COMPETITION

PORTERS MODEL Five Forces Determining Segmental Structural Attractiveness 1. 2. 3. 4. 5. Threat of intense segment rivalry Industry competitors Threat of new entrants Threat of substitutes products Threat of buyers growing bargaining power Threat of suppliers growing bargaining power

INDUSTRY COMCEPT OF COMPETITION An industry is a group of firms that offer a product or class of products that are close substitutes for each other

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Number of sellers and degree of differentiation - pure monopoly, oligopoly, monopolistic competition, pure competition Entry, mobility, and exit barriers Cost structure Degree of vertical integration Degree of globalization

MARKET CONCEPT OF COMPETITION Companies satisfying the same customer need. Sometime s called generic need nased competition. E.g. PC word processing package = writing ability Substitutes: pencils, pens, typewriters.

ANALYZING COMPETITORS Strategies: A group of firms following the same strategy in a given target market is called a sstrategic group. Strategic groups can be based on product quality and level of vertical integration. |Barriers to entry in each group is different. The members in a particular group the firm plans to enter become its key competitors.

Objectives: Understand the objectives of each of the key competitors in that market. Long run vs short-run profit maximization. Market share vs profits. Possible objectives: a. current profitability b. market share growth c. technological leadership d. cash flow e. service leadership Factors that shape a competitors objective(s): a. size b. history c. current management d. financial situation, cost structure e. level of technology Strengths and weaknesses: competitive positions in a target market a. dominant b. strong c. favorable d. tenable e. weak f. nonviable Key variables to monitor when analyzing competitors: a. Share of market b. Share of mind c. Share of heart Companies that make steady gains in mind share and heart share will inevitably make gains in market share and profitability

Reaction Patterns: a. b. c. d. laid back competitor does not react quickly nor strongly the selective competitor reats to only certain types of attack the tiger competitor swift and strong reaction the stochastic competitor unpredictable responses

Some industries are marked by relative accord among the competitors; others by constant fighting. Much depends on competitive equilibrium :

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If competitors are nearly identical and make their living in the same way, then their competitive equilibrium is unstable If a single major factor is the critical factor, then the competitive equilibrium is unstable If multiple factors may be critical factors, then it is possible for each competitor to have some advantage and be differently attractive to some customers. The more factors that may provide an advantage, the more competitors who can coexist. Competitors all have their competitive segment, defined by the preference for the factor trade-offs that they offer The fewer the number of critical competitive variables, the fewer the number of competitors A ratio of 2 to 1 in market share between any two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for either competitor to increase or decrease share.

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