Porters 5 Forces And Mapping

What you will learn in this Section ? Envisioning Strategy Definition Framework Visual Models External Analysis PEST PEST Impact Analysis Industry and Competitive Analysis Industry Structure Evolution of Industries Industry Supply Chain Potential Industry Earnings Porter’s 5 Forces Analysis Competitive Intensity Strategies for minimizing competitive forces Perceptual Map Barriers to Entry/Incumbency advantages DSIR effect Company Resources and Capabilities ARC Analysis/HR SWOT Analysis Value Creating Processes/Core Competencies Strategic Gameboard Balanced Scorecard Change Management © Sunil Mehrotra

Industry Analysis Why are some industries more profitable than others? Fortune's ranking of Industries by profits

Industry Analysis: Porter's Insight © Sunil Mehrotra The incumbent firms Substitutes Porter’s insight recognizes that the following characteristics are important to profitability of the incumbent: The intensity of competition The ability of suppliers or buyers of industry products to restrain industry profits The behavior of firms producing closely related goods not included in the industry Potential for entry into the market by new firms Suppliers Customers New entrant

Porter's 5 Forces impact on profitability The incumbent firms Competitive rivalry Suppliers Bargaining power of Suppliers Customers Bargaining power of New entrant Threat of New Entrants Substitutes Threat from Substitutes

Root causes that put pressure on industry profitability Few large suppliers No substitutes Customers are fragmented Switching costs to another supplier are high Supplier integrating forward Economies of scale Downstream more profitable Low barriers to entry downstream Concentration of buyers Incumbents are fragmented Product is undifferentiated Switching to another supplier is simple Product is not strategic to the customer Customers can produce the product themselves Customer knows the production costs Customers can integrate back-words Better prices Better performance Similar functionality Many small players High cost to exit Undifferentiated products compete on price Low brand loyalty Low switching costs Slow/no growth market www.themanager.org © Sunil Mehrotra Low barriers to entry The incumbent firms Competitive rivalry Suppliers Bargaining power of Suppliers Substitutes Threat from Substitutes Customers Bargaining power of New entrant Threat of New Entrants

Impact on Profitability Competitive Intensity Bargaining power of Suppliers Bargaining power of Customers Threat of New Entrants Threat from Substitutes High Low Moderate Profits © Sunil Mehrotra Threat/Power Discount Stores Tobacco Industry

Porter's 5 Forces impact on profitability Suppliers Bargaining power of Suppliers Customers Bargaining power of New entrant Threat of New Entrants Substitutes Threat from Substitutes The incumbent firms Competitive rivalry

Competitive Intensity impacts Industry profitability Monopoly Single Firm Dominant Firm Few large firms More small firms Pricing leadership Protected Niches Oligopoly Few Firms Strategic Interdependence Profitability determined by behavior Niche Market Product Differentiation Localized competition Perfect Competition Many firms No product differentiation Price based competition High Low Industry Profitability © Sunil Mehrotra Adapted from: Saloner, Shepard, & Podolny: Strategic Management , Wiley and Sons, 2001 Utilities Computer OS Automobiles Commercial Aircrafts Clothing Stores Gas Stations Commodities 1000-1800 http://www.usdoj.gov/atr/public/testimony/hhi.htm HHI

Strategies for minimizing the power of competitive forces Threat of New Entrants Adapted from : www.themanager.org Reducing competitive rivalry within Differentiate your product Avoid price competition Reduce industry over capacity Focus on different customer segments New entrant Suppliers Bargaining power of Suppliers The incumbent firms Competitive rivalry Substitutes Threat from Substitutes Customers Bargaining power of

Product Differentiation minimizes competitive intensity Perceptual Maps are a visual display (usually on two dimensions) of how brands are perceived by customers. The closer the brands are positioned in this space the more competitive they are to each other. Perceptual Maps identify “open spaces” or unmet customer needs. Perceptual Maps identify salient attributes of the products on which consumers differentiate brands. Adapted from : http://en.wikipedia.org/wiki/Perceptual_mapping

Perceptual Map for Travel Agency Industry Online self-service In person, concierge service Extreme Adventure Guided tours

Perceptual Map of the Auto Industry Prestige Basic Sporty Conservative

Perceptual Map Example: Contemporary Classic Expensive Discount Zara Nina Tooley, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Perceptual Map Example: Contemporary Classic Mature Young Zara Nina Tooley, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Perceptual Map of the Beer Market Premium Adapted from : Prof. Ganesh Iyer, UC Berkeley Popular with Men Heavy Special Occasions Dining Out Popular with Women Light Pale Color On a Budget Good Value Blue Collar Full Bodied Premium Budget Light Heavy Meister Brau Stroh’s Beck’s Heineken Old Milwaukee Miller Coors Michelob Miller Lite Coors Light Old Milwaukee Light Budweiser Less Filling

Perceptual Map of 2000 Presidential Candidates Colin Powell John McCain George W. Bush Alan Keyes Pat Buchanan Steve Forbes Donald Trump Elizabeth Dole Jesse Jackson Bill Bradley Al Gore Leader Opportunistic Religious Conservative Source: 12Americans.com, 2000 www.populus.com Traditional Liberal Republican Democrat Independent

Porter’s 5 Forces Differentiation as a strategy Competitive Intensity Bargaining power of Suppliers Bargaining power of Customers Threat of New Entrants Threat from Substitutes Differentiation Brand loyalty to keep customers from switching Better able to pass on supplier price increases to customers Fewer alternatives available to switch to Customer loyalty can deter new entrants Customers less willing to accept substitutes www.studymarketing.org Example:

Differentiation is occupying a unique space in the customer's mind

Strategies for minimizing the power of competitive forces Threat of New Entrants Adapted from : www.themanager.org Reducing the threat of New Entrants Increasing minimum efficient scales of operations Creating brand image/loyalty Protection of intellectual property Alliances with linked products/services Tie up with suppliers Tie up with distributors Retaliation tactics Cut out intermediaries Reducing threat of substitutes Increase switching costs Form alliances Enter substitute market Accentuate differences Reducing competitive rivalry within Differentiate your product Avoid price competition Reduce industry over capacity Focus on different customer segments Reducing the Bargaining Power of Suppliers Partnering Supply Chain Management Increase mutual dependency Build knowledge of supplier costs/methods Take-over supplier Reducing the Bargaining Power of Customers Partnering Increase loyalty Increase incentives and value added Increase switching costs Cut out intermediaries New entrant Suppliers Bargaining power of Suppliers The incumbent firms Competitive rivalry Substitutes Threat from Substitutes Customers Bargaining power of

Nappies 14-16? Porter's 5 forces insight -I ntensity of competition amongst incumbents -Bargaining power of suppliers and buyers - Threat from substitutes and new entrants Spectrum of competition-monopoly to perfect competition -Herfindahl-Hirschman index measure of intensity -strategies for minimizing intensity of competition Product and brand differentiation is a key strategy -Perceptual mapping technique -Using perceptual maps for positioning products and brands

Mnemonic 7 Adapted from : http://en.wikipedia.org/wiki/Perceptual_mapping

Porters 5 Forces And Mapping

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Porters 5 Forces And Mapping