Final Presentation -Poters Five Forces

8/8/2019 Final Presentation -Poters Five Forces

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Poter s Five Force Analysis:

Virendra Shekhawat- 15

Sandra Fernandes - 12Vaijant Narvekar - 29Nandita Sheth 44

Priya Save - 09Prerna Bhatt - 07


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Porters Five Forces


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Porters Five Forces

Porter s five forces model is a powerful toolfor systematically diagnosing the competitivepressures in a market and assessing howstrong and important each one is.

It is the most widely used technique of competition analysis.


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Th e Power of Suppliers

W hether the suppliers to an industry are a weak or strong competitive

force depends on market conditions in the suppliers industry and thesignificance of the item they supply.

A producing industry requires raw materials - labor, components, andother supplies. This requirement leads to buyer-supplier relationshipsbetween the industry and the firms that provide it the raw materials used

to create products. Suppliers, if powerful, can exert an influence on theproducing industry, such as selling raw materials at a high price to capturesome of the industry's profits.


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Th e Power of Suppliers

Suppliers are W eak if : (Examples)

Many competitive suppliers - product is standardized Tire industry

relationship to automobile manufacturersPurchase commodity products Grocery store brand label productsC redible backward integration threat by purchasers Timber producersrelationship to paper companiesConcentrated purchasers Garment industry relationship to majordepartment storesCustomers W eak Travel agents' relationship to airlines


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Buyers are a strong competitive force when they are able toexercise bargaining leverage over price, quality,service or otherterms of sale.

The power of buyers is the impact that customers have on aproducing industry. In general, when buyer power is strong, therelationship to the producing industry is near to what aneconomist terms a monopsony - a market in which there aremany suppliers and one buyer. Under such market conditions,the buyer sets the price.

Th e Power of Buyers


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Even if buyers do not purchase in large quantities, they may still havesome degree of bargaining leverage in the following circumstances :

If buyers costs of switching to competing brands or substitutes arerelatively low.

If the number of buyers is small

If buyers are well informed about seller s products , prices and costs.

If buyers pose a credible threat of backward integrating into the businessof sellers.


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Buyers are Powerful if: (Example)

Buyers are concentrated - there are a few buyers with significantmarket share DOD purchases from defense contractors.Buyers purchase a significant proportion of output - distribution of purchases or if the product is standardized C ircuit C ity and Searslarge retail market provides power over appliance manufacturers

Buyers possess a credible backward integration threat - can threatento buy producing firm or rival Large auto manufacturers' purchases of tires.


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Buyers are W eak if: (Example)

Producers threaten forward integration - producer can take over owndistribution/retailing Movie-producing companies have integratedforward to acquire theaters.Significant buyer switching costs - products not standardized and buyercannot easily switch to another product IBM's 360 system strategy in the

1960's.Buyers are fragmented (many, different) - no buyer has any particularinfluence on product or price Most consumer productsProducers supply critical portions of buyers' input - distribution of purchases Intel's relationship with P C manufacturers


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There are several types of entry barriers :

Economies of scale.

Inability to gain access to technology and specialized know-how.

The existence of learning and experience curve effects.

Brand preferences and customer loyalty.

Resource requirements.

Th reat of New Entrants


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Cost disadvantages independent of size.

Access to distribution channels.

Regulatory policies.

Tariffs and international trade restrictions.

Th reat of New Entrants


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Threat of Substitutes

F irms in one industry are in closecompetition with firms in another industrybecause their products are goodsubstitutes.


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Threat of Substitutes

Your product doesn t offer any real benefit compared to otherproducts.

It is easy for customers to switch.

Customers have little loyalty.


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R ivalry Among Competitors

C ompetitive jockeying among rivals heats

up when one or more competitors seesan opportunity to better meet customerneeds or is under pressure to improveperformance.


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The intensity of rivalry between competitors in an industry will depend on:

The structure of competition

The structure of industry costs

Degree of differentiation

Switching costs

Strategic objectives

Exit barriers


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Factors influencing the tempo of rivalry among competitors are :

Rivalry intensifies as the number of competitors increases and ascompetitors become more equal in size and capability.

Rivalry is usually stronger when demand for the product is growing slowly.

Rivalry is more intense when industry condition tempt competitors to useprice cuts or other competitive weapons to boost unit volume.

Rivalry is stronger when customer s costs to switch brands are low.

Rivalry is stronger when Competitors is dissatisfied with its marketposition & launches moves to bolster its standing at the expense of rivals.


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Th reat of Substitutes


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Th reat of substitutes

In Porter's model, substitute products refer to products in otherindustries. To the economist, a threat of substitutes exists when aproduct's demand is affected by the price change of a substitute product.

A product's price elasticity is affected by substitute products - as moresubstitutes become available, the demand becomes more elastic sincecustomers have more alternatives.

A close substitute product constrains the ability of firms in an industry to

raise prices.


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The threat of substitute for N ano car is that of electric car, the new entrantin the small car sector is the Morbi-based world famous clock- makerAjanta group.

The company is planning to manufacture an electric car at its unit at Kutchdistrict and market it at a price lower than Rs 1- lakh N ano. The companyis already manufacturing electric scooters and bikes under Oreva' brand.

Production of electric car is not difficult for them as the technology is

almost similar and 70 per cent of its parts can be produced in-house,giving them an edge over the vehicle's pricing. The Ajanta group is seriousin its attempt to keep the basic price of the proposed car as low as Rs85,000.


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So there is a high threat of substitutes for N ano as electric cars trying tokeep prices lower, less cost of running as a product differentiation

Price band - The threat that consumer will switch to a substitute product if there has been an increase in price of the product or there has been adecrease in price of the substitute product. If the price of the N AN O carwill increase the main expected customers the one switching from bike tocar will not move to car and will remain in the bike only. Thus the price iskept checked in this manner



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Bargaining Power Of Suppliers


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Bargaining Power of Suppliers

To estimate the bargaining power of Suppliers we need to analyse Howdependant on your business is your supplier, or are you dependant on yoursupplier? How much power does your suppliers have? Can they raise pricesor reduce service without the fear of losing your business?

The more powerful the suppliers to an industry, the less profitable theindustry tends to be.

Fewer suppliers that you have to choose from the less power you have tonegotiate. Other factors such as the cost to switch suppliers also plays a partin determine who has the power.


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N umber and Size of Suppliers

A company to manufacture its products requires raw material, labor etc. If there are few suppliers providing material essential to make a product then

suppliers can squeeze industry profitability to great extend.

In case of N AN O the suppliers are limited and the size of the suppliers are bigenough to bring about the controlling power in the puce of the car. The N AN Ocar has more than 128 suppliers in all and the major portion of the buildingcost of the car is the parts supplied by the suppliers.



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Ability to Substitute:

Suppliers products have high switching cost. In many case even whensubstitute are available its not that easy to opt for substitute as the next

product in the assembly line depends upon it. If the change in the any partis brought about the long list of depended parts also have tochanged,which in most cases is not feasible to do.

In case of Tata N ano some of it s spare parts like 12-inch wheels which

need three lug nuts, single windshield wiper, instrument panel with justthe speedometer, odometer and fuel gauge etc . were so unique that theywere never before used or manufatured for automobile industry.



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Barriers To Entry


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BARRI E R S TO EN T RY

Time and Cost of Entry:Time is most essential thing while launching a product in any market.

As the demand for small car was high in the market, the launch of NANOwas quite feasible.Start-up costs (Initial Capital) to set up a new firm is very high, as more

commitment is needed in advertising, R&D and capital asset, hencechances of new entrants (new businesses) are low for entering theindustry.

Knowledge and Technology:Processes when protected by regulations or patent, prevents others fromusing it and thus creates barrier to entry.TATA motors have great knowledge/ experience in the automobileindustry and have prominent technological advantage because of therecent acquisition and mergers.

1) http://www.ces.purdue.edu/new 2) http://emerging-entrepreneurs.blogspot.com


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BARRI E R S TO EN T RY

Product Differentiation and Cost Advantage:

The product provided has to be unique in terms of features, priceetc. It has to be different and attractive so as to be accepted by thecustomers.

The price of the NANO car was one thing that has attracted thecustomers.

Customers have strong brand loyalty, hence along with the price,the image, trust the name TATA carries with it.



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BARRIERS TO ENTRYG overnment Policy and Expected Retaliation:

G overnment restricts competition through regulations andrestrictions.Entry by new firms is difficult when established firms havefavourable access to raw materials, locations, or government

subsidies.Government tried to promote TATA Motors to start a plant byproviding land and tax rebates.

B ut the unexpected retaliation by the local people surface in thesetting up of the plant which costed the company a lot.

Access to Distribution Channels:When a new product is launched a well developed distribution ismust for its success.TATA motors had an advantage of well established distributionchannel across the world.



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Mergers & Acqui s ition s of TATA MOTORS.

Source: http://www.tata.com/htm/ G roup_MnA_CompanyWise.htm


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Bargaining Power Of Buyers


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H ow Much Power Do Your BuyersH ave Over You?

N umber of customers / Volume of sales:-If there are few buyers then they are able to dictate the terms. They pull

down the cost by Bargaining. The bargaining power of buyer is high as thereare lot of choice available to the buyer and the service do not vary from onemanufacturer to the other. They force the manufactures to improve thequality.In case of N ANO car the price tag at which it has been offered or the qualityof the N ANO car no compromises has been done at any front.

Switching Costs:-If switching to another product is simple and cheap the customers does notthink much before doing it.In case of N ANO car the switching cost from bike to Car is too high. Thusincreasing the demand of the car many fold.

Brand Image / Identity:-The brand image of the TATA and the segment in which the N AN O has beenthe most attractive thing in the entire package.


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H ow Much Power Do Your BuyersH ave Over You?

Buying Volumes:-If the buying volumes are high the buyers have control over product.In case of N ANO car or any car industry the buyer will not buy inVolumes.

D ifferentiation:-If the product differentiation is less buyers have a power to purchase the productof his choice based on the price & quality.In case of N ANO car the major differentiation is the Price.

Price Elasticity:-If the Price of a product is elastic the Buyers have the Bargaining Power.In case of N AN A car the price is elastic, as if the price increases the demand willdecrease.


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C ompetitive Rivalry


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R eferences

1) Strategy Management by A. Thompson.2) Tata Motors website.

Documents

Final Presentation -Poters Five Forces