Porters 5 Force Model&Aaker’s Brand Equity Model Presented by

Harshal Verma

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Porter 5 force model

“The Porter's 5 Forces Model” is introduced by Michael E. Porter, Professor in Harvard Business School.

Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation.

Three forces from 'horizontal' competition: 1. The threat of substitute products or services, 2. The competitive rivalry in industry, 3. The threat of new entrants; Two forces from 'vertical' competition: 4. The bargaining power of suppliers and, 5. The bargaining power of customers.

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Importance of The 5 Forces

What strategy to use? Basic knowledge of business strategy & forces that influence

the decision making. Industry analysis (relevance, players, structure, Future

changes) Strategize (Competitive advantage, Cost advantage,

Market dominance, New product development, Diversification, Price leadership, Global, Re-engineering, Restructuring)

Measure and monitor strategy effectiveness.

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Threats of New Entrants

The easier it is for new companies to enter the industry, the more cutthroat competition there will be.

Factors that can limit the threat of new entrants are Time & Cost of entry Specialist knowledge Economies of scale Cost advantage Technology protection Loyal customers Barriers of entrantsExample – MacDonalds

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Threat of Substitutes

Threats of Substitute in the Porter’s theory actually means goods and services that does similar functions.

If substitution is easy and substitution is viable, then this weakens your power.

Factors Relative price performance of substitute Buyer switching costs Ease of substitution Substandard product Quality depreciation level of product differentiation

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Contd.

Porter recommends that by doing advertising, product quality improvement, marketing, R&D and product distribution, an industry can improve its collective position against the substitute.

Example- landline phone with a cellular phone, coke and water, facebook and twitter.

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Competitive Rivalry in industry

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Factors Numbers of competitors Quality differences Switching cost Customer loyalty Current industry growth rate Industry structure Level of advertising expense Degree of transparencyExample- KFC, MacDonalds, Pizza Hut, Subway

9Bargaining power of Customers The ability of customers to put the firm under pressure, which also

affects the customer's sensitivity to price changes. The buyer power is high if the buyer has many alternatives. The buyer power is low if they act independently e.g. If a large

number of customers will act with each other and ask to make prices low the company will have no other choice because of large number of customers pressure.

Factors Number of customers Size of each order Buyer Price sensitivity Buyers switching cost relative to firm switching CostExample- Coca-Cola

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Bargaining power of Suppliers

Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes.

The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.

Factors Numbers of suppliers Size of the suppliers Uniqueness of services Your ability of substitute Employee solidarity Cost of changing Supplier switching costs relative to firm switching costs

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Aaker’s Brand Equity Model

The Aaker Model, created by David Aaker, marketing professor at the University of California-Berkeley.

Aaker views brand equity as a set of five categories of brand assets and liabilities linked to a brand that add to or subtract from the value provided by a product or service to a firm and/or to that firm’s customers.

BRAND EQUITY = BRAND AWARENESS + BRAND LOYALTY + BRAND ASSOCIATION + PERCEIVED QUALITY

+ OTHER PROPRIETARY ASSETS

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Brand loyalty

The extent to which people are loyal to a brand is expressed in the following factors.

Reduced marketing costs : hanging on to loyal customers is cheaper than charming potential new customers.

Trade leverage : loyal customers represent a stable source of revenue for the distributive trade.

Attracting new customers : current customers can help boost name awareness and hence bring in new customers.

Time to respond to competitive threats : loyal customers that are not quick to switch brands give a company more time to respond to competitive threats.

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Brand Awareness

The extent to which a brand is known among the public, which can be measured using the following parameters.

Anchor to which associations can be attached : depending on the strength of the brand name, more or fewer associations can be attached to it, which will, in turn, eventually influence brand awareness.

Familiarity and liking : consumers with a positive attitude towards a brand, will talk about it more and spread brand awareness.

Commitment to a brand. Brand to be considered during the purchasing process : to

what extent does the brand form part of the evoked set of brands in a consumer’s mind.

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Perceived Quality

The extent to which a brand is considered to provide good quality products can be measured.

The quality offered by the product/ brand is a reason to buy it Level of differentiation/ position in relation to competing

brands. Price : as the product becomes more complex to assess, and

status is at play, consumers tend to take price as a quality indicator.

Availability in different sales channels : consumers have a higher quality perception of brands that are widely available.

The number of line/ brand extensions : this can tell the consumer the brand stands for a certain quality guarantee that is applicable on a wide scale

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Brand Association

Associations triggered by a brand can be assessed on the basis of the five following indicator.

The extent to which a brand name is able to ‘retrieve’ associations from the consumer’s brain : such information from TV advertising.

The extent to which association contribute to brand differentiation in relation to the competition : these can be abstract associations, such as ‘vitality’

The extent to which brand associations play a role in the buying process : the greater this extent, the higher the total brand equity.

The extent to which brand associations create positive attitude/ feelings : the greater this extent, the higher the total brand equity.

The number of brand extensions in the market : the greater this number, the greater the opportunity to add brand associations

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Other Proprietary Assets

Patent and Intellectual property rights Relations with trade partners and, Airlines landings slots ( The more proprietary rights a brand

has accumulated the greater the brand competitive edge in those fields)

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Contd.

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References

https://en.wikipedia.org/wiki/Porter's_five_forces_analysis http://onlinelibrary.wiley.com/doi/10.1002/smj.4250121008/

pdf https://www.mindtools.com/pages/article/newTMC_08.htm https://en.wikipedia.org/wiki/Aaker_Model http://marketinglessons.in/2015/03/16/aaker-model-defining

-brand-identity/

http://www.eurib.org/fileadmin/user_upload/Documenten/PDF/Merkmeerwaarde_ENGELS/s_-_Brand_equity_model_by_Aaker_EN_.pdf

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