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What is Competition Like & How Strong Are the Competitive Forces? Objective To identify Main sources of competitive forces Strength of these forces Key analytical tool Five Forces Model of Competition
Adapted from Thompson, 1998,
Buyers
Economies of scale Inability to gain access to specialised technology Existence of learning/experience curve effects Strong brand preferences and customer loyalty Capital requirements and/or other specialised resource requirements Cost disadvantages independent of size Access to distribution channels Regulatory policies, tariffs, trade restrictions
Sales of substitutes are growing rapidly Producers of substitutes are planning to add new capacity Their profits are up
Suppliers are a stronger force the more they can exercise power over:
Prices charged Quality/performance of items supplied Amounts and delivery times
Buyers are a stronger competitive force the more they have leverage to bargain over:
Price Quality Service Other terms and conditions of sale
Adapted from Thompson, 1998,
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Competitive environment is unattractive when: Rivalry is strong Entry barriers are low Competition from substitutes is strong Suppliers and customers have considerable bargaining power
Adapted from Thompson, 1998,
Competitive environment is ideal when: Rivalry is moderate Entry barriers are high Good substitutes do not exist Suppliers and customers are in a weak bargaining position
Adapted from Thompson, 1998,
that
Influence competitive pressures in ways that favour you Build a sustainable competitive advantage
Adapted from Thompson, 1998,
Competitor Analysis
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Successful strategists take great pains in scouting competitors Understanding their strategies Watching their actions Evaluating their vulnerability to driving forces and competitive pressures Sizing up their resource strengths and weaknesses and their capabilities Trying to anticipate rivals next moves
Adapted from Thompson, 1998,
Regional
National
Multicountry
Global
Predicting rivals next moves involves Analyzing their current competitive positions Examining public pronouncements about what it will take to be successful in industry Gathering information from grapevine about current activities and potential changes Studying past actions and leadership Determining who has flexibility to make major strategic changes and who is locked into pursuing same basic strategy
Adapted from Thompson, 1998,
KSFs are competitive elements that most affect every industry members ability to prosper in the marketplace Specific strategy elements Product attributes Resources Competencies Competitive capabilities KSFs spell difference between Profit and loss Competitive success or failure
Adapted from Thompson, 1998,
Answers to three questions pinpoint KSFs On what basis do customers choose between competing brands of sellers? What must a seller do to be competitively successful -- what resources and competitive capabilities does it need? What does it take for sellers to achieve a sustainable competitive advantage? KSFs consist of the 3 - 5 really major determinants of financial and competitive success in an industry
Adapted from Thompson, 1998,
Technologyrelated
Utilization of brewing capacity -- to keep manufacturing costs low Strong network of wholesale distributors -to gain access to retail outlets Clever advertising -- to induce beer drinkers to buy a particular brand
create
Locating plants close to end-use customers -- to keep costs of shipping empty cans low Ability to market plant output within economical shipping distances
A sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor!
Adapted from Thompson, 1998,
Principle
A firm uniquely well-suited in an otherwise unattractive industry can, under certain circumstances, still earn unusually good profits
Adapted from Thompson, 1998,
Industrys market size and growth potential Whether competitive conditions are conducive to rising/falling industry profitability Will competitive forces become stronger or weaker Whether industry will be favorably or unfavorably impacted by driving forces Potential for entry/exit of major firms Stability/dependability of demand Severity of problems facing industry Degree of risk and uncertainty in industrys future
Adapted from Thompson, 1998,
Two things to keep in mind: 1. Evaluating industry and competitive conditions cannot be reduced to a formula-like exercise--thoughtful analysis is essential 2. Sweeping industry and competitive analyses need to done every 1 to 3 years
Adapted from Thompson, 1998,