Building Entry Barriers

7/28/2019 Building Entry Barriers

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Building Entry barriers


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Porters Five Forces model


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Five forces analysis helps themarketer to contrast a competitiveenvironment

Five forces looks at five key areasnamely the threat of entry, the powerof buyers, the power of suppliers, the

threat of substitutes, and competitiverivalry


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The threat of entry

Economies of scale e.g. the benefits associated withbulk purchasing.

The high or low cost of entry e.g. how much will it costfor the latest technology?

Ease of access to distribution channels e.g. Do ourcompetitors have the distribution channels sewn up?

Cost advantages not related to the size of the companye.g. personal contacts or knowledge that largercompanies do not own or learning curve effects.

Will competitors retaliate? Government action e.g. will new laws be introduced that

will weaken our competitive position?

How important is differentiation?


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The power of buyers

This is low where there a few, largeplayers in a market.

If there are a large number ofundifferentiated, small players, thenpower of buyers is high.

The cost of switching between brands

is low.


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The power of suppliers

Fewer suppliers.

Where the switching costs are high.

There is a possibility of the supplierintegrating forward.

Location allows supplier to sell to anycompany

Undifferentiated parts

Parent company support


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The threat of substitutes

Where there is product-for-productsubstitution e.g. email for fax

Where there is substitution of need

Where there is generic substitution(competing for the currency in yourpocket).


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Competitive Rivalry(intra industry rivalry)

This is most likely to be high whereentry is likely; there is the threat ofsubstitute products, and suppliers

and buyers in the market attempt tocontrol. This is why it is always seenin the center of the diagram

This will determine the: Market structure

Market conduct

Market performance


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Market structure

Characteristics of the market

No. of players

Demand

Degree of seller and buyer concentration

What influences competition

Entry condition

Product differentiation

Flow of information


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Market conduct

Pattern of behaviour in adapting tomarkets

Methods employed to determineprices

Sales promotion

Predatory or exclusionary tacticsdirected against established rivalsand new entrants


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Market performance

Results

Profitability


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Ideal competitive situation

Entry barriers- High

Suppliers bargaining power- Low

Buyers bargaining power Low Threat of substitutes Low

Intra industry rivalry - Low


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Entry barriers

Entry barriers

Government/ Legal Production based Marketing related

Cost Technology Distribution Service Brand


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Porters five forces model of competitive advantageInputoutput routes to building entry barriers

Entry Barriers

Production related Marketing related

Suppliers Bargaining Buyers Bargaining

Power power

Threat of substitutes

Intra Industrycompetition


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Reduce Suppliers side bargainingpower by increasing production basedentry barriers.

*Cost of prod *Better Technology

Reduce Buyers side bargaining powerby increasing marketing based entry

barriers.

*Distribution *Service *Brand


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Increase Production based entrybarriers by Dependence matrix

Dependence of buyer on supplierDependence of

supplier (inputs) on

buyerLow High

High

Several Suppliers and Fewbuyers

Eg: Jatropa

Interdependence

Eg: Refinery

Low

Multiple buyers and

suppliers

Eg: Steel

Several Buyers/ Specialized

component

Eg: Intel


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Short term: Cost based Strategies

Dependence of buyer on supplierDependence ofsupplier on buyer Low High

High Low Inventory

JITLow Price from SuppliersHigh Credit terms

Assured Supply

Contract

Low High Inventory

Bulk BuyingOrder by Economic order qty

Reduce cost

TQMBackward integration


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Reduce Cost

Improvedrecyclability of thebottle by changingthe sleeve to a label.

This initiativeresulted in: 38% reduction in the

weight of the bottle,and

98,580 kilograms ofreduced packagingmaterial per year


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Long term: Technology based

Dependence of buyer on supplierDependence of

supplier on buyer Low High

High

Expansion

Low

Low grade inputs Process Modification


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Chemical recycling converts post-consumer bottle-grade plastic into resin suitable for food-gradeapplications

The new chemical reprocessingmethod can convert post-consumer PET bottles (center)into a material called a low-molecular-weight oligomer(right), which is suitable forrecycling into bottle-grade PETresin (left).


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Lightweight stretch blow moldedpet copolymer container


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Building Marketing Barriers


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Component Branding


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This leapfrog strategy of marketing to end-user has since worked so well that PCbuyers now ask for Intel. Market research

has indicated that end-users show a strongpreference for computer systems containingIntel microprocessors. Around 70% ofhome PC buyers and 85% of business

buyers state a preference for Intel, sayingthey will pay a premium for the securityand peace-of-mind offered by the brand.

Documents

Building Entry Barriers