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8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Prof. Vikram Parekh on Marketing Strategy
The Industry Environment
The set of factors that directly influences a firm, its
competitive actions & competitive responses:
Industry
EnvironmentThreat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
CompetitorEnvironment
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Prof. Vikram Parekh on Marketing Strategy
Competitor Analysis
Predicting the dynamics of competitor actions,responses and intentions.
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Prof. Vikram Parekh on Marketing Strategy
Porters 5 Forces Model of Competition
The above image Copyright 2001 Corel & Jerry Sheppard All rights reserved.
Threat ofNew
Entrants
Threat of
Substitute
Products
Five Forces ofCompetition
The threat of newentrants depends
on barriers to entry
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Prof. Vikram Parekh on Marketing Strategy
Product Differentiation
*Capital Requirements
*Switching Costs
*Access to Distribution Channels
*Cost Disadvantages Independent of Scale
*Government Policy
*Expected Retaliation
*
Economies of Scale
*
Barriersto Entry
Threat of New Entrants
*
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Prof. Vikram Parekh on Marketing Strategy
Porters 5 Forces Model of Competition
BargainingPower ofSuppliers
*
Threat of
Substitute
Products
Five Forces ofCompetition
Threat of
NewEntrants
Bargaining Powerof suppliers
depends on anumber of factors
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Prof. Vikram Parekh on Marketing Strategy
* Supplier industry is dominated by a fewfirms.
*Buyer is not an important customer to
supplier.
* Suppliers product is an importantinput to buyers product.
* Suppliers products are differentiated.
Suppliers are likely to be powerful if:
* Suppliers products have highswitching costs.
* Supplier poses credible threat offorward integration.
Suppliers exertpower in theindustry by:
* Threatening to raiseprices or to reduce
quality
Powerful supplierscan squeeze industryprofitability if firmsare unable torecover costincreases
Suppliers products have few
substitutes.
*
Bargaining Power of Suppliers
*
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
7/19Prof. Vikram Parekh on Marketing Strategy
Porters 5 Forces Model of Competition
BargainingPower of
Buyers
*
BargainingPower ofSuppliers
Threat ofNew
Entrants
Threat of
Substitute
Products
Five Forces ofCompetition
Bargaining Powerof buyers depends
on a number offactors
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
8/19Prof. Vikram Parekh on Marketing Strategy
* Playing firms off ofeach other
Buyers competewith supplying
industry by:* Bargaining down prices
* Forcing higher quality
Buyer groups are likely to be powerful if:
*Buyers are concentrated or purchases arelarge relative to sellers sales
* Purchase accounts for a significantfraction of suppliers sales
*Products are undifferentiated
* Buyers face few switching costs
* Buyers industry earns low profits
* Buyer presents a credible threat ofbackward integration
* Product unimportant to quality
* Buyer has full information
Bargaining Power of Buyers
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
9/19Prof. Vikram Parekh on Marketing Strategy
Threat ofSubstitute
Products
*
BargainingPower of
Buyers
BargainingPower ofSuppliers
Threat ofNew
Entrants
Threat of
Substitute
Products
Five Forces ofCompetition
Substitutes are notdirect competitors
Porters 5 Forces Model of Competition
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
10/19Prof. Vikram Parekh on Marketing Strategy
Productswith similar
functionlimit theprices firmscan charge
* Products with improving price /performance tradeoffs relative topresent industry products
Keys to evaluating substitute products:
For Example:
Electronic security systems inplace of security guards
Fax machines or e-mailedattachments in place ofovernight mail delivery
Threat of Substitute Products
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
11/19Prof. Vikram Parekh on Marketing Strategy
Porters 5 Forces Model of Competition
Rivalry AmongCompeting Firms
*
Threat ofNew
Entrants
BargainingPower of
Buyers
BargainingPower ofSuppliers
Threat ofSubstituteProducts
Threat of
Substitute
Products
Five Forces ofCompetition
Reduced rivalry meansgreater profitability
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
12/19Prof. Vikram Parekh on Marketing Strategy
Occurs when a firm is pressured or sees an opportunity
* Price competition often leaves entire industry worse off
Intense rivalry often plays out in the following ways
Jockeying for strategic position*Using price competition*Staging advertising battles*
Increasing consumer warranties or service*Making new product introductions*
Advertising battles may increase total industrydemand, but may be costly to smaller competitors
*
Rivalry Among Existing Competitors
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
13/19Prof. Vikram Parekh on Marketing Strategy
Cutthroat competitionis more likely to occur when* Numerous or equally balanced competitors
* Slow growth industry
* High fixed costs
* Lack of differentiation or switching costs* High storage costs
* Capacity added in large increments
* High strategic stakes
*High exit barriers
* Diverse competitors
Rivalry Among Existing Competitors
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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* Specialized assets
High Exit Barriersare economic, strategic andemotional factors which cause companies toremain in an industry even when future profitabilityis questionable.
Fixed cost of exit (e.g., labour agreements)*Strategic interrelationships
* Emotional barriers*Government and social restrictions*
Rivalry Among Existing Competitors
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Competitor Analysis
Future Objectives:
How do our goals comparewith our competitors goals?
Where will the emphasis be
placed in the future?
What is the attitude towardrisk?
Future objectives
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Competitor Analysis
Current strategy
Current Strategy:Future objectives
How are we currently
competing?
Does this strategy supportchanges in the competitivestructure?
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Competitor Analysis
Assumptions
Current strategy
Assumptions:
Do we assume the future willbe volatile?
Are we operating under astatus quo?
What assumptions do ourcompetitors hold about theindustry and themselves?
Future objectives
8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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8/6/2019 4 Competitor Analysis (Porters 5 Forces Model)
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Competitor Analysis
Response
Response: What will our competitors do
in the future?
Where do we hold an advan-tage over our competitors?
How will this change ourrelationship with ourcompetitors?
Future objectives
Current strategy
Assumptions
Capabilities