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0 Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Industry and Competitive Forces :Porters Five Forces

Name: Sandip. Tambe

Email: sandip.t@inteluxindia.com

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1 Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Citation

Vision without action is

daydream,

Action without vision is

nightmare

- Japanese proverb

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2 Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Need for Business Strategy & Analysis

Dynamic market

Globalization

Competition

Technology

Political and legal impact

Demographical and socio-cultural impact

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3 Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Porters 5 Forces - Introduction

Foundation of competitiveadvantage

Based on understanding ofIndustry structure and

factors influencing it

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Competitive AnalysisPorters 5 Forces

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Porters Five Forces..

1. Bargaining Power of Supplier

Suppliers are likely to be powerful if,

Market dominance by few large suppliers

Unique or at least differentiated product

High switching cost

Ability of forward integration

Low dependency on purchasing Industry

No obligation to contend with other product for sale to industry

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Porters Five Forces..

Impact of Power of Supplier

Price rise or reduced quality

Can squeeze the profitability if cost increase is notcompensated

Potentially reduced strategic options

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Porters Five Forces..

2. Bargaining Power of Customer

Customers are likely to be powerful if,

Market dominance by few large takers/large no. of suppliers

Standard or undifferentiated product

High fixed cost of Supplier

Low switching cost

Low strategic importance of product to customer.

High price sensitivity and low margins

Backward Integration ability / costing information

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Porters Five Forces..

Impact of Power of Customer

Reduction in price

Pressure on margins and volumes

May force for higher quality

Can trigger price war

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Porters Five Forces..

3. Threat of New Entrants

Barriers to entry

Economies of scale

Product differentiation/brand loyalty

Capital Requirement

Government Policy

Cost disadvantage independent of size

Access to distribution channels

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10 Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Porters Five Forces..

4. Threat of Substitutes -

Threat of substitute is determined by

Brand loyalty

Customer Relationship

Relative price performance

Current trend

Switching cost

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11 Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Porters Five Forces..

5. Competitive Rivalry between Existing Players

It is likely to be high when,

Too many players of about same size

Similar players with undifferentiated product and strategy

Low market growth rate

High exit barriers

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12 Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Porters Five Forces..

5. Competitive Rivalry between Existing Players

Impact

Price war

Pressure on margins/profitability

Intense rivalry may leave entire industry worse off

May lead to introduction of new product

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13 Intelux 2010, no part of this document may be circulated, quoted or reproduced without prior written approval of Intelux

Porters Five Forces..

Application -

Statical Analysis

Helps in determining attractiveness of industry andCompetitors Analysis

Dynamical Analysis

Useful in identification of potential future attractiveness ofindustry when used in combination with other tools likePEST analysis.

Analysis of Option

Influencing forces in the interest of organization.

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Influencing Power of Porters Five Forces..

Reducing Power of Supplier Partnering

Supply Chain Management

Increase dependency

Building knowledge baseabout supplier costing

Backward integrating

Reducing Power ofCustomer

Partnering

Supply Chain Management

Increase dependency

Increase incentives andvalue added

Cut short powerful

intermediates

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Influencing Power of Porters Five Forces..

Reducing threat of newentrants

Min. efficient scale ofoperation

Brand imaging

Patents/copyrights

Alliance with supply anddistribution channels

Retaliation tactics

Reducing threat ofsubstitutes

Increase switching cost

Customer survey to learnabout preferences

Alliances

Entry in substitute market

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Influencing Power of Porters Five Forces..

Reducing competitive Rivalry

Avoid price competition

Differentiate your product

Buy out competition Focus on different segments

Establish communicationchannels with competitors

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Porters Five Forces..

Critique-

Model assume relatively stable static structure

Model is based on idea of competition

Model is best applicable to simple market structure

.

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