive rivalry in an industry arises from: </li></ul><ul><ul><li>Industry’s competitive structure. </li></ul></ul><ul><ul><li>Demand (growth or decline) conditions in industry. </li></ul></ul><ul><ul><li>Height of industry exit barriers. </li></ul></ul>
  6. 6. The Bargaining Power of Buyers <ul><li>Buyers are most powerful when: </li></ul><ul><ul><li>There are many small sellers and few large buyers. </li></ul></ul><ul><ul><li>Buyers purchase in large quantities. </li></ul></ul><ul><ul><li>A single buyer is a large customer to a firm. </li></ul></ul><ul><ul><li>Buyers can switch suppliers at low cost. </li></ul></ul><ul><ul><li>Buyers purchase from multiple sellers at once. </li></ul></ul><ul><ul><li>Buyers can easily vertically integrate to compete with suppliers. </li></ul></ul>
  7. 7. The Bargaining Power of Suppliers <ul><li>Suppliers have bargaining power when: </li></ul><ul><ul><li>Their products have few substitutes and are important to buyers. </li></ul></ul><ul><ul><li>The buyer’s industry is not an important customer to the supplier. </li></ul></ul><ul><ul><li>Differentiation makes it costly for buyers to switch suppliers. </li></ul></ul><ul><ul><li>Suppliers can vertically integrate forward to compete with buyers and buyers can’t integrate backward to supply their own needs. </li></ul></ul>
  8. 8. Substitute Products <ul><li>The competitive threat of substitute products increases as they come closer to serving similar customer needs. </li></ul>Close Far
  9. 9. A Sixth Force: Complementors <ul><li>Complementors (Adam Brandenburger): </li></ul><ul><ul><li>Companies whose products are sold in tandem with another company’s products. </li></ul></ul><ul><ul><li>Increased supply of a complementary product collaterally increases demand for the primary product. </li></ul></ul><ul><li>Example: </li></ul><ul><ul><li>Faster CPU chips fuel sales of personal computers. </li></ul></ul><ul><ul><li>(e.g. Microsoft and Intel) </li></ul></ul>
  10. 10. Conclusion <ul><li>Total Quality Management principles remain a requirement for success. “Organizations are made up of a complex system of customers and suppliers, with every individual executive, manager, and worker functioning as both a supplier and a customer.” (Finnigan, Schmidt; 5.) </li></ul><ul><li>Although many firms don’t use the TQM label any more, for most top companies customer driven quality has become a way of doing business. “They apply the notion of Return on Quality (ROC) and they make certain that the quality they offer is the quality that customers want.” (Kotler, Armstong; 681.) </li></ul><ul><li>This quality then results in what every company wants, improved sales and higher profits. </li></ul>