Is their anything common between Microsoft, Debeers

and Coke/ Pepsi?

Are diamond and soft drink industries attractive?

Coke, Debeers and Microsoft control the industry at
one or the other stage of production
What is meant by controlling the industry?
- Maximum un-negotiable bargaining power and
control profits
Play important role in the industry value chain and
hence make these industries attractive

What is industry value chain
The industry value chain is composed of all the value-
creating activities within the industry, beginning with
raw materials, and ending with the completed product
delivered to the customer.
Fruit market margin in UK
supermarkets
How Debeers managed to be a
leader?
Historically owned 85% share of the diamond
market
Owned both mines and main distribution system,
Central Selling Organization
Mine and trading companies owned by subsidiaries
De Beers has sole power to determine how many
diamonds to sell and at what price
125 - 250 sightholders invited to CSO to
purchase diamonds

Sightholders virtually powerless at sights
Can only accept or reject boxes
Not allowed to negotiate
Not allowed to sell to retailers who will lower prices
Must give De Beers information about market and
inventory
If new suppliers emerge, it will:
Flood the market with similar diamonds at below
market prices
cola
Raw materials required are commodities like sugar
syrup, bottlers, colors and preservatives
Suppliers cannot influence cola
Distributors can - as they are few, but reputation and
brand loyalty of cola takes care to certain extent

Advertising coca cola spent on advertising near 3
billion
Brand image and loyalty
Distribution channel loyal coke gives 20% margin to
retailers for placing coke on shelf
Cola has deep pockets
The concentration of national
supermarket shares

Austria 82
Belgium 71
Canada 75
Denmark 80
Finland 88
France 65
Australia 71

Objective of Porter five forces

5 Dimensions of Porter Five Forces
Threat of new entrants
Threat of substitution
Competitive Rivalry
Bargaining power of buyers
Bargaining power of suppliers
How did Wal-mart entered retail
What is the story of south west airlines
How did Havas managed to get clients of O&M like
Harley Davidson, Coke etc.

Threat of new entrant is low
when
EOS is required
Industry is capital intensive
Exit barriers are high
Access to distribution channel is difficult
Experience is required to grab customers Reputation
Retaliation from existing players could be high

Threat of new entrant
Economies of scale - proportionate saving in costs
gained by an increased level of production
If EOS required, threat of entrant is low example,
automobile vs internet banking
IB requires 10,000 customers to be viable
Focus on cost drivers and business model
Reduction in cost will automatically lead to new
business model
Capital requirement for entry technology and scale
directly proportional to capital requirement
Dot com business easy to start compared to a textile
mill
Access to distribution channels lesser the access,
lesser is the threat of new entrant
Experience early entrants are more experienced and
can retaliate well
Expected retaliation thinking of entering soft drink
industry??
Threat of Substitute
Substitute lowers demand for particular class of
product, when customer switch to other alternatives
Product to product substitute email substitutes
postal service
Generic substitution: products competing for
disposable income
Need based substitution Ikea furniture friendly
manual, substituted need of specialized workers to
assemble furniture
Competitive Rivalry is high if
Industry growth rate has reached its maturity
Competitors are of equal size balanced
Fixed cost is high leading to high exit barriers and
hence over capacity as well
Differentiation is low leading to high switching cost

How have firms dealt with it
Capacity sharing like in telecom industry sharing of
infrastructure especially towers
Indus Towers Ltd consists of ???
Bharti, Vodafone and Idea
Freebie marketing? Printer-Refill/ Blade and Razor
Create differentiation by creating organized market
out of unorganized sector
Homeopathy, beauty saloons
How to reduce buyer/ supplier
bargaining power
Forward integration/ backward integration

Bargaining power of Buyer and
Supplier
High when
Number of buyer/ supplier is less
Product is specialized and not commodity type
Threat of forward and backward integration is high
Sources of BP of Buyers retail
industry
Buyers are concentrated - there are a few buyers with
significant market share
Buyers purchase a significant proportion
of output
Buyers possess a credible backward integration threat
How to weaken this force
threaten forward integration - producer can take over
own