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The Five Force Model

Transcript: Potential Entrants Trends Affecting Bargaining Power of the Suppliers Definition: A restaurant is a sit down place to eat that includes service in which a person would leave a tip for at the end of their meal. Categorized by restaurant’s menu style, pricing, preparation methods, and overall atmosphere. Casual restaurants Semi–formal restaurants Fine dining restaurants. Are the suppliers major suppliers? Five Force Model Substitute Products Suppliers “Are the suppliers large?” Yes, there are a great many suppliers in a variety of classes Types of suppliers: Restaurant industry Food products, condiments, crockery, silverware These suppliers have low bargaining power Locality or general business-based Premises, labor, insurance, utilities These suppliers have moderate bargaining power Conclusion Bargaining power of suppliers is low -YES Restaurant (Focal Industry) Are there many suppliers? Are the suppliers large? Are the suppliers major suppliers? Is the focal industry a significant customer of the supplier? Do the suppliers pose a credible threat to integrate forward into the buyers’ industry? Are there high switching costs for the buyers? Rivalry Among Existing Firms Industry Competitors -NO Suppliers have an overall low bargaining power in the restaurant industry Therefore, the supplier does not have the power to increase prices. This decreases buyer's costs and increases buyer's profits. Yes, because most of suppliers gain most of their profits from the restaurant industry Conclusion: The bargaining power of the supplier is low Buyers Switching cost of buyers is moderate. Conclusion: This has no effect on the bargaining power of the suppliers, which in turn does not affect the restaurant industry's power. Do suppliers pose a credible threat to integrate forward into the buyers’ industry? Yes, the majority of suppliers are large Types of suppliers: Restaurant industry and locality or general business-based Characterized by being large providers with product diversification and economies of scale Conclusion: Bargaining power of suppliers is high Summary of Trends Affecting Supplier Power Threat of new entrants Is the focal industry a significant customer for suppliers? Restaurant Industry 2010 Stats Overall Conclusion “Are there many suppliers?” No, suppliers often do not have the desire or resources to integrate forward. Conclusion: The bargaining power of the suppliers is low. Threat of substitute goods and services -MODERATE Focal Industry: Restaurant Industry -YES Operating Margin: Casual Restaurant- 3% Semi-formal Restaurant-3.5% Fine dining Restaurant-1.8% Average Operating Margin: 2.77% Overall Restaurant Sales: $184 Billion Moderate, depending on restaurant Conclusion: This has no effect on the bargaining power of suppliers, which in turn does not effect the restaurant industry’s power. Are there high switching costs for the buyers? Bargaining power of buyers Bargaining power of suppliers -YES

Porter's five force model:

Transcript: - Buyers have big power over PANDORA, there are more than one company that sells almost exactly the same product as they do, so they can choose what they want to buy and where they want to buy – so they have power on prices. - They have no switching costs when changing the company. - BUT! PANDORA is a well known brand, which is associated with the charm bracelets – so let’s say that they are established in the market. - We believe there to be a high threat of substitution: - Other brands that sell almost the same products - People can buy different kind of jewelry - Buyers have other alternatives for jewelry 3.000 DKK PANDORA PANDORA TROLLBEADS Possible scenarios Robin-May Kleinjan Nathalie Hviid Bendtsen Simona Naujokaite 5.470 DKK Possible new entrants 345 DKK - We believe that there is a low potential threat for new entrants into the market. - Also they will have to compete with Pandora, which is already an established brand name and it already has a loyal customer base. - Since it is a brand it is the name and the reputation of the products and the idea of it that the customers have and therefore it may be prestigious to have a real Pandora bracelet or jewelery, rather than a piece of jewelery from a new entrant to the market. 380 DKK We decided to do the Porter’s five forces analysis on Pandora. This is a Danish jewelery company who creates and sells ‘affordable luxury, contemporary design’ of handmade jewelery all over the world. They hope to become the world’s most well known jewelery brand. Pandora is most famous for their charm bracelet, this is known to be their primary strategic focus. Any differences? Scenario 1: In the first case the suppliers main buyer is Pandora. This could mean that Pandora has a rather high bargaining power (meaning the supplier has low bargaining power). Scenario 2: Here we considered the fact that the supplier of the material was also supplying to other firms and that Pandora is not their main customer. The supplier would have a high bargaining power. Pandora only gets their raw material supplied, these are products like gold, silver, diamond wood and paper But the question is: do the suppliers have bargaining power in this case? Porter's five force model: PANDORA Other brands Suppliers 210 DKK Buyers Substitutes 225 DKK

Nestle- Porter's Five Force Model

Transcript: NESTLE - PORTER'S FIVE FORCE MODEL ALL ABOUT THE COMPANY INTRODUCTION TO COMPANY Nestle is a Swiss multinational food and drink processing conglomerate corporation headquartered in Switzerland. It is one the biggest players in FMCG segment, with a wide range of 2000 brands selling over 150 countries has a existence in milk & nutrition, beverages, prepared dishes & cooking aids & chocolate & confectionery segments. In India manufactures products under brand names, such as Nescafe, Maggi, Milky bar, Milo, Kit Kat, Bar-One, Milkmaid and Nestea. INTRODUCTION TO COMPANY HISTORY 1866 - US brothers Charles and George Page help establish Anglo-Swiss Condensed Milk Company with the brand name of Milkmaid. 1867 - Nestlé’s founder, German-born pharmacist Henri Nestlé, launches his ‘farine lactée’ (‘flour with milk’) in Vevey, Switzerland.Around this time he starts using the now iconic ‘Nest’ logo. 1875 - Henri Nestlé sells his company and factory in Vevey to three local businessmen. 1878 - Nestlé and Anglo-Swiss start selling rival versions of the other’s original products: condensed milk and infant cereal. Both firms expand sales and production abroad. 1882-1902 - In 1882 Anglo Swiss expands into US. In 1902, it got merged with Nestle. 1904 - Nestlé begins selling chocolate for the first time when it takes over export sales for Peter & Kohler. PRODUCT PROFILE MAIN PRODUCTS OF NESTLE Milk products and nutritions Bevarages Prepared dishes and cooking aids Choclates and confectionaries COMPETITORS COMPETITORS OF NESTLE KRAFT FOODS KRAFT FOODS Kraft Foods is a popular food processing company that was formed during the year 2012. It is headquartered in Chicago and is a part of Kraft Heinz Company. The company mainly focuses on grocery products for the markets in North America. The company manufactures multiple products which are seen in many categories like sauces, chocolates, dairy products, desserts, and many more. DANONE DANONE Danone is a French food processing company that is established in the year 1919 and headquartered in Barcelona, Spain. The company produces various categories of products that cater to baby food, coffee, dairy products, breakfast cereals, confectionery, bottled water, pet foods, ice cream, and dietary supplements. UNILEVER UNILEVER Unilever is a British-Dutch company that is formed during the year 1930 and headquartered in the United Kingdom and Netherlands. It is a consumer goods producer company and their products include food and beverage. It is also into the production of cleaning and personal care products. It is the world’s largest consumer foods company. PATANJALI PATANJALI Patanjali Ayurved Limited is an Indian consumer goods company. Patanjali is the fastest growing FMCG company in India. Patanjali Ayurved produces products in the categories of personal care and food. The company manufactures more than 2,500 products including cosmetic products food products. Patanjali has also launched beauty and baby products. Ayurvedic manufacturing division has over 300 medicines for treating a range of ailments and body conditions, from common cold to chronic paralysis. OTHER COMPETITORS OTHER COMPETITORS Pepsico Kellogg's Mondelez Hershey's Heinz General Mills Lindt Amul PORTER'S FIVE FORCE MODEL Porter's Five Forces is a simple but powerful tool for understanding the competitiveness of your business environment, and for identifying your strategy's potential profitability THREAT OF NEW ENTRANTS (LOW) Diverse food industry. Large market share by existing companies. Developed customer loyalty over time. Developed distribution networks and economics of scale to produce and deliver at lower cost. BARGAINING POWER OF BUYERS (HIGH) Easy switching power of buyer from one brand to other. BARGAINING POWER OF SUPPLIERS (HIGH) Due to large purchasing power, because the suppliers of agriculture commodities offer non unique product, the bargaining power is high. Nestle has ability to bring new business to suppliers. It creates and maintain long term relationship with suppliers to ensure quality of raw materials. THREAT OF SUBSTITUTE PRODUCT (MODERATE) There are many substitute products in the market. eg. Danone and kraft foods. One of the way nestle has made its products unique is making them healthy compare to other food products. RIVALRY OF COMPETITIVE FIRMS (HIGH) Nestle faces intense competition. All the firms spent large amount on marketing and advertisement. The competition is not just about price but product variety, creativity, promotional offers etc. All the players have to strive to retin their market share. There are about 20-25 products which are going to be launched in short time among them some are already launched. The new product includes 7 variants of Maggi noodles, Greek yogurt brand 'Grekyo' and protein growth brand 'Pro-Gro' in dairy segment, besides multiple products in choclates and confectionery, and also in coffee and tea. FUTURE SCOPE Title

Porter's Five Force Model

Transcript: Legal and Government Created Barriers : Government and regulatory requirements such as permits and licenses may be a strong barrier to entry. There may also be laws governing ways to conduct business that may conflict with a company’s practices in other countries. Tariffs and International Trade restriction : To protect domestic producers Anti-dumping rules Local content requirements Quotas etc. Seriousness of threat depends on Size of pool of entry candidates and available resources Barriers to entry Reaction of existing firms Evaluating threat of entry involves assessing How formidable entry barriers are for each type of potential entrant and Attractiveness of growth and profit prospects Ability of incumbent to restrict the new entry : Example : Sony and Nintendo adopted strong defenses to thwart Microsoft’s entry in video games through its Xbox. When is the Threat of Entry Stronger ? There is a sizable pool of entry candidates. Entry barriers are low. Industry growth is rapid and profit potential is high. Buyer demand is growing rapidly. Incumbents are unwilling or unable to contest a newcomer’s entry efforts. When existing industry members have a strong incentive to expand into new geographic areas or new product segments where they currently do not have a market presence. designed by Péter Puklus for Prezi (2) COMPETITIVE PRESSURES ASSOCIATED WITH THE THREAT OF NEW ENTRANTS There is a sizable pool of entry candidates. Entry barriers are low. Industry growth is rapid and profit potential is high. Buyer demand is growing rapidly. Incumbents are unwilling or unable to contest a newcomer’s entry efforts. When existing industry members have a strong incentive to expand into new geographic areas or new product segments where they currently do not have a market presence. Legal and Government Created Barriers : Government and regulatory requirements such as permits and licenses may be a strong barrier to entry. There may also be laws governing ways to conduct business that may conflict with a company’s practices in other countries. Tariffs and International Trade restriction : To protect domestic producers Anti-dumping rules Local content requirements Quotas etc. How hard it will be for potential entrants to compete is always relative to financial resources and competitive capabilities of likely entrants. For example : Honda could enter the U.S. lawn-mower market because it had long-lasting expertise in gasoline engines. The best test of whether potential entry is a strong or weak competitive force in the market place is to ask if the industry’s growth and profit prospects are strongly attractive to potential entry candidates. Step 4 Barriers to Exit : If a company is unable to easily leave a competitive environment in case business does not work out, then it will have to stay and compete even if that is a detrimental business practice. In this case, the company may choose to not enter the market in the first place. Means of Entry into a Market When is the Threat of Entry Stronger ? Strong Brand preferences and high degree of Customer Loyalty : ( A Differentiated Product ) There will need to be strong efforts to break existing brand loyalties by advertising and sales promotion and shift customers to a new untested company. Strong Brand preferences and high degree of Customer Loyalty : ( A Differentiated Product ) There will need to be strong efforts to break existing brand loyalties by advertising and sales promotion and shift customers to a new untested company. Suppliers : Existing suppliers may have contracts or loyalties with existing companies and may prove to be difficult to form relationships with. Economies of scale : New firms have two options: Enter on a large scale Accept a cost disadvantage Long-term over capacity problem Objectives are to identify Main sources of competitive forces Strength of these forces Key analytical tool Five Forces Model of Competition The threat of entry changes as the industry’s prospects grow brighter or dimmer and as entry barriers rise or fall. For Example : The pharmaceutical industry With the growing use of internet for shopping , it has become easier for web-based retailers to enter into a competition. In international market, entry barriers for foreign-based firms fall as tariffs are lowered. Ability of incumbent to restrict the new entry : Example : Sony and Nintendo adopted strong defenses to thwart Microsoft’s entry in video games through its Xbox. Means of Entry into a Market Factors affecting the Threat of Entry Contd… Step 5 Economies of scale : New firms have two options: Enter on a large scale Accept a cost disadvantage Long-term over capacity problem Cost of Switching : If there are significant switching costs, then a new entrant may not be able to create means of removing these. Or, they may have to offer significant advantage to counter these switching costs at their own expense. High Capital Requirement : Manufacturing facilities and equipment

powerpoint template

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five force analysis

Transcript: Thank you for your listening Threat of Substitutes His famous "five forces" model shows the constraining impact that competition and environment have on strategy. The five forces identified by Prof Porter are: a) the threat of new entrants and the appearance of new competitors; b) the degree of rivalry among existing competitors in the market; c) the bargaining power of buyers; d) the bargaining power of suppliers; e) the threat of substitute products or services that could shrink the market. The Master Strategist Threat of New Entrants Paragraph 5 Bargaining Power of Buyers Paragraph 1 Paragraph 4 Rivalry among Existing Competitors Vocabulary n. From the external environment, he turns to the company itself. Companies make products and deliver them to consumers, but they can also add value to the basic product in a variety of ways and through different functions. Value can be added directly, for example by giving a product new technology features, or indirectly, through measures that allow the company to become more efficient. Prof Porter argues that every product follows a critical path through the company, from its inception to its delivery as a finished article. At every stage along this path there are opportunities to add value. This path he calls the "value chain". Five Forces model Prof Porter views strategy from the standpoint of economics, and his ideas on how strategy should be implemented are based on an understanding of competition and other economic forces. Strategy is not devised in isolation; a company's options will always be limited by what is going on around it. Paragraph 7 The value chain is crucial, he says, because it demonstrates that the company is more than just the sum of its parts and activities: all activities are connected, and what is done at one stage affects work at other stages. The company needs to examine its value chain and decide where it can add value most effectively to meet competitive pressures in the industry. The strength of each of these forces varies from industry to industry, but taken together they determine long-term profitability. They help to shape the prices companies can charge, the costs they must pay for resources and the level of investment that will be needed to compete. Paragraph 2 These concepts can be applied to entire sectors and national economies as well as individual companies, and Prof Porter went on to develop his theories of national competitiveness in great detail. 10234011 Sandy 10234030 Shelly 10234032 May 10234034 Shirley n Michael Porter Paragraph 6 Michael Porter became famous in the 1990s as a consultant on competitiveness to business and governments. In the 1980s, however, he wrote several popular and respected books on business strategy, introducing basic tools of strategic thinking such as the "five forces" model and the value chain. It is for this work on strategy that he is likely to be remembered, and his ideas have had a wide impact. In 1999, Fortune called him the single most important strategist working today, and possibly of all time. Paragraph 3 Bargaining Power of Suppliers

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