The Industry Environment

The set of factors that directly influences a firm, its competitive actions & competitive responses:
Industry Environment
Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry

Competitor Environment

Prof. Vikram Parekh on Marketing Strategy

Competitor Analysis

Predicting the dynamics of competitor actions, responses and intentions.

Prof. Vikram Parekh on Marketing Strategy

Porters 5 Forces Model of Competition

Threat of New Entrants

Five Forces of Competition

Threat of Substitute Products

The threat of new entrants depends on barriers to entry

Prof. Vikram Parekh on Marketing Strategy

The above image Copyright 2001 Corel & Jerry Sheppard All rights reserved.

Threat of New Entrants

*
Barriers to Entry

Economies of Scale

* Product Differentiation * Capital Requirements * Switching Costs *

*
Access to Distribution Channels
Cost Disadvantages Independent of Scale

* *

Government Policy

Expected Retaliation

Prof. Vikram Parekh on Marketing Strategy

Porters 5 Forces Model of Competition

Threat of New Entrants

Bargaining Power of Suppliers

Five Forces of Competition

Threat of Substitute Products

Bargaining Power of suppliers depends on a number of factors

*

Prof. Vikram Parekh on Marketing Strategy

Bargaining Power of Suppliers

Suppliers are likely to be powerful if:
Supplier industry is dominated by a few firms. * Suppliers products have few substitutes. * Threatening to raise prices or to reduce * Buyer is not an important customer to quality supplier. Powerful suppliers * Suppliers product is an important can squeeze industry input to buyers product. profitability if firms * Suppliers products are differentiated.
Suppliers exert power in the industry by:

are unable to recover cost increases

* *

Suppliers products have high switching costs. Supplier poses credible threat of forward integration.
*

Prof. Vikram Parekh on Marketing Strategy

Porters 5 Forces Model of Competition

Threat of New Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Five Forces of Competition

Threat of Substitute Products

Bargaining Power of buyers depends on a number of factors

*

Prof. Vikram Parekh on Marketing Strategy

Bargaining Power of Buyers

Buyer groups are likely to be powerful if:

*
* * * *

Buyers are concentrated or purchases are large relative to sellers sales Purchase accounts for a significant Buyers compete fraction of suppliers sales with supplying Products are undifferentiated industry by: Buyers face few switching costs Buyers industry earns low profits

Buyer presents a credible threat of backward integration

Product unimportant to quality

* Bargaining down prices * Forcing higher quality * Playing firms off of

each other

* *

Buyer has full information

Prof. Vikram Parekh on Marketing Strategy

Porters 5 Forces Model of Competition

Threat of New Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Five Forces of Competition

Threat of Substitute Products

Substitutes are not direct competitors
*

Threat of Substitute Products

Prof. Vikram Parekh on Marketing Strategy

Threat of Substitute Products

Keys to evaluating substitute products:

*
Products with similar function limit the prices firms can charge

Products with improving price / performance tradeoffs relative to present industry products For Example: Electronic security systems in place of security guards Fax machines or e-mailed attachments in place of overnight mail delivery

Prof. Vikram Parekh on Marketing Strategy

Porters 5 Forces Model of Competition

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms

Bargaining Power of Buyers

Five Forces of Competition

Threat of Substitute Products

Threat of Substitute Products

Reduced rivalry means greater profitability

*

Prof. Vikram Parekh on Marketing Strategy

Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways

* * * * * * *

Jockeying for strategic position Using price competition Staging advertising battles Increasing consumer warranties or service Making new product introductions

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors

Prof. Vikram Parekh on Marketing Strategy

Rivalry Among Existing Competitors

Cutthroat competition is more likely to occur when * Numerous or equally balanced competitors * Slow growth industry * High fixed costs * High storage costs * Lack of differentiation or switching costs * Capacity added in large increments * Diverse competitors * High strategic stakes High exit barriers

Prof. Vikram Parekh on Marketing Strategy

Rivalry Among Existing Competitors

High Exit Barriers are economic, strategic and emotional factors which cause companies to remain in an industry even when future profitability is questionable.

* * * * *

Specialized assets Fixed cost of exit (e.g., labour agreements) Strategic interrelationships Emotional barriers Government and social restrictions

Prof. Vikram Parekh on Marketing Strategy

Competitor Analysis
Future Objectives:
Future objectives

How do our goals compare with our competitors goals?

Where will the emphasis be placed in the future? What is the attitude toward risk?

Prof. Vikram Parekh on Marketing Strategy

Competitor Analysis
Future objectives

Current Strategy:
Current strategy

How are we currently competing?

Does this strategy support changes in the competitive structure?

Prof. Vikram Parekh on Marketing Strategy

Competitor Analysis
Future objectives

Assumptions:
Current strategy Do we assume the future will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves?
Prof. Vikram Parekh on Marketing Strategy

Assumptions

Competitor Analysis
Future objectives

Current strategy

Capabilities:
What are our strengths and weaknesses? How do we rate compared to our competitors?

Assumptions

Capabilities
Prof. Vikram Parekh on Marketing Strategy

Competitor Analysis
Future objectives

Response

Current strategy

Response:
What will our competitors do in the future? Where do we hold an advantage over our competitors?

Assumptions

Capabilities
Prof. Vikram Parekh on Marketing Strategy

How will this change our relationship with our competitors?