PORTERS’S FIVE FORCES

Agenda

•The Five Competitive Forces That Shape Strategy•Various Factors That Shape Strategy•Changes in Industry Structure•Implications for Strategy•Competition and Values

Rivalry among existing

competitors

Threat of new

entrants

Bargaining power of

buyers

Threat of substitutes

Bargaining power of suppliers

Threat of New Entrant

Depends on height of entry barriers

Barriers to entry

Supply side economicseg. Intel

Demand Side benefits of scale

eg. eBay, IBM

Customer switching costs

eg. Telecom sector

Capital Requirementseg. Oil drilling

Incumbency advantages

independent of size

Unequal access to distribution channels

eg. ITC

Restrictive government policy

Threat of New Entrant

Power of suppliers

SuppliersMonopolyeg. Microsoft

No. of industries being

servedeg. software

Switching costseg. Bottling plants

for Coke, Pepsi

Differentiated products being

offeredeg. Pharmaceutical

companies

No substituteeg. Labour

Supplier group- Forward

integrationeg. Intel

Power of BuyersFew buyers, High

volumeseg. Offshore drilling

machines

Undifferentiated offeringseg. Services

Low switching costs

eg. Telecom sector

Threat of backward

integrationeg. Beer companies

Cost of purchase high

Low profit making product

Little effect on final product

Causes for price sensitivity

Threat of Substitutes

Price Performance

trade-off

Cost of switching is low

Rivalries among existing competition

Large in number, equal in power

and size

Slow growth in industry

Exit barriers are high

Highly committed

competition

Offerings are identical

Product is perishable

High fixed costs and low marginal

costs

Industry Growth Rate

Technology and Innovation

Government

Complementary Products and Services

Factors not Forces

Changes in Industry StructureShifting threat of new entry

Changing Supplier or Buyer Power

Shifting threat of substitution

Shifting threat of new entry

New bases of rivalry

Implications for Strategy

Possiblities

Shaping industry structure

Re-dividing profitability

Expanding the profit

pool

Positioning the company

Exploiting industry change

Defining the industry

Competition and Value Think structurally about competition

Understand industry structure but avoid defining it too broadly

or narrowly

Pay attention to all forces rather than focus on any single one

Use frameworks to help in guiding the strategies rather than

declaring an industry attractive or unattractive

Analyze recent and likely future changes in each force, both

positive and negative

Thank You!!