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INDUSTRY ANALYSIS (CONT.…)
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DEGREE OF ACTUAL AND POTENTIAL
COMPETITION
The profits in a industry are a function of the price
that the customers are willing to pay for the
product and services
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DEGREE OF ACTUAL AND POTENTIAL
COMPETITION (CONT...)
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COMPETITIVE FORCE 1: RIVALRY AMONG
EXISTING FIRM
In most cases average profitability depend
on the rivalry among firms in industry
- Aggressive competition pushes prices close
to or below marginal cost
- Some industries find the way to coordinate
their pricing or compete on non-price
dimensions – Innovation, brand image etc.
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COMPETITIVE FORCE 1: RIVALRY AMONG
EXISTING FIRM
Several factors influence on the intensity of
competition among players
Industry growth – new firm can find a space
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COMPETITIVE FORCE 2: THREAT OF NEW
ENTRANTS
Threat of new entrants potentially constraint
the pricing of the exiting firms
There are several factors influence on this
Economies of sale : When there are large
economies of scale, new entrants face the choice of
having either to invest in a large capacity which
might not be utilized right away, or to enter with less
than the optimum capacity. initially suffer from a
cost disadvantage in competing with existing firms.
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COMPETITIVE FORCE 2: THREAT OF NEW
ENTRANTS
Threat of new entrants potentially constraint
the pricing of the exiting firms and the factors
influence on this (cont.…)
First mover advantage : May set the industry
standards, Exclusive arrangements with suppliers,
Important government licensing for regulated
industries, Advantage of Learning economies,
Switching cost for users – Computer operating
system
Access to channels of distribution and
relationship. Limited capacity in existing channels and high cost of
developing new channels
LEGAL BARRIERS. 12
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COMPETITIVE FORCE 4: BARGAINING
POWER OF THE BUYER
For a product relative bargaining power
depend on:
Number of buyers relative to the number of suppliers
volume of purchases by a single buyer
Number of alternative products available to
the buyer
Threat of backward integration by the buyer
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COMPETITIVE FORCE 5 : BARGAINING
POWER OF SUPPLIER
Analysis of the relative power of supplier is
a mirror image of the buyers power in an
industry.
Ex. Super market – imports through intermediates
Suppliers are powerful when there are only
a few companies and few substitute
available to their customers
Ex. Coke is very powerful relative to bottlers
Suppliers are also have a lot of power over
buyers when the suppliers product or
service is critical to buyers business 16
Priyantha Hearth
B.Sc., MBA, FCA, ACMA
Email: herathpriyantha1@gmail.com
Phone: 077304772