A case study analysis
JoanneZ
Porters5Forces1.pptxPorter’s 5 Forces & 5 Generic Strategies
Assessing Industries and Competitive Environments
5 Forces Analysis Objectives
Evaluates An Industry’s Likelihood to Allow Participants to Make Money
Estimates the Economic Power of A Group of Companies Relative to:
Customers
Suppliers
New Entrants
Substitute Products
Competitive Rivalry among Competing Sellers
Rivalry Among Competing Sellers
Industries with Fierce Competition tend to drive down overall profits
Occurs when the only way to grow is to take market share from others because demand is growing slowly or declining
When there is little differentiation in products and services
Competitors are numerous and driven by market share, not profits
Excess Capacity forces drive to gain share at other’s expense
Threat of New Entrants
The likelihood of New Entrants is less if there are:
Barriers to entry to a Market, including economies of scale in production, sales, research, branding and complex regulations.
Patents, trademarks, longstanding customer relationships, best locations, long & expensive learning curve all block new entrants
Structural barriers such as high capital/equipment costs, or relationship barriers such as limited distribution or available customers due to culture, trade policies or longstanding relationships
Supplier Bargaining Power
Suppliers selling commodities that are widely available have less bargaining power than suppliers who are the sole source of a product or who provide highly regarded brand name products
Suppliers providing products for which there are no attractive substitutes have more power
Suppliers who have low rivalry/price competition have more power
Buyers’ Power
Buyer’s power is stronger when supply exceeds demand
Products are standardized or undifferentiated
Switching costs are low
Buyers are few and large
Purchases can be postponed
Competition among sellers is intense
Substitute Products
Industry is less attractive if consumers can substitute a different product
Internet and Cable News are substitutes for Newspapers
Online retail is a substitute to shopping malls
Laser Surgery is a substitute for glasses and contacts
Substitutes must be readily available and attractively priced with low switching costs—AirBnB vs Marriott; Uber/Lyft vs Medallion Cabs
5 Forces Changeable--Coke
Porter in 1980’s says Soda Pop Industry Printing Money
Addictive blend of Sugar, Caffeine whose sweetness is tempered by carbonation
Growing market for soft drinks in US and Worldwide
Few Alternatives—No Snapple, no domestic bottled water, no Starbucks, limited competing brands—mainly Pepsi.
Strong brand franchise--Coke essentially our national drink—embodies American Values of harmony, friendship, joy, celebration, America’s gift to the free world
Secret formula for syrup is the differentiating factor along with the brand. Medium power to bottlers, weak power to ingredient suppliers.
Today’s Reality
Still making money, but with challenges
Substitutes—teas, infusions, nectars
Competition—many more brands and wide variety of drinks
Marred Image—obesity, junk food, imperialism
Shrinking Market for soft drinks
5 Generic Competitive Strategies
Broad Low-Cost
Address a Large Cross Section of Market to Get Economies of Scale
Good basic product with acceptable quality
Strive to Manage Cost Downs—at Every Level
Develop Unique Cost Reduction Strategies
Broad Differentiated
Providing Services that are different than competition
Usually not a manufactured product
Stress Continuous Improvement
Charge Premium Price for Differentiated
Example—Tax Accounting, Portfolio Management, Licensing
Focused Low Cost
Pursues Niche Market where buyer needs are distinctly different
Able to deliver at lower overall costs
Features tailored to client taste—just what is needed, no frills
No high volume substitute
Focused Differentiation
Serving Niche market where buyer needs are distinctly different
Attributes appeal specifically to niche members
Small Scale Production, Custom Made Products
Focus on meeting customers’ changing needs
Best-Solution
Broad or narrow range of value-conscious buyers
Incorporate Upscale features at lower costs than rivals
Selling better quality—not best quality
Emphasize delivery of best value for the money
iPhone is an example
