1. Group 5 - Outline
1. Five Forces Model of Michael Porter
2. Blue Ocean Strategy
3. Strategic Principles

2. The five competitive forces that
shape strategy
Outline
Foces that shape competition
Factors, not Forces
Change in industry structure
Implications for strategy

3. I. Forces that shape
competition
1.
2.
3.
4.
5.
The threat of new entrant
The bargaining power of suppliers
The bargaing power of buyers
The threat of substitutes
Rivalry among existing competitors

4. 1. The threat of new entrant
• New entrants to an industry bring new capacity and a desire
to gain market share that put pressure on prices, costs, and
the rate of investment necessary to compete  reduce the
potential profit in the industry.
• Barriers to entry. Entry barriers are advantages that
incumbents have relative to new entrants. There are seven
major sources:

5. 1. The threat of new entrant
• Barriers to entry:
• 1. Supply-side economies of scale : These economies arise when firms
that produce at larger volumes enjoy lower costs per unit because they
can spread fixed costs over more units, employ more efficient
technology, or command better terms from suppliers.

6. 1. The threat of new entrant
• Barriers to entry:
• 2. Demand-side benefits of scale. These benefits, also known as network
effects, arise in industries where a buyer’s willingness to pay for a
company’s product increases with the number of other buyers who also
patronize the company.

7. 1. The threat of new entrant
• Barriers to entry:
• 3.Customer switching costs. Switching costs are fixed costs that buyers
face when they change suppliers.

8. 1. The threat of new entrant
• Barriers to entry:
• 4. Capital requirements. The need to invest large financial
resources in order to compete can deter new entrants.
•
•
VS

9. 1. The threat of new entrant
• Barriers to entry:
• 5. Incumbency advantages independent of size. No matter what their
size, advantages can stem from such sources as proprietary
technology, preferential access to the best raw material
sources, preemption of the most favorable geographic
locations, established brand identities, or cumulative experience that has
allowed incumbents to learn how to produce more efficiently.

10. 1. The threat of new entrant
• Barriers to entry:
• 6. Unequal access to distribution channels. The new entrant must, of
course, secure distribution of its product or service.
• For example:
• New food product must displace others from the supermarket shelf via
price breaks, promotions, intense selling efforts, or some other means. it
is very costly

11. 1. The threat of new entrant
• Barriers to entry:
• 7. Restrictive government policy. Government policy can hinder or aid
new entry directly, as well as amplify (or nullify) the other entry barriers.

12. 1. The threat of new entrant
• Expected retaliation. How potential entrants believe
incumbents may react will also influence their decision to
enter or stay out of an industry.
• The expected retaliation will be high if:
• Incumbents have previously responded vigorously to new
entrants.
• Incumbents possess substantial resources to fight back.
• Incumbents seem likely to cut prices because they are
committed to retaining market share
• Industry growth is slow so newcomers can gain volume
only by taking it from incumbents.

13. 2.The bargaining power of suppliers
• Powerful suppliers capture more of the value for themselves
by charging higher prices, limiting quality or services, or
shifting costs to industry participants.

14. Suppliers is powerful if:
 It is more concentrated than the industry it sells to.
• For example: Microsoft’s near monopoly in operating
systems, coupled with the fragmentation of PC assemblers.
• Microsoft becomes very powerful supplier with their
partners.
 The supplier group does not depend heavily on the industry
for its revenues.
 Industry participants face switching costs in changing
suppliers.
 Suppliers offer products that are differentiated.
 There is no substitute for what the supplier group provides.(
Electricity)

15. 3.The bargaing power of buyers
• Powerful customers. capture more value by forcing
down prices, demanding better quality or more
service (thereby driving up costs), and generally
playing industry participants off against one another.

16. Buyer is more powerful if:
 There are few buyers, or each one purchases in volumes that
are large relative to the size of a single vendor.
 The industry’s products are standardized or undifferentiated.
 Buyers can credibly threaten to integrate backward and
produce the industry’s product themselves
 The product it purchases from the industry represents a
significant fraction of its cost structure or procurement
budget.
 The buyer group earns low profits,
 The industry’s product has little effect on the buyer’s other
costs. Here, buyers focus on price.

17. 4.The threat of substitutes
•
•
Substitute performs the same or a similar function as an
industry’s product by a different means.
When the threat of substitutes is high, industry profitability
suffers. Substitute products or services limit an industry’s
profit potential by placing a ceiling on prices. If an industry
does not distance itself from substitutes it will suffer in terms
of profitability

18. The threat of a substitute is high if:
 It offers an attractive price-performance trade-off to
the industry’s product. The better the relative value
of the substitute, the tighter is the lid on an
industry’s profit potential.
 The buyer’s cost of switching to the substitute is
low.

19. Rivalry among existing competitors
• Rivalry among existing competitors takes many familiar
forms, including price discounting, new product
introductions, advertising campaigns, and service
improvements.
• High rivalry limits the profitability of an industry.

20. The intensity of rivalry is greatest if:
• 1.Competitors are numerous or are roughly equal in size and
power.
• Ex: instant noodle industry in Vietnam

21. The intensity of rivalry is greatest if:
• 2.Industry growth is slow. Slow growth precipitates
fights for market share.
• 3.Firms cannot read each other’s signals well
because of lack of familiarity with one another,
diverse approaches to competing, or differing goals.

22. The intensity of rivalry is greatest if:
• 4. Exit barriers are high. These barriers keep companies
in the market even though they may be earning low or
negative returns. Excess capacity remains in use, and the
profitability of healthy competitors suffers as the sick
ones hang on.

23. The intensity of rivalry is greatest if:
• 5. Price competition is intense (most important
factor)
•
•
Price competition transfers profits directly from an industry
to its customers.
Sustained price competition also trains customers to pay less
attention to product features and service.

24. II. Factors, not Forces
Industry growth rate
Technology and innovation
Government
Complementary products and services

25. III. Change in industry structure
Shifting threat of new entry
Changing supplier or buyer power
Shifting threat of substitutiony
New bases of rivalry

26. IV. Implications for strategy
Positioning the company
Exploiting industry change
Shaping industry structure

28. How to survive in the bloody “red ocean” of
rivals fighting over a shrinking profit pool?
In today’s head-to-head
competition……
And overcrowded
industries…

29. Creating “blue oceans” of uncontested
market space ripe for growth.

30. Creating Blue Oceans

31. Red Ocean Versus Blue Ocean Strategy
Red Ocean Strategy
Blue Ocean Strategy
Compete in existing market space.
Create uncontested market space.
Beat the competition.
Make the competition irrelevant.
Exploit existing demand.
Create and capture new demand.
Make the value-cost trade-off.
Break the value-cost trade-off.
Align the whole system of a firm’s
activities with its strategic choice of
differentiation or low cost.
Align the whole system of a firm’s
activities in pursuit of differentiation
and low cost.

32. Value Innovation
Costs
Eliminate
Costs
Reduce
Create
Value
Traditional Companies
Raise
Value
Value Innovation is
Simultaneous
pursuit
of High value &
Low cost
Blue Ocean Companies
1. Cost savings are made by eliminating and reducing the factors an industry competes on.
2. Buyer value is lifted by raising and creating elements the industry has never offered.

33. Blue oceans are not about technology innovation
Incumbents often create blue ocean within business.
Company and industry are the wrong units of analysis
Creating blue oceans builds brands

34. Blue Ocean of TH True Milk
TH stands for True Happiness.
Pure
Modern
Fresh
Perfect production line

35. - Our herd of milk cows is looked after carefully.
- They live in an environment with music, drink
clean water, breathe in the pure air and have daily
bath.

36. Create new niche markets and to be market leader
True Pure Milk Market

37. Completely new Products

39. Blue ocean of X-men
Shampoo for
women is only
for women
Shampoo for
men is only for
men

41. To be a
men, let’s use
“your own”
shampoo.
If you love your
husband, let him
use his own
shampoo.

42. Blue ocean of Pho 24
+ Reduce unnecessary ingredients in bowl of pho as sugar, salt…
+Increase the safety standards of food hygiene
+ Remove chemicals that are harmful to consumers
+ Creating new designs to create beautiful space for cafes, franchise.

43. Blue ocean strategy with
products and marketing

47. Create Uncontested market Space
Make the Competition Irrelevant.

50. 
Strategic principle is a memorable and actionable phrase that
distills a company’s corporate strategy into its unique essence
and communicates it throughout the organization.

51. A effective strategic principle lets a company:
1.
2.
3.
• maintain strategic focus
• empower workers to innovate and take
risks.
• seize fleeting opportunities
• create products and services that meet
4.
subtle shifts in customers’ needs

52. Three Defining Attributes
It forces trade-offs between competing
resource demands;
 It tests the strategic soundness of a particular
action;
It sets clear boundaries within which
employees must operate while granting them
freedom to experiment within those
constraints.

54. Create a strategic principle
 A corporate strategy represents a plan to
effectively allocate scarce resources to achieve
sustainable competitive advantage.
 Managers need to ask themselves: how does my
company allocate those resources to create value
in a unique way, one that differentiates my
company from competitors?
 Idea has been expressed in a phrase.
 Test the principle for its ability to promote and
guide action.

55. When rethink is required
• No strategy is eternal, nor is any strategic
principle
• It’s worth revisiting your strategic principle
every time you reexamine your strategy, it is
likely to change only when there is a
significant shift in the basic economics and
opportunities of your market caused
by, say, legislation or a completely new
technology or business model.