Porter’s 5 Forces - ISB

Bartu KaleagasiKatie OlneyCeline BiermanEddie BenedettiGustavo Adade

Naomi ChhatwalPhilippine Van Campenhout

Julita BorysSena Aksoy

What is it? Porter’s 5 Forces is an analytical tool used to

evaluate the competition of a business in its

market.

Bargaining Power of Supplier

What is bargaining power of supplier?

O The bargaining power of a supplier directly affects the cost of the item or service that a business buys.

O A supplier tends to have more power if:O many buyers want this productO a supplier's goods are unique or highly

differentiated with few or no substitutesO suppliers are forward integratedO high costs are involved in switching from

one supplier to another

Real-Life ExamplesO Ferrari

O Differentiated Product – no other company in the market can provide the same product

O Rolex watchesO good quality and unique products

which created their brandO Microsoft

O Has power from being an almost monopolistic supplier of PC operating systems

O Few substitutes

Why ISB has supplier power

Look at ISB as a supplier of educationO Low competition - St Johns, BSB & SSBO Longest history – since 1951O High standard of educationO Unique and highly differentiated

O Largest campus – 40 acresO Varied courses and learning

environmentO Sports programO Variety of clubs

EducationO 8:1 teacher student ratioO Offers and IB diploma, AP program, ISB

diplomaO Variety of courses

O Over 77 courses in HSO Standard courses + 2 electives in MS

O Counseling even after graduationO Trips offer learning in different

environments and by direct interaction

Sports Program

• 14 sports – 56 teams

• Sports facilities• International

Schools Competitions

Offers students an opportunity to

compete with different schools, develop their

skills, commit and work as a team

• PE every day in ES &MS

ISB Football Team in Germany

Clubs & Extracurricular

ActivitiesISB offers a variety of clubs run by students for other students to gain deeper understanding of the global issues, provide opportunities and involvement in making a change.Clubs offer an

opportunity for further development of skills and passions, such as the ones in

visual and performing arts

Esther Yoo performing at Queen Elisabeth Competition

Women for Women fashion show – money raiser

Bargaining Power of Buyers

Buyers (Customers)O The bargaining power of customers is also

described as the market outputs: ability of customers to put the firm under pressure, which can affect the customers sensitivity to price change.

O Buyers also refer to the customers who finally consume the product or the firms who distribute the industry's product to the final consumers.

O Strong buyer can extract profits out of industry by lowering the prices and increasing the costs.

Buyers (Customers)O Purchase in large quantities.O They get fully informed about the

product and also the market.O They give a good word about the

quality of the product and also the market.

O They pose a threat of backward integration.

O They are also considered as a threat in this situation.

Who are the Buyers of ISB?

O The parents of the students are the buyers of the school.

O Although not every parent pays the school.

O Majority are the companies and the embassies that pays for the school.

O Examples: Embassies, ExxonMobil, Pharmaceutical companies, etc.  

How does ISB convince the Buyers to choose us instead other schools of the market?

O What ISB does is that they show the plan and what they have to offer from their school

O ISB Offers;O The biggest sports program in the marketO IB diploma programO Large number of trips they offerO SAT’sO Special Education ProgramO Good school facility

The Power of the BuyerO Even a difference of merely 30-40 buyers

can mean a lot as tuition can increase and the revenue can be increased up to 3 and a half million within three years. The Bigger the student body is the more competition there is to enter the school expenses however also seem to maximize as student’s join more sports programs and more teachers are needed to maintain the student to teacher ratio.

School Enrollment relation

O 2009/2010: School year 1462 students

O 2010/2011: School year 1461

O 2011/2012: School year 1499

Attraction of buyersO To keep buyers attracted to ISB there

need to be continuous checks upon teacher’s performances to make sure they are the best set of instructors in the area to offer.

O ISB’s campaign of advertisement is already immense as seen in examples such as ISB appearing in sport ventures, flights and on videos as well as adverts online.

Threat of Substitutes

What are Substitutes?O Substitutes are businesses that offer

a very similar alternative good or service

O The Threat of Substitutes to a business is affected by pricing, competitive advantages, and unique selling points

O The power of substitutes determines how much of the market share they can gain, which generally results in increased revenue

Real-Life ExamplesO Apple is seeing an

increasing amount of substitutes in the market of smartphones (Samsung, HTC, Nokia)

O Substitutes for Shell in the petrol station industry’s Belgian market (Q8 and Lukoil)

Substitutes for ISBRealistically, there are 3 direct substitutes to The International School of Brussels:O British School of BrusselsO St. John'sO Scandinavian School

Although there is also the European School, it is not regarded as a substitute as it does not offer a full IB program and has restrictions in terms of admissions (in regards to European Union employees).

The British School of Brussels

O Tuition fee: €28,500O Application fee: €1,000O Programs offered: A-levels and IB DiplomaO Notable extracurriculars: International Award,

Cricket, Netball, Gymnastics, MUNO Weakness: Affiliated with “British” nationality

St. John’s International School

O Tuition fee: €29,695O Application fee: €1,000O Programs offered: AP and IB

DiplomaO Notable extracurriculars:

International Award, Philosophy Society, Puppetry, Handball, Hockey

O Weakness: “St. John’s High School is Christian in principle”, Religious studies is mandatory to receive a diploma

Scandinavian School of Brussels

O Tuition fee: €20,000O Application fee: €650O Programs offered: National

Scandinavian programs and IB Diploma

O Notable extracurriculars: Mandarin Chinese, Gymnastics, Handball

O Weakness: Affiliated with region of Scandinavia

International School of BrusselsO Tuition fee: €32,100O Application fee: €1000O Programs offered: AP and

IB DiplomaO Notable extracurriculars:

Widest variety of sports, arts, societies and clubs in Brussels

O Weakness: High price of tuition (staff = 75% of budget), but for quality education/maintenance

ISB’s Unique Selling PointThen what does ISB draw its success from?O Only school in the Brussels area that

is not affiliated with any Nationality, Religion or Region

O Truly international and culturally diverseO More than a school, a large communityO Secure environment, friendly society and

campusO IB offered longer, more choice, good IB

teachers and results against worldwide averages

O Longevity of leadership

ISB’s Unique Selling Point…and most of allO Brand name: The International School of

Brussels

Future of ISB in the MarketO Market has reduced, but enrollment is

growing and sustained. This means that market share of ISB has gone up and perhaps that of substitutes has gone down.

Future of ISB in the MarketGrowth plans include:O Building an underground car parking to keep

the social environment of community for parents

O Thinking of opening a crèche outsourced to entrepreneurs as a partnership

Threat of New Entrants

Threat of New EntrantsO Definition: If a new business enters the

market there is a threat to existing companies in the market.

O Analyze the reasons why it is or is not a threat to the company.

Real-Life Examples- McDonald’s is a leading

brand in the Fast Food market

- If a new Fast Food restaurant were to open

- Would not be a threat to McDonalds because of barriers of entry

- Economies of Scale, high start up costs, brand loyalty

Threat of New Entrants to ISB

Positives: O Economies of Scale

(Commercial, Financial)

O Local reputation/brand loyalty

O High startup costsO IB

Negatives: O Lower costO More Varied optionsO Better facilitiesO External Moderation

(MS)

Economies of ScaleO Def: the reduction of the overall cost

per unit due to an increase in production

O ISB – Commercial and FinancialO Commercial – buying textbooks,

tablets, sports uniformsO Financial O Difficult for new businesses to enter

the market

Local Reputation/Brand Loyalty

O ISB – 60 years, experience and history in the area

O Well known brand – English-speaking International school

O New entrants don’t have this

High Startup CostsO Location – landO BuildingO StaffO SuppliesO TechnologyO Sports facilitiesO ISB has all of these already

International Baccalaureate

O Been offered for longerO More choicesO Good teachersO Non-exclusiveO Good results

Threat of New Entrants to ISB

New school with lower feesO This is possible, but in the long run unlikely

because for a new school to become as successful as ISB, there are certain challenges such as:

O The saturated market – already many schools in the Brussels area.

O High start up costs O Economies of scale

Threat of New Entrants to ISB

New school giving extra subject options/ External moderation programs:

O More IB subject options (this would mean having to hire more teachers) for example:

O Film studies – BSB subject O Psychology – BSB subject

O More AP ClassesO A – Levels O GCSE’s (External examination Program for grades

9&10) Parents might choose this or any other equivalent for their child as they would like it as a practice for their eventual diploma examinations (IB, A-levels, AP)

Threats to ISB O New school that would compete with

ISB for better/more innovative/Eco friendly facilities

What gives ISB its power?O Been in the areaO Constantly improving: new fields,

new high school, underground parking lot

O Listens to parentsO Good reputationO Aware of competition

Intensity of Rivalry

Intensity of Rivalry O Porter’s 5 Forces are made of four

components New Entrants, Suppliers, Buyers and Substitutes

O Together they make the Industry Competitors, in other words Intensity of Rivalry

Intensity of RivalryIntensity of Rivalry between competitors in an industry will depend on:- The structure of competition- The structure of industry costs - Degree of differentiation- Switching costs- Strategic Objectives- Exit Barriers

The Structure of Competition

The competitors of ISB:- St. Johns International School (STJ)- British School of Brussels (BSB) - Scandinavian School of Brussels (SSB) O IB Diploma:- STJ- BSB- SSB

ISB’s biggest competitorO St. John’s - International School- Tuition fees: STJ= 29,695 Euros ISB= 32,100Application Fees (both schools)= 1000 Euros- High School Diplomas: IB + AP- Enrollment: Pre-Kindergarten to 13th

grade.

The Structure of Industry Costs

O ISB= highest tuition fees of all schools in Brussels

O High intensity of Rivalry -> Scandinavian school of Brussels

- offer the IB diploma- SSB’s tuition fees= 20,000 euros- 12,000 euros less than ISB

Degree of Differentiation

O Tablets incorporated in their Tuition FeesO Fully International School unlike BSB

and SSB O Has no religion; (STJ is a catholic school)O A community-> like a family O Special Education program O Athletic program O Big campus

Switching CostsO ISB- Full tuition + bus fee (before last day

January) -> 25% of the tuition and bus fee reimbursed

- After last day of January: No reimbursement

- The buyers (parents or companies) have high switching costs

- Decrease in possibility of switching schools

Switching Costs Example

O ISB and competitors have (i.e. STJ) an application fee

O St Johns:O Application Fee= 1000 eurosO Additional costs -> ISB tuition fees (+bus fees)-> ISB application fee-> STJ tuition fees (+bus fee)-> STJ application fee

Strategic Objectives

O The market for international = mature industry

O Number of established competitorO ISB is the oldest established school - focuses on the school itself - focuses on service for its stakeholders- focuses on standing as a learning

environment and educational quality- doesn’t try to “compete”

Conclusion

OverallO ISB has a high amount of bargaining

power as a supplier due to its degree of differentiation

O ISB gives many excellent reasons to their customers to continue using their services

O ISB continues to be at advantage over its substitutes/competitors despite its higher costs, mostly thanks to its USP

O ISB has a massive advantage over new entrants into the market for many different reasons related to entry barriers

Future ProspectO As long as ISB retains its reputation as

an International, ecologically-aware and friendly community, it will more or less hold its current market share

O The key to increasing its market share will rely on the school’s adaptability to the future needs of education and changes in the industry (tablets, new high school, innovative educational environments etc.)

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