Industry and Competitive Forces : Porters Five Forces

Name: Sandip. Tambe

Email: sandip.t@inteluxindia.com

Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Citation

Vision without action is

daydream,
Action without vision is nightmare - Japanese proverb

Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Need for Business Strategy & Analysis

Dynamic market Globalization

Competition
Technology Political and legal impact Demographical and socio-cultural impact

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Porters 5 Forces - Introduction

Foundation of competitive advantage Based on understanding of Industry structure and factors influencing it

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Competitive Analysis Porters 5 Forces

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Porters Five Forces.. 1. Bargaining Power of Supplier Suppliers are likely to be powerful if,

Market dominance by few large suppliers Unique or at least differentiated product High switching cost

Ability of forward integration

Low dependency on purchasing Industry No obligation to contend with other product for sale to industry

Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Porters Five Forces.. Impact of Power of Supplier

Price rise or reduced quality Can squeeze the profitability if cost increase is not compensated Potentially reduced strategic options

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Porters Five Forces.. 2. Bargaining Power of Customer Customers are likely to be powerful if,

Market dominance by few large takers/large no. of suppliers Standard or undifferentiated product High fixed cost of Supplier

Low switching cost

Low strategic importance of product to customer. High price sensitivity and low margins Backward Integration ability / costing information
Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Porters Five Forces.. Impact of Power of Customer

Reduction in price Pressure on margins and volumes May force for higher quality Can trigger price war

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Porters Five Forces.. 3. Threat of New Entrants Barriers to entry

Economies of scale Product differentiation/brand loyalty Capital Requirement

Government Policy
Cost disadvantage independent of size Access to distribution channels

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Porters Five Forces.. 4. Threat of Substitutes Threat of substitute is determined by

Brand loyalty Customer Relationship Relative price performance

Current trend
Switching cost

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Porters Five Forces.. 5. Competitive Rivalry between Existing Players It is likely to be high when,

Too many players of about same size Similar players with undifferentiated product and strategy Low market growth rate

High exit barriers

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Porters Five Forces.. 5. Competitive Rivalry between Existing Players Impact

Price war Pressure on margins/profitability Intense rivalry may leave entire industry worse off

May lead to introduction of new product

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Porters Five Forces.. Application -

Statical Analysis Helps in determining attractiveness of industry and Competitors Analysis Dynamical Analysis Useful in identification of potential future attractiveness of industry when used in combination with other tools like PEST analysis.

Analysis of Option Influencing forces in the interest of organization.

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Influencing Power of Porters Five Forces..

Reducing Power of Supplier

Partnering Supply Chain Management Increase dependency Building knowledge base about supplier costing Backward integrating

Reducing Power of Customer Partnering Supply Chain Management

Increase dependency
Increase incentives and value added

Cut short powerful intermediates

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Influencing Power of Porters Five Forces..

Reducing threat of new entrants

Min. efficient scale of operation Brand imaging Patents/copyrights Alliance with supply and distribution channels Retaliation tactics

Reducing threat of substitutes Increase switching cost Customer survey to learn about preferences

Alliances Entry in substitute market

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Influencing Power of Porters Five Forces..

Reducing competitive Rivalry

Avoid price competition Differentiate your product Buy out competition Focus on different segments Establish communication channels with competitors

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Porters Five Forces..

Critique-

Model assume relatively stable static structure Model is based on idea of competition Model is best applicable to simple market structure .

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Thank You

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