4 Competitor Analysis (Porters 5 Forces Model)

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


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Competitor Analysis

Predicting the dynamics of competitor actions,responses and intentions.


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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


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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

*


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BargainingPower ofSuppliers

*

Threat of

Substitute

Products


Threat of

NewEntrants

Bargaining Powerof suppliers

depends on anumber of factors


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* 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

*


7/19Prof. Vikram Parekh on Marketing Strategy


BargainingPower of

Buyers

*


Threat ofNew

Entrants

Threat of

Substitute

Products


Bargaining Powerof buyers depends

on a number offactors



* 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



Threat ofSubstitute

Products

*

BargainingPower of

Buyers


Threat ofNew

Entrants

Threat of

Substitute

Products


Substitutes are notdirect competitors




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




Rivalry AmongCompeting Firms

*

Threat ofNew

Entrants

BargainingPower of

Buyers


Threat ofSubstituteProducts

Threat of

Substitute

Products


Reduced rivalry meansgreater profitability



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



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




* 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*




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



Competitor Analysis

Current strategy

Current Strategy:Future objectives

How are we currently

competing?

Does this strategy supportchanges in the competitivestructure?



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


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19/19Prof Vikram Parekh on Marketing Strategy

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

4 Competitor Analysis (Porters 5 Forces Model)

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