2. FIG: PORTERS FIVE FORCE MODEL
THE INDUSTRY
JOCKEYING FOR
POSITION AMONG
CURRENT
COMPETITORS
THREAT OF
NEW
ENTRANTS
BARGAINING
POWER OF
CUSTOMERS
THREAT OF
SUBSTITUTE
PRODUCT OR
SERVICES
BARGAINING
POWER OF
SUPPLIERS
3. THREAT OF NEW ENTRANTS
• ECONOMIES OF SCALE
• PRODUCT DIFFERENTIATION
• CAPITAL REQUIREMENTS
• COST DISADVANTAGES INDEPENDENT OF SIZE
• ACCESS TO DISTRIBUTION CHANNELS
• GOVERNMENT POLICY
4. POWERFUL SUPPLIERS AND BUYERS
SUPPLIER GROUP IS POWERFUL IF:
• It is more concentrated than the
industry it sells to.
• Uniqueness of product
• Suppliers product’s sale is not
dependent on other products.
• Industry is not important customer
of supplier group.
BUYER GROUP IS POWERFUL IF:
• Purchases in large volumes.
• The product purchased from
industry are standard or
undifferentiated.
• Product purchased form a
component of it’s product and
represent significant fraction of
cost.
• Industry product is unimportant to
quality of buyer’s product or
services.
5. JOCKEYING FOR POSITION
Intense rivalry may be due to no. of factors like:
• Numerous competitors.
• Slow industry growth.
• Product lacks differentiation or switching cost.
• Capacity augmented in large increments.
• Exit barriers are high.
• Fixed costs are high or product is perishable.
• Ageing of an industry.
6. THREAT OF SUBSTITUTE PRODUCTS
• Ceiling on prices.
• Earnings and growth may
hamper.
• Substitute products that deserve
most attention are:
• Subject to trends improving price
performance trade off with industries
products
• Produced by industries earning high
profits.
7. FORMULATION OF STRATEGY
• Building defenses
• Take the structure
of the industry as
given and match the
company’s strengths
and weakness to it
• Devise a
strategy that
takes the
offensive
• Analyze
expected
changes in
the industry
i.e. industry
evolution and
exploit the
benefits
POSITIONING
THE
COMPANY
Influencing
the balance
EXPLOITING
INDUSTRY
CHANGE
8. DR. PEPPER EXAMPLE:
WHAT DR.
PEPPER
CHOSE?
Of avoiding the
largest-selling drink
segment.
Formula involved
low material cost
which led to
absolute cost
advantage
Forgoing the
development of a
captive bottler
network and
marketing
heavily.(through it’s
product uniqueness)
To take advantage
of different flavor of
it’s drink
To offer
extraordinary
service.
