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Ch2-1

STAKEHOLDERS PRESSURES, EXPECTATIONS

PORTERS FIVE FORCES MODEL

NCAER

NSSO

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Ch2-2

Stakeholders Pressures & Expectations

SHAREHOLDERS

Pressure Exerted Expectations

Delegate decision power

to board but recent

increase in activism over

remuneration and

appointments. Selling

shares is the real threat

as a falling share price

attracts takeover

predators.

Above average return on

equity improving return

on assets, share value

rising

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Ch2-3

Stakeholders Pressures & Expectations

EMPLOYEES

Pressure Exerted Expectations

Absenteeism, turnover,

low morale, media leaks,

unionization, poor

productivity

Above average

remuneration, training

and skill development,

company growth /

promotion, employment

security/job satisfaction,

improving conditions

and wages

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Ch2-4

Stakeholders Pressures & Expectations

CUSTOMERS

Pressure Exerted Expectations

Reduce purchases; buy

from competitors,

organize boycotts,

complain to other

potential customers,

press for legislation

Value for money, product

safety / quality

assurance, innovation /

improved design, better

service

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Ch2-5

Stakeholders Pressures & Expectations

CREDITORS

Pressure Exerted ExpectationsLimit credit, withdraw

credit, cut credit rating,

charge higher rates

Regular / timely

repayment, early

notification of problems

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Ch2-6

Stakeholders Pressures & Expectations

DISTRIBUTORS

Pressure Exerted Expectations

Stock and promote

competing brands/own-label, integrate

backwards, delay

payment

Reliable supplies, support

in promotion, progressiveproduct development,

good communications

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Ch2-7

Stakeholders Pressures & Expectations

SUPPLIERS

Pressure Exerted Expectations

Supply competitors,

reduce priority, limittrade credit, poor

quality service,

integrate forward

Reliable payment, regular

supply schedules,development support,

ability to interrogate

stock/production systems

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Ch2-8

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Ch2-9

The purpose of

Five-Forces Analysis

The five forces are environmental forces

that impact on a companys ability tocompete in a given market.

The purpose of five-forces analysis is to

diagnose the principal competitive

pressures in a market and assess how

strong and important each one is.

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Ch2-10

Threat of

New

Entrants

Threat of

New

Entrants

Threat of

New

Entrants

Threat of

New

Entrants

Porters Five Forces

Model of Competition

Porters Five Forces

Model of Competition

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Ch2-11

Threat of New EntrantsThreat of New Entrants

Barriers to

Entry

Barriers to

Entry

Expected RetaliationExpected Retaliation

Government PolicyGovernment Policy

Economies of ScaleEconomies of Scale

Product DifferentiationProduct Differentiation

Capital RequirementsCapital Requirements

Switching CostsSwitching Costs

Access to Distribution ChannelsAccess to Distribution Channels

Cost Disadvantages IndependentCost Disadvantages Independent

of Scaleof Scale

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Ch2-12

Bargaining

Power of

Suppliers

Bargaining

Power of

Suppliers

Threat of

New

Entrants

Threat of

New

Entrants

Threat of

New

Entrants

Porters Five Forces

Model of Competition

Porters Five Forces

Model of Competition

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Ch2-13

Bargaining Power of SuppliersBargaining Power of Suppliers

Suppliers exert power

in the industry by:

Suppliers exert power

in the industry by:

* Threatening to raise* Threatening to raise

prices or to reduce qualityprices or to reduce quality

Powerful suppliers

can squeeze industry

profitability if firms

are unable to recover

cost increases

Powerful suppliers

can squeeze industry

profitability if firms

are unable to recover

cost increases

Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:

Supplier industry is dominated by aSupplier industry is dominated by afew firmsfew firms

Suppliers products have few substitutesSuppliers products have few substitutes

Buyer is not an important customer toBuyer is not an important customer tosuppliersupplier

Suppliers product is an importantSuppliers product is an importantinput to buyers productinput to buyers product

Suppliers products are differentiatedSuppliers products are differentiated

Suppliers products have highSuppliers products have highswitching costsswitching costs

Supplier poses credible threat ofSupplier poses credible threat of

forward integrationforward integration

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Ch2-14

Bargaining

Power of

Buyers

Bargaining

Power of

Buyers

Threat of

New

Entrants

Threat of

New

Entrants

Threat of

New

Entrants

Bargaining

Power of

Suppliers

Bargaining

Power of

Suppliers

Porters Five Forces

Model of Competition

Porters Five Forces

Model of Competition

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Ch2-15

Bargaining Power of BuyersBargaining Power of Buyers

Buyers compete

with the supplying

industry by:

Buyers compete

with the supplying

industry by:

* Bargaining down prices* Bargaining down prices

* Forcinghigherquality* Forcinghigherquality

* Playing firms off of* Playing firms off of

each othereach other

Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if:

Buyers are concentrated or purchasesBuyers are concentrated or purchases

are large relative to sellers salesare large relative to sellers sales

Purchase accounts for a significantPurchase accounts for a significant

fraction of suppliers salesfraction of suppliers sales

Products are undifferentiatedProducts are undifferentiated

Buyers face few switching costsBuyers face few switching costs

Buyers industry earns low profitsBuyers industry earns low profitsBuyer presents a credible threat ofBuyer presents a credible threat of

backward integrationbackward integration

Product unimportant to qualityProduct unimportant to quality

Buyer has full informationBuyer has full information

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Ch2-16

Threat of

Substitute

Products

Threat of

Substitute

Products

Threat of

New

Entrants

Threat of

New

Entrants

Threat of

New

Entrants

Bargaining

Power of

Buyers

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Bargaining

Power of

Suppliers

Porters Five Forces

Model of Competition

Porters Five Forces

Model of Competition

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Ch2-17

Threat of Substitute ProductsThreat of Substitute Products

Products

with similar

functionlimit the

prices firms

can charge

Products

with similar

functionlimit the

prices firms

can charge

Keys to evaluate substitute products:Keys to evaluate substitute products:

Products with improvingProducts with improving

price/performance tradeoffsprice/performance tradeoffs

relative to present industryrelative to present industryproductsproducts

Example:Example:

Electronic security systems inElectronic security systems inplace of security guardsplace of security guards

Fax machines in place ofFax machines in place of

overnight mail deliveryovernight mail delivery

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Ch2-18

Threat of

Substitute

Products

Threat of

Substitute

Products

Threat of

New

Entrants

Threat of

New

Entrants

Threat of

New

Entrants

Rivalry Among

Competing Firms

in Industry

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of

Buyers

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Bargaining

Power of

Suppliers

Porters Five Forces

Model of Competition

Porters Five Forces

Model of Competition

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Ch2-19

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:

Jockeying for strategic positionJockeying for strategic position

Using price competitionUsing price competition

Staging advertising battlesStaging advertising battles

Making new product introductionsMaking new product introductions

Increasing consumer warranties or serviceIncreasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse offPrice competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, butAdvertising battles may increase total industry demand, but

may be costly to smaller competitorsmay be costly to smaller competitors

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Ch2-20

CutthroatCutthroat competitioncompetition is more likely to occur when:is more likely to occur when:

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Numerous or equally balanced competitorsNumerous or equally balanced competitors

Slow growth industrySlow growth industry

High fixed costsHigh fixed costs

Lack of differentiation or switching costsLack of differentiation or switching costs

High storage costsHigh storage costs

Capacity added in large incrementsCapacity added in large increments

High strategic stakesHigh strategic stakes

High exit barriersHigh exit barriers

Diverse competitorsDiverse competitors

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Ch2-21

The Five Forces are Unique to

Industry

Five-Forces Analysis is a framework for

analyzing a particular industry. Yet, the five forces affect all the other

businesses in that industry.

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Ch2-22

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Ch2-23

Jordache - changed industry forces. Introduced designer jeans entry barrier

created. Upfront advt expenditure created strong consumer preference

diluted bargaining power of buyers.

Structural forces surrounding industry neutralized, Jordache getting itself

competitive advantage

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Ch2-24

NCAER(National Council for Applied Economic Reaearch)

NCAER Activities Develop policy reports for clients. To examine

domestic agricultural market structures, price policy, linkages

between agricultural price policy and poverty, and, the role of the

Panchayats in fostering sustainable development.

Track key sectors of the economy for subscribers Forecast theeconomic outlook Conduct, design, and analyse surveys that

illuminate public policy issues as well as assist private sector

decisions Disseminate research findings.

NCAER depends on contract research with the government, the

private sector and the non-government sector and institutions at the

national and international levels. Sponsors for the different studies

undertaken by the Council include the central and state

governments, public and private corporations, and international

organisations such as Ford Foundation, UNDP and the World Bank.

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Ch2-25

Useful NCAER Research findings

- helps customer relations Market Information Survey of Households

(MISH)

Tracking consumer demographics andconsumption patterns across product

categories

Firms can avail NCAER research servicescustomized to their market needs