Competitive Forces

 Michael Porter’s Five forces model of Competition

Why ?

Industry structure as a critical component to determine industry attractiveness

Industry attractiveness is embodied in the collective strength of five forces that

determines ability of firms to bring above average RoI.

FFF standard tool for industry analysis

Helps understands foundations of competition and root causes of profitability

Attractiveness is relative

For eg :IT industry , Aircraft industry

Threat of new entrants (Barrier to entry)
Impacts level of concentration, economies of scale and product
differentiation. High entry barrier is an indication of strategic strength of
existing players. Provides cushion on prices and increase investments
required
Tangible Barriers:
Financial resources
Level of consolidation & concentration
Regulations
Patents & Trademarks
Intangible barriers:
Reputation
Customer Loyalty
Learning & Experience
Access to inputs & managerial skills
Threat is weaker when:

 Pool of entries is small

 Entry barriers are high
 Existing players are struggling to earn healthy profits
 Industry is risky and uncertain
 Slow or stagnating buyer demand
 Industry players have the capacity to contest
strongly
Threat of substitutes

Substitutes are products that have the potential to improve the price
performance trade off over existing products, and limit industry’s
profitability

PLC play due to innovativeness & technological ageing is the prime

factor

Higher the switching costs , lesser the threat

Higher the product differentiations lesser the threat

Stronger when

 Good substitutes are readily available

 Attractively priced
 Have comparable better performance
 End users grow more comfortable using substitutes
Buyer’s Bargaining power
Use power to influence prices that firms may charge

 Stronger when:
 Switching costs are low
 Lower cost substitutes availability
 Need large quantities
 Price ,quality, identity not so critical
 Few buyers
 Identity adds prestige to seller
 Information available
 Buyers can integrate backwards ( Walmart selling their own
brands)
 Buyers can form pressure groups
 Firms can improves its strategic position through

 “Buyer selection” –finding buyer groups who posses least

power to affect adversely, less price sensitive
 Partnering
 Efficiencies resulting in lowest costs
 Reliance brought down employee costs to 4 % of revenues
when competitors live with 15-20 % . Its S&D costs are 3 % that
are 1/3rd the global standards . Resulting in an enviable market
position where bargaining power of buyers and stakeholders
have weakened
Supplier bargaining power
 Stronger when:
 Supplier is strong & powerful ( Microsoft)
 Has differentiated product or input that enhances quality
etc ( Jet Airways pilots)
 Dominated by few suppliers
 Forward integration by suppliers( Hero group )
 Industry is not an important customer
 Buying industry has lower barriers to entry
 Firms can improve its strategic position by

 Building knowledge of supplier costs & methods

 Creating new relationships of partnering – collaborative,
strategic alliances

Apple dropped its long term partner IBM to enter into

strategic partnership with Intel
Rival Sellers
Strongest of the 5 forces

Ever changing competitive jockeying among industry rivals as they initiate fresh
offensive & defensive moves and emphasize first one move and then another
in efforts to improve market position

Some firms compete directly other do not .

- Similar specific area- same product, same technology & target market
- Similar general product but compete in different segment ( Timex)

Compete for same discretionary spend.

Not being able to identify competition correctly has serious implications for the
firm
Intense Rivalry is increased when

 Competitors are large in number and of comparable sizes;

 industry growth is low; buyer demand falls
 Product or service has low switching costs;
 fixed costs are high; or
 product is perishable
 competing sellers are active in launching fresh actions to boost
market standing & business performance
 Increases as rivals become more standardized
Strategic Group maps
 Reveals which companies are close competitors and
which are not
LbD

 Air Express industry has turned out to be one of the world’s highest growth
sectors. Originating from cargo services, this segment has transformed by
increasing globalisation into a necessary support function for every
business.
 Guaranteed, on demand, worldwide, integrated, door-to-door movement of
parcels
 Two segments : Domestic & International
 Although domestic air traffic cargo is growing significantly, international air
cargo is expected to grow even faster

 How does the Five forces look like in the Air Express Industry
Business Model Canvas
 A business model describes the rationale of how an
organisation creates, delivers and captures value.
 A blueprint for strategy implementation through Org
structures, processes and systems
 9 building blocks that cover four main areas of
business :
 Customers
 Offer
 Infrastructure and
 Financial viability
1. Customer Segments
 Needs require and justify distinct offers, reached
through different channels. Require different types of
relationships, have substantially different profitability
and are willing to pay for different aspects of offer.
 Types
 Mass Market
 Niche Market
 Segmented
 Diversified
 Multi sided
2. Value Propositions
 Aggregation of benefits that company offers its
customers through distinct mix of elements catering
to their needs.

Newness Performance Customisation

Get the job done Design Brand/ Status
Price Cost reduction Risk Reduction
Accessibility Convenience
3. Channels
 How company reaches and communicates with its segment to
deliver value.
 Customer touch points and interface
 Channel types: Partner Vs Owned ( Direct Vs Indirect)
 Phases:
 Awareness
 Evaluation
 Purchase
 Delivery
 After sales
4. Customer Relationships
 The types of relationship company establishes with customer
segments
 Range from Personal to automated driven by motivations towards
acquisition, retention, and upselling
 Personal
 Dedicated Personal assistance
 Self service
 Automated services
 Communities
 Co-creation
5. Revenue Streams
 For what value customers are really willing to pay ?
 One time or ongoing each revenue stream will have separate pricing
mechanism
 Fixed Menu Price
 List price
 Feature dependent
 Customer segment dependent
 Volume dependent
 Dynamic Pricing
 Negotiation
 Yield Mgt /Real time
6. Key Resources
 Important assets required to make the model work
 Physical
 Intellectual
 Human
 Financial
7. Key Activities
 Important things company must do to make its model
work.
 Production
 Problem solving
 Platform /Network
8. Key Partnerships
 Network of Suppliers and partners that company
requires to optimize resources or reduce risk and
uncertainty.
 Strategic alliances between non competitors
 Partnerships between competition
 Joint ventures
 Buyer seller relationships
9. Cost structure
 Costs incurred for creating, delivering value,
maintaining relationships and generating revenues
 Two broad classes
 Cost driven
 Value driven
Business Model Environment: Context,
drivers and constraints
Business models are designed and executed in
specific environments
8. Key Partners 7. Key Activites 2. Value Proposition 4. Customer relationships 1. Customer segments

6. Key Resources 3. Channels

9. Cost structure 5. Revenue Streams

 Technology trends Regulatory trends

Societal & Key

cultural trends trends Socioeconomic trends

8. Key 7. Key 2. Value 4. 1.

Suppliers value chain Partners Activities Propositi Custome Custome
Market segments
actors on r r Needs & demands
Stakeholders relations segment
hips s
Industry 6. Key
Resource
3.
Channels
Market
forces s forces
9. Cost structure 5. Revenue Streams

Competitors Market issues , Switching

New entrants costs Revenue
Substitute s attractiveness

Global Market
conditions Capital markets
Macro
Eco
forces
Commodities &
resources Eco infrastructure
Market issues Crucial issues affecting customer
landscape , Shifts underway, Where
is the Mkt heading?
Market segments Most imp customer segments,
biggest growth potential, Declining
segments, peripheral segments that
require attention
Needs & demands Customers needs, where is the
demand increasing/ declining
Switching costs What binds customers to offer/
company, what switching costs
prevent customers from defecting to
competitors?, Is it easy to find
similar offers?, How important is
brand ?
Revenue What are customers really willing to
attractiveness pay?, where can largest margins be
achieved ? Can they easily find and
purchase cheaper products ?
Skyrocketing healthcare costs,
Emphasis shifting from
treatment to prevention,
Converging of treatment,
diagnostics, devices & support
services, emerging markets
becoming more important
Doctors, healthcare providers,
Govt regulators, distributors,
patients, strong potential in
emerging markets
Need to manage exploding
costs of healthcare, large
unsatisfied needs in emerging Market
mkts and developing countries,
better informed customers forces
Monopoly on patent protected
drug, growing amount of online
information available,
High margins on patent procted
drug, low margins on generic
drugs, Healthcare providers/
Govt enjoy influence over price,
Patients continue to have low
influence over price
 8. Key Partners 7. Key Activities 2. Value Proposition 4. Customer 1. Customer
What key new relationships segments

activities we need to How can our

What would greater
develop in the light value proposition
focus on emerging
of ongoing shift address the issue mkts and
from treatment to of exploding developing
cure?
health costs ? countries mean for
the other building
6. Key Resources 3. Channels blocks
What does
convergence of
treatment,
daignostics, devices,
support services
mean in terms of
resources required ?
9. Cost structure 5. Revenue Streams

How can we maintain earnings while addressing rising healthcare

costs ? What new revenue opportunities come our way due to
convergence of other activities ?
 Competitors Who ? Dominant players, Competitive
(incumbents) advantages or disadvantages, main
offers, Customer segments they focus,
Cost structures, influence they exert
on our segments, Revenue streams &
margins
New Entrants ( Who ? How are they different, ,
insurgents) Competitive advantages or
disadvantages, What barriers must
they overcome, Value propositions,,
Customer segments they focus, Cost
structures, influence they exert on our
segments, Revenue streams &
margins
Industry Substitute products & Which products / services can replace
forces services ours, Cost comparison, Ease to switch
Suppliers value chain Key players in industry value chain, to
actors what extent does your business model
depend on others, Are peripheral
players emerging, Which are most
profitable
Stakeholders Which stakeholder might influence
your business model, How influential
are shareholders ? Workers?, Govt?,
Lobbyists?
Large and medium players, many
struggling to empty product
pipelines & low R&D productivity,
Consolidation through mergers &
aquisition
Little disruption over last decade,
Main entrants are generic drug
companies from India
Prevention represents substitution
for treatment, patent expired
drugs being replaced by low cost
generic drugs
Research contractors, specialty
drug developers, Insurance
companies, doctors, healthcare
providers, Labs
Focus on short term fiscal results,
Govt has strong hold, Lobbyists,
social organisations, Scientists
 Key
trends
Technology Major trends inside & outside mkt,
Tech representing important
opportunities or disruptive threats,
emerging tech that peripheral
customers are adopting
Regulatory Trends that influence your mkt,
What rules may affect business
model? Which regulations/ taxes
affect demand ?
Societal & Cultural Key societal trends, which shifts
affects your business or influences
your buyer behaviour
Socio-economic Key demographictrends, income &
wealth distribution in mkt, Spending
patterns, urban/ rural
Major advances in diagnostics,
pervasive computing, use of
nano tech,
Heterogeneous global
regulatory landscape, pressure
to publish data on trials,
Growing social consciousness
on “green”, unfavourable image
of major drug makers,
Ageing society in mature mkts,
good but costly healthcare
infrastructure, growing
middleclass in emerging mkts,
Global Market IS the economy in boom or bust phase, Global recession, Negative GDp in
conditions Gen mkt sentiment, GDP growth, Europe, Japan US,
unemployment rate

Capital markets State of capital Mkt, Ease of obtaining Tight capital mkt, Limited risk
funds, Availability of seed /venture capital, restricted credit availability
capital, public funding, credit , Cost of
capital – how costly

Commodities & Current status of commodities required Fluctuating Oil prices, demand for
resources for your business ( oil, labour etc) ease of prime talent,
obtaining resources( talent) Where are
the prices headed

Eco infrastructure How good is public infrastructure & Region specific

services, transport, trade, school, access
to suppliers & customers ? Tax structure
–individual & corporate, Quality of life

Macro
Eco
forces