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Five Forces
Model
IDENTIFYING COMPETITIVE
ADVANTAGES
IDENTIFYING COMPETITIVE
ADVANTAGES
Michael Porter
An industrys profit
potential is largely
determined by the intensity
of competitive rivalry
within that industry.
Buyer Power
Power of Buyers
high when
* Customers are concentrated,
concentrated large or
buy in volume .
* The products being purchased are
standard or undifferentiated making
it easy to switch to other suppliers.
* Customers purchases represent a
major portion of the sellers total
revenue.
Supplier Power
Power of Suppliers
high when
* A small number of dominant,
highly
concentrated suppliers
exists.
* Few good substitute raw materials
or
suppliers are available.
* The cost of switching raw
materials
or suppliers is high.
Threat of Substitute
Products or Services
Substitute products
competitive strength high when
* The relative price of substitute
products declines .
* Consumers switching costs decline.
decline
* Competitors plan to increase
market penetration or production
capacity.
capacity
Barriers to Entry
large capital requirements or
the need to gain economies of
scale quickly.
strong customer loyalty or
strong
brand preferences.
lack of adequate distribution
channels or access to raw
materials.
materials
Rivalry among
competitors
intensity increases as
* The number of competitors
increases
or they become equal
in size.
size
* Demand for the industrys products
declines or industry growth slows.
slows
* Fixed costs or barriers to leaving
the industry are high.
high
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Analysis
5 Forces
Analysis
Threat of entrants
FDI policy not favorable for international players.
Domestic conglomerates looking to start retail chains.
International players looking to foray India.
Bargaining power of supplier
Threat of substitutes
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Low Bargaining
Power of Supplier
High Bargaining
Power of Buyer
Low Threat of
Substitute
RIVAL
INTENSITY
HIGH
THREAT
THREAT OF
OF
ENTRANTS SUBSTITUT
ES
HIGH
LOW
Bazaar
POWER OF
BUYERS
POWER OF
SUPPLIERS
HIGH
LOW
RIVAL
THREAT
INTENSITY
THREAT OF
ENTRANTS
OF SUBSTITUTES
POWER OF
BUYERS
POWER OF
SUPPLIERS
HIGH
HIGH
LOW
HIGH
LOW
Low Bargaining
Power of Supplier
High Bargaining
Power of Buyer
Low Threat of
Substitute
Hom e
C e n tr a l
7%
B ig
B azaar
12%
P a n ta lo o n
D e p t s to r e
42%
13%
23%
O th e rs
Food B azaar
Competitor
Bargaining Power of
Supplier
Threat of Substitute
H
I
G
H
THREAT
THREAT OF
ENTRANTS
OF SUBSTITUTES
POWER OF
BUYERS
POWER OF
SUPPLIERS
HIGH
HIGH
HIGH
HIGH
Portfolio Analysis
Strategy at the time
(1970s) was focused on two
dimensions of the portfolio
grids
Industry Attractiveness
Competitive Position
Structural reasons
whyindustries
some
were profitable
* Firm concentration
* Established cost advantages
* Product differentiation
* Economies of scale
Structural reasons
all represented barriers to
entry in certain industries,
thus allowing those
industries to be more
profitable than others.
Generic Strategies
Low-cost
leadership
Differentiati
on
Prof.Sushil\IITD\Session-VI
Focus
32
Broad
Target
1. Cost Leadership
Differentiation
2. Differentiation
Competitive Score
Narrow
Target
3 A. Cost Focus
3 B. Differentiation
Focus
Prof.Sushil\IITD\Session-VI
33
Cost Leadership
Parle G Biscuits
Big Bazar
MTNLs Dolphin
Vichare Courier
LIC
Differentiation
BMW
Ferrari
Mercedes
Audi
Focus
Overall cost
leadership
reports
access to capital
Structured organization
and
Incentives based on
meeting strict quantitative
targets in manufacture
Differentiation
Strong marketing abilities
Strong coordination
Product engineering
among functions in R&D,
Creative flare
product development, and
marketing
Prof.Sushil\IITD\Session-VI
37
Focus
above policies
Prof.Sushil\IITD\Session-VI
38
Risks of Differentiation
Risk of Focus
Competitors imitate:
Bases for differentiation
becomes structurally
unattractive
Technology changes
becomes less imported to Structure erodes
Prof.Sushil\IITD\Session-VI
39
Cost leadership
5-40
Type 1
low-cost strategy
that offers
products or
services to a wide
range of
customers at the
lowest price
available on the
market
Type 2
best-value
strategy that
offers products or
services to a wide
range of
customers at the
best price-value
available on the
market
5-41
Differentiation
5-42
Type 4
low-cost focus
strategy that
offers products or
services to a niche
group of
customers at the
lowest price
available on the
market
Type 5
best-value focus
strategy that
offers products or
services to a small
range of
customers at the
best price-value
available on the
market
5-43
5-44
Differentiation Strategies
5-45
Differentiation
5-46
Focus Strategies
5-47
5-48
Value Creation
Value Creation
Value Creation
Value Chain
Value Creation