Transcript: PORTER’S FIVE FORCES ANALYSIS PORTER’S FIVE FORCES ANALYSIS The model is named after Michael E. Porter. Porter's Five Forces is a business analysis model that helps to explain why different industries can sustain different levels of profitability. The model was originally published in Michael Porter's book, "Competitive Strategy Porter identified five undeniable forces that play a part in shaping every market and industry in the world 1. Competition in the industry; 2. Potential of new entrants into the industry; 3. Power of suppliers; 4. Power of customers; 5. Threat of substitute products. Undeniable forces Strategy Competition in the industry Next steps Potential of new entrants into the industry; Timeline Timeline Stage 1 Stage 2 Stage 3 Time Pricing Pricing Offer 1 Offer 2 Offer 3 $1,000 $2,000 $3,000 Service 1 Service 2 Service 3 Service 4 Service 1 Service 2 Service 3 Service 4 Service 1 Service 2 Service 3 Service 4 Next steps Next steps Timeline Timeline Stage 1 Stage 2 Stage 3 Time Pricing Pricing Offer 1 Offer 2 Offer 3 $1,000 $2,000 $3,000 Service 1 Service 2 Service 3 Service 4 Service 1 Service 2 Service 3 Service 4 Service 1 Service 2 Service 3 Service 4 Next steps Next steps Timeline Timeline Stage 1 Stage 2 Stage 3 Time Pricing Pricing Offer 1 Offer 2 Offer 3 $1,000 $2,000 $3,000 Service 1 Service 2 Service 3 Service 4 Service 1 Service 2 Service 3 Service 4 Service 1 Service 2 Service 3 Service 4
Transcript: Creates and maintains positive relationships in many ways. This suppliers offers a product that is far from unique. The food processing industry is very large and competitive The company has been around for over a century The threat of new entrants is moderate Power of suppliers Nestle is beset with the threat of substitute goods. It is vital to improve it's products to fight this threat. Threat of Entrants Costumers have a large amount of power Close substitutes products Nestle deals with this threat by meeting the needs of it's costumers. Five Forces Analysis Power of buyers Nestle is a powerhouse in food industry, but so are others. Rivalry is strong in this industry. Advertising it's a way to fight this threat. Rivalry Substitutes and complements
Transcript: Five Forces Analysis Annette Lee, Period: 2 Who and When Who invented it and when? - Michael E. Porter of Harvard Business School in 1979 Purpose Purpose - to assess the competitive strength and position of a business organization How it works How it works Bargaining power of suppliers Delivers proven results - measures how easy it is for suppliers to drive up prices Bargaining power of buyers Manages and integrates your workflow - measures how easy it is for buyers to drive prices down Competitive rivalry Manages and integrates your workflow -determined by number and capability of competitors in market Threat of substitution Manages and integrates your workflow - chances of customers switching to new organization offering lower prices Threat of new entry Manages and integrates your workflow - profitable market attracts new entrants, eroding profitability Shortcomings - ineffective for individual firms - cannot decide optimal industries with certainty Shortcomings Strengths - help organizations understand factors affecting profitability in a certain industry Strengths Current Uses - Yes, it used by major companies - Ex: Ikea uses it to determine how these 5 forces affect its competition Current Uses Effectiveness - It is effective - not considered to be an outdated strategy - Ikea is world's largest furniture retailer Effectiveness Application - Ikea -1) Bargaining power of suppliers - relatively low 2) Bargaining power of buyers - relatively low 3) Threat of substitutes - relatively low 4) Threat of new entrants - low to moderate 5) Competitive rivalry - moderate to high Application Quiz 1) Who invented it? 2) How many forces are there? 3) What company/example uses this strategy? 4) Name one of the strategies 5) What is the purpose of this tool? Quiz
Transcript: Northwest Cooperative Deveopment Co-op Development Centers Interfaith Business Builders Ohio Employee Center Center for Family Life CooperationWorks Child's Space ICA Group Stacey Co MadWorC WAGES VAWC DAWI other co-ops start-ups conversions incubators co-op developers DAWI CCHD Peer Advisors Working Pros DAWN staff Other contractors advocacy organizations community development organizations co-op development centers university-based community legal clinics employee ownership centers "new economy" activists and organizations local governments Cooperative Conferences Incubators and Academies Regional Networks Funding Organizations Worker Cooperatives Individual Members Libraries, Wikipedia, USDA, Information Sources Who are DAWN's competitors? Competitive Rivalry Power of New Entrants Who are the New Entrants? Threats of Substitutes Power of Buyers Power of Suppliers Who are DAWN's suppliers? Who are DAWN's buyers? Five Forces Analysis What (and who) could replace DAWN in the marketplace?
Transcript: Threat of Subtitutes Bargaining Power of Suppliers Threat of New Entry Bargaining Power of Customers Competition Rivalry Subtitutes products for the business are birthday cards, stamps, toys, candies and rings With specific materials and production methods our sourvenirs can be cheaper than other substitute products Most people search something which is not homemade, thus it is to find another different way that stregthen substitution At the Energy Hub, it will be competitively complex if other students who sale other merhandise and volunteer service have more members, better prices, and convenient products Competition will be diverse since usually the traders at the Energy Hub offer foods, electronics, club societies and luxury Informational complexity can be decreases with social network, team based supervision, and practical accounting Level of differentiation between traders is high but the maturity of the business is still as a rookie PORTER's Five Forces Analysis It is possible that our the number of our customers can be as much as those who usually go to a cafeteria. Because our sales of souvernir is at the Energy Hub, the volume of purchases on our business can be medium if some customers are college people who enjoy tourism We will arrange low to medium prices to customers due to limited resources and according to the situation with the customers If the majority of our customers are foreign students who enjoy tourism, their number can be 5 to 10 people every hour at the business It can be difficult to adjust selling terms if our customers (students or teachers) have some experience in haggiling the price At the Energy Hub, our customers are expected to be college students, office workers and instructors. Since our products are sourvenirs made of bottles and decoration, the supply must be from stores or supermarket These suppliers can have no direct relation to influence our prices since our business is informal as a simulation It will be costly to switch suppliers due their changes in availability in resources and prices Since there are many stores around Sunway resort to to choose for our products, we will need each of their help not too frequently. Thus they cannot often dictate prices powerfully Capital requirement depends on the situation and must be organized with serious caution due to limited budget If one of the other groups from the class enters selling of similiar products, it increases the intensity of competition but it can costly for that other group if we have superior readiness In proprietary product differences, our products are designed to be simple, low cost, decorative easy to produce, in the form of a decorated bottle as a gift and memento Resources remain scarce during the start of the business and until profit is sufficient and establised relation with reliable suppliers. This is directly related with the amount of bubget and supply choices Cost advantages depends easy access to specific materials and production methods Access to distribution depends on availability of transportation, effeciency of advertisement and commercial nature of the location for sales
Transcript: PORTER'S FIVE FORCES ANALYSIS Forces limiting profitability Continued viability of the firm Defending market share LIMITATIONS "Innovating has significant costs to a business and creating a brand new market can sometimes feel like betting a company on the even square of a roulette wheel" MARKET MAKING Marketing Strategy Growth Does the cost of the investment correspond to the rewards? Adequacy Data Validity Static MARKET MAKING EVALUATING THE COMPETITIVE LANDSCAPE OF AN EXISTING FIRM VENTURING INTO NEW MARKETS VENTURING INTO NEW MARKETS Entry and Exit Rebranding the company
Transcript: Porter five forces analysis In order to both break through barriers of entry and maintain those created by its position, Telefonica is constantly operating in its interests. How do they do this? - Lobbying - Price wars - By engaging in M&A - Building consumer loyalty Landline - Jazztel/Orange -Vodafone/Ono Main competitors How can Telefonica deal with entry barriers? Telephone Services: Calls through the internet 1.International calls 2.Increasing number of users –TARIFAS PLANAS and promotions to call other countries at lower prices 3.No longer leave voice messages 4.Home Phone – Mobile Phone Conversion - Framework to analyze the level of competition within an industry and business strategy development. - Identifies and analyzes 5 competitive forces that shape every industry - Determine weaknesses and strengths 1. Bargaining and negotiation leverage -Services packages *Mobile, house telephone, Internet and television *“Movistar Fusión” – Best price overall -Loyalty Programs *Points can be changed for a variety of products or discounts in the invoices *“Por ser de Movistar” – The best handsets at the most competitive prices -Promotions, special offers *Latest generation phone subvention *Others: spa sessions, cars, play stations, etc. -Industry growth -Product differentiation -Brand identity -Switching costs -Market concentration -Diversity and size of competitors -Customer loyalty Specific to the nature of the telecommunications market: - Technical know how, distribution network and critical resources: Telecoms infrastructure. - Government policies regulating the industry, public contracts and competition fostering (anti-trust regulations) - Network externalities: For telecoms this has always been a major issue How does this affect Telefonica? Incumbents and their actions: For telecoms, it can be argued that the threat posed by incumbents is also posed by large corporations looking to move into the market: - M&A - Price war - Industry diversification Telefónica S.A. Five Forces Analysis Internet -Vodafone -Orange -Low Cost Main Suppliers Increase in competition → consolidation -Samsung -Ericson -Nokia Siemens Networks -Huawei - Threat of New Entries -> High - Supplier Power -> Low - Buyer Power -> High - Threat of Substitution -> Intermediate/High - Competitive Rivalry -> High -Telefonica offers 4 different services, and therefore it may have different competitors depending on the service we are talking about -Telefonica’s services are: *Telefónica (Landline) *Movistar (Cell phones) *Internet *Movistar TV Purchases categories: -Nets and infraestructures -Services and works -Market products -Information systems -Marketing and publicity Buyer Power Movistar TV -Canal + -Vodafone TV 2 types: 1. Exogenous (industry) 2. Endogenous (incumbent’s choices) Conclusion 2.Price sensitivity -Created by high competition -Substitutives *Hard to acquire customer’s loyalty -Substitutes reduce the demand for Telefonica services -Price elasticity of demand -The nature of the telecom industry (constant tech innovation) means that there is high competition -Switching Costs Low TV Services Supplier Power Telefonica´s Purchases Five forces analysis: Entry Cristina Bravo Luis Castillo Marta Chollet Candela Gascó Lucía Lazaga Threat Of Substitution Powerful customers can capture value: -Forcing down prices, demanding better quality or more service. -Enormous change in the technological sector *All-included services -The customer´s attraction, a strategic challenge Bargaining Power - Spanish telecommunications provider - Operating globally Threat Of New Entries Factors affecting supplier power -Competitiveness of the input market -Relative concentration of upstream and downstream firms -Availability of substitute inputs -Relationship-specific investments -Threat of forward integration by suppliers -Suppliers ability to price discriminate Telecommunication sector -Price and quality to increase bargaining power -Specialization Exogenous entry barriers Threat of entry & barriers to entry: Differences between smaller firms trying to enter a market and larger, previously established firms, seeking to enter new markets How does this affect firms in general? Endogenous entry barriers Telephone Services Substitutes Buying system: 9 buying tables Competitive Rivalry Telefonica: One of the market leaders of Europe & the world for telecommunications. Movistar -Orange -Vodafone Low cost companies:Lowi,Yoigo,Simyo
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