1. PRESENTED BY
MUHAMAD HAFIZ AMIN NORDIN
MOHD NAJIB MOHD NOOR
WAN MUHD FAEZ WAN IBRAHIM
AHMAD SAUFE NAWI

2. INTRODUCTION
 The model of pure competition implies that
risk-adjusted rates of return should be
constant across firms and industries.
 provided a framework that models an
industry as being influenced by five forces.
 The strategic business manager seeking to
develop an edge over rival firms can use
this model to better understand the industry
context in which the firm operates

3. CONT’
 A company operating in different market
segments, markets and/or industries will be
faced with the problem that each area of
operation (market or segment) will have a
different level of attractiveness for the
company, which will result in different
growth and profit potentials.
 Michael Porter developed his five forces
model (also often called the industry
structure model) in the early 1980s as a
structural tool to assess the attractiveness
of any industry.

4. CONT’
 The same base forces apply whether the
planner is considering an industry, a
product/service category market or market
segment, so the model can be used at any
of these levels.
 Porter suggest that the attractiveness of,
and therefore the ability of businesses to
compete in, any industry or segment is
influenced by the action and interaction of
the five basic forces that make up any
industry.

5. Diagram of Porter's 5 Forces

6. Threat of new entrants
Absolute cost advantages
Proprietary learning curve
Access to inputs
Government policy
Economies of scale
Capital requirements
Brand identity
Switching costs
Access to distribution
Expected retaliation
Proprietary products
Bargaining power of Bargaining power of
suppliers buyers
Intensity of rivalry between Bargaining leverage
Supplier concentration existing competitors Buyer volume
Importance of volume to supplier Buyer information
Differentiation of inputs -Exit barriers Brand identity
Impact of inputs on cost or -Industry concentration Price sensitivity
differentiation -Fixed costs/Value added Threat of backward integration
Switching costs of firms in the -Industry growth Product differentiation
industry -Intermittent overcapacity Buyer concentration vs. industry
Presence of substitute inputs -Product differences Substitutes available
Threat of forward integration -Switching costs Buyers' incentives
Cost relative to total purchases in -Brand identity
industry -Diversity of rivals
-Corporate stakes
Threat of
substitutes
-Switching costs
-Buyer inclination to
substitute.
-Price-performance
trade-off of substitutes

7. Where the 5 Forces Model
Fits In Marketing Planning ?
 Analysis of the industry, market or market
segment using the 5 forces model should
form a major part of the current situation
analysis.
 Help the business to identify its comparative
competitive strength and weaknesses and
help it identify or evaluate opportunities and
threats.

8. Cont’
 Analysis of the new market using this
model will help evaluate the comparative
attractiveness of the new market and
identify key issue associated with
entrance.

9. What makes an industry/
market attractive?
 Some of the factors that will determine how a
business rates a particular industry, market
or market segment include:
 How profitable is it likely to be in both the
short t and long term?
 How well do the industry factor match the businesses’
characteristics and resources, for instance size,
financial requirement, technical requirement,
geographic scope and so on?

10.  How easy will be for the businesses to capture
and keep a significant and sufficient loyal
customer base?
 Is the business more or less dominant than its
direct competitor?
 Therefore, analysis of any industry, market
or market segment with a view to assessing
current and ongoing attractiveness, need to
be tailored to the specific objective and
characteristic of the business

11. I. Rivalry
 The intensity of rivalry among firms varies
across industries, and strategic analysts are
interested in these differences.
 Economists measure rivalry by indicators of
industry concentration - Concentration Ratio
(CR)
 A high concentration ratio indicates that a
high concentration of market share is held by
the largest firms - the industry is concentrated

12.  A low concentration ratio indicates that
the industry is characterized by many
rivals, none of which has a significant
market share.
 If rivalry among firms in an industry is
low, the industry is considered to be
disciplined.

13.  When a rival acts in a way that elicits a
counter-response by other firms, rivalry
intensifies.
 The intensity of rivalry - being cutthroat,
intense, moderate, or weak, based on
the firms' aggressiveness in attempting
to gain an advantage.

14. In pursuing an advantage over its rivals, a firm can
choose from several competitive moves:
 Changing prices - raising or lowering prices to gain a
temporary advantage.
 Improving product differentiation - improving features,
implementing innovations in the manufacturing process
and in the product itself.
 Creatively using channels of distribution - using vertical
integration or using a distribution channel that is novel to
the industry. For example, with high-end jewelry stores
reluctant to carry its watches, Timex moved into
drugstores and other non-traditional outlets and cornered
the low to mid-price watch market.
 Exploiting relationships with suppliers - for example, from
the 1950's to the 1970's Sears, Roebuck and Co.
dominated the retail household appliance market. Sears
set high quality standards and required suppliers to meet
its demands for product specifications and price.

15. The intensity of rivalry is
influenced by the following
industry characteristics:
 A larger number of firms
• increase rivalry because more firms must
compete for the same customers and
resources.
 Slow market growth
• causes firms to fight for market share.
 High fixed costs
• result in an economy of scale effect that
increases rivalry.

16.  High storage costs or highly perishable
products
• cause a producer to sell goods as soon as possible.
 Low switching costs
• increases rivalry. When a customer can freely switch from
one product to another there is a greater struggle to
capture customers.
 Low levels of product differentiation
• associated with higher levels of rivalry.
 Strategic stakes are high
• when a firm is losing market position or has potential for
great gains.

17.  High exit barriers
• place a high cost on abandoning the product.
 A diversity of rivals
• with different cultures, histories, and
philosophies make an industry unstable.
 Industry Shakeout.
• A growing market and the potential for high
profits induces new firms to enter a market and
incumbent firms to increase production.

18. II. Threat Of Substitutes
 Substitute products refer to products in
other industries
 Exists when a product's demand is affected
by the price change of a substitute product
 A close substitute product constrains the
ability of firms in an industry to raise prices.
 The competition engendered by a Threat of
Substitute comes from products outside the
industry.

19.  The price of aluminum beverage cans is
constrained by the price of glass bottles,
steel cans, and plastic containers.
 These containers are substitutes, yet
they are not rivals in the aluminum can
industry.

20. III. Buyer Power
 The power of buyers is the impact that
customers have on a producing industry
 When buyer power is strong, the
relationship to the producing industry is
near to what an economist terms a
monopsony - a market in which there are
many suppliers and one buyer.
 Under such market conditions, the buyer
sets the price
 In reality few pure monopsonies exist, but
frequently there is some asymmetry
between a producing industry and buyers.

21. Factors that determines the
buyer power

22. IV. Supplier Power
 A producing industry requires raw materials -
labor, components, and other supplies.
 This requirement leads to buyer-supplier
relationships between the industry and the firms
that provide it the raw materials used to create
products.
 Suppliers, if powerful, can exert an influence on
the producing industry, such as selling raw
materials at a high price to capture some of the
industry's profits.

23. Factors that determine supplier
power

24. V. Barriers to Entry / Threat of
Entry
 It is not only incumbent rivals that pose a
threat to firms in an industry; the possibility
that new firms may enter the industry also
affects competition.
 In theory, any firm should be able to enter
and exit a market, and if free entry and exit
exists, then profits always should be
nominal.
 In reality, however, industries possess
characteristics that protect the high profit
levels of firms in the market and inhibit
additional rivals from entering the market.

25. Barriers to entry

26. ABC cheese case question
 Using porter’s five forces model,
analyze and compare the cheese
industry or the segments that the ABC
cheese factory targets for the ABC
cheese factory both before and after
the strategic alliances were entered
into.

27. ABC cheese factory before
the strategic alliances
 ABC Cheese Factory established in 1891
 The first cheese co-op in NSW
 It starts with small business in manufacturing cheese as the
core business in Tilba.
 It employs four people as a quaint tourist attraction.
 Even though peter storey is a pretty good business, but could
never have achieved all on his own.
 Although peter had been running it for 4 years, the factory just a
source of employment for a few residents of this little country
town.
 Peter rented a disused factory to expand a little bit of his
business.
 As he developed the business, he came to understand that
cheese was an upcoming product, attractive not only to tourists
but also to wider market nationally.
 Peter forged his alliances with various distributors who
eventually gave him first class advice, leading to big win for
both parties.

28. ABC cheese after the
strategic alliances
 How does a small country-based business forge such an alliance?
 It wasn’t through any personal contacts, introduction or short cut.
 But, he simply knocked on the front door, by ringing up the supermarket
as and asking them who they would recommend as the best
distributors.
 Peter then rang those distributors, travelled to their premises and
interviewed them.
 One of ABC cheese factory alliance is Menora Gourmet Products,
because of this alliance a lot of advice, expertise and ideas exchange
between them for example change in portion size either big and small,
product differentiation through different wax colours and labels and
develop a vintage cheese.
 ABC cheese won Woolworths listing because of its distributor.
Woolworths wanted ABC to continue stock Tilba cheese but the
problem is they wanted it to be presented in vacuum packed portions of
random weight.

29.  Peter Storey originally never intended to supply at
supermarket but because of Woolworth request and
demand, a huge market opportunity are ready to be
tapped.
 He bought a vacuum packing machine, learned how to
use it and taught his staff and began to look at his market
as being potentially much bigger than just the tourists who
stopped to look at this quaint little town.
 There are now 18-20 people on the ABC factory payroll,
more than half a part – time all casual. The factory has the
equivalent of 10 full-time workers.
 Since 1987, annual growth has been 30-50 percent which
it’s very hard to control.

30.  Although the output was 160 tons in 1997 ABC Cheese
Factory is still a small business compared to the main
player.
 Through strategic alliances (business collaboration);
 they maximizing their internal cost efficiency with others
expertise such as Menora Goumet product and Woolworths.
 Improving overall operation efficiency to reduce operational
complexity and cost of shifting the sales and delivery effort to
distributer and world worth.
 Outsourcing the non essential activities such as marketing,
sales and promotion effort to distributor and supermarket.
 Offering better value for money due to their differentiation
strategy in compliment with appealing sales strategy,
distribution as well as marketing.

31. Conclusion
 From the Porter’s Five Forces Model,
the supplier power may be reduce by
forming strategic alliance to create
buying groups.
 Buyer power also can be reduce by
forming strategic group alliances to
create economic of scale in marketing
and selling cross.