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Porters 5 Forces

Transcript: Substitutes * Industries must distance themselves to survive! ? Low switching costs for buyers 7 End users may be further empowered by manufacturer (not seller) employs a pull strategy, making them demand a certain product at the retailer - hence increasing manufacturer bargaining power towards seller. The Power of Consider who the entrants are of course. Small startups or big ugly corporations? Equal size Workers union Mono/oligopolistic supplier situation Always present The investment to enter; asset heavy, scale Entry Barriers: geographical location, laws, current competitive situation. Incumbency advantages independent of size Bargaining power of suppliers Rory Integration forward Capital requirements Newcomers can expect retaliation from incumbents who have responded vigorously to new entrants in the past, possess substantial resources to fight back, seem likely to cut prices and industry growth is slow. Creates a ceiling price on product E.g. samsung that used to be a components supplier for Sony (E.g. R&D and lobbying) Pilots union When the threat of a substitute is high: Similarities with low switching costs Entry Barriers: Number/size of buyers Knowledgeable customers MB: High because of high switching cost The major sources Suppliers Easy to overlook Network effect Loyality, people may be connected or be happy to be grouped with other customers. If one large firm supplying. E.g. one dominant player to which most customers are connected. Existing competitive situation Economics of scale (E.g. Bloomberg system) New Entrants Government policy Unfamiliarity Switching Costs Article #5 The supplier is not dependent on single industry. Benefits of scale Rivalry Among Existing Competitors Newcomers are likely to fear expected retaliation if: Incumbents have previously responded vigorously to new entrants. Incumbents possess substantial resources to fight back, including excess cash and unused borrowing power, available productive capacity, or clout with distribution channels and customers. Incumbents seem likely to cut prices because they are committed to retaining market share at all costs or because the industry has high fixed costs, which create a strong motivation to drop prices to fill excess capacity. Industry growth is slow so newcomers can gain volume only by taking it from incumbents. Suppliers offer differentiated Threat of a substitute is high if: External Threat of substituting product P5F The power of Substitutes maybe be very different from industry's product *Father's Day gift High fixed, low marginal costs Sam Substitutes Travel or Video-Conferencing Aluminum OR Plastic Express Mail OR Email Indirect Threats Software sold to travel agents Any other indirect examples??? If price of product is a significant fraction of the cost structure =price sensitivity = will be likely to look for best deal Attractive price-performance tradeoff Slow market growth The Threat of Not only where it is now, but in which direction is it moving? Lower entry barriers? Subsidiaries? New technology? Group #2: Justin Decker, Justin Dudley, John Lindell, & Shelbee Jensen High exit barriers Industry profitability suffers Switching costs intermediate buyers (not end users) may have significant bargaining power, as they may affect purchasing decisions on customers downstream. Balanced Scorecard Powerful Suppliers Effects: Increased competition pressure on prices, shift in bargaining power (depending on the size of the entrant) Expected retaliation (Supply side) High commitment Industry faces high switching costs (E.g. Patented drugs for hospitals) Capacity increments Bargaining power may depending on industry. E.g. Pilots Union Internal Johanna Monopoly Backward integration No Substitutes Buyers Bargaining power of customers Price competition* New entrants Perishability Price sensitivity Unequal access to distributions channels Standardized or Unique? (Demand side) That Shape Strategy Another element may be how the entrants expect the incumbent to react Peter

Porters 5 forces

Transcript: Car Rental Industry Porters 5 Forces Team Sheikh Who we are Who we are Joey Ambrefe Carolina Herrera Javid Sheikh Nicholas Guasch Arish Keshwani Agenda Competitive Rivalry in Industry Threat of New Entrants Threat of Substitutes Power of Buyers in the Industry Power of Suppliers in the Industry Wrap-Up Agenda What is Competitive Rivalry Compettitive Rivalry Number of competitors in an industry More competitors = less power of a company Rivalry Competition Enterprise & Vanguard Primarily Airport Market Avis Tailored Travel with multiple partnership packages Dollar Rent A Car Focused on cost effective travlers Hertz Business travel & Upscale travelers What Does this Mean? Companies compete through branding "Price" is the key competitive factor in the leisure travel market Strategic alliances with Hotels and Airlines give a compettive advantage What it Means for the Industry Risk Level: Risk Level... The Level of competition here is very high & is increasing rapidly HIGH Threat of new entrants Threat of New Entrants The threat of new entrants refers to the time and money it costs for a competitor to enter a company's market and be an effective competitor Tech Innovations Biometrics, Mobile Alerts, Kiosks. They have been increasing sales to go along in rental service. Ranking of Analysis Threats of New Entrants is at a low, due to entering the market being is currently occupied and high cost. Extensive amount of capital is needed to start up a rental car company. Discouraged from entering the industry. cont. Threat of subsitutes Threat of Substitutes Subsitute goods or services that can be used in place of a company's products or services and pose a threat to a company No subsitutes available = more power to increase prices and lock in favorable items Subsitutes available = company's power weakened Threat of subsitutes cont. Assesed as strong Telephones, internet, emails, and video conferencing applications Air travel, public transport, taxi services Ride Hailing services: Uber/Lyft Power of buyers Power of Buyers/Suppliers What is the Power of Buyers? The power that customers have to drive prices based on how many customers a company has, how significant each customer is, and how much it would cost a company to find new customers What does it tell us? A smaller and more powerful client base means that each customer has more power to negotiate for lower prices and better deals. A company that has many, smaller, independent customers will have an easier time charging higher prices to increase profitability. Power of Buyers Cont. Power of Buyers Cont. Is the Power of Buyers high or low? low Why? If an individual intends to rent a car service, he/she would possess a low bargaining power because losing of the potential financial resources will not impact on the company’s financial resources significantly due to the amount of customers. Power of Suppliers Power of Suppliers What is the power of suppliers? How suppliers can drive the cost of inputs It is affected by the number of suppliers and how much it would cost a company to switch to another supplier. What does it tell us? The fewer suppliers to an industry, the more a company would depend on a supplier Power of Suppliers cont. Cont. Is the Power of Suppliers high or low? Low Why? Due to the high number substitutes and the intense competition in the industry. due to the lack of switching costs in the industry, buyers do not incur any switching costs when they switch their suppliers Conclusion Is this Industry Attractive? No. Conclusion Competive Rivalry: High, Cost competitivness within the industry Threat of New Entrants: Low, High inital costs Threat of Substitutes: High, ridesharing, cost competitiveness Powers of Buyers: Low, The larger a customer base thus less bargaining power customers have Powers of Suppliers: Low, High number of substitutes

Porters 5 forces

Transcript: In pairs: 1. read through the example hand out, detailing a P5F analysis of the UK music industry. 2. Complete a P5F analysis of a streaming service of your choice. prepare a presentation. N.B. To complete this task adequately you are going to need to spend some considerable time researching Threat of New Entry Power is affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it. So ask yourself the questions: What’s the threat of new businesses starting in this sector? How easy is it to start up in this business? What are the rules and regulations? What finance would be needed to start-up? Are there barriers to entry which give you greater power? Supplier Power Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. Examine how many suppliers are in the market? Are there a few who control prices? Or many so prices are lower? Do your suppliers hold the power? How easy is it to switch, what’s the cost? Competitive Rivalry What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. What’s the level of competition in this sector? What’s the competitor situation? Many competitors and you’re all in a commodity situation or a few? How can I use Porters five Forces? To apply Porter’s Five Forces, you need to work through these questions for each area: Force 1: Threat of New Entry? Force 2: Buyer Power? Force 3: Threat of Substitution? Force 4: Supplier Power? Force 5: Competitive Rivalry? Porters 5 forces Simon Thomas Buyer Power (Customers) Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you. Questions here include: How powerful are the buyers? How many are there? Can the buyers get costs down? Do they have the power to dictate terms? Threat of Substitution This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. How easy is it to find an alternative to this product or service? Can it be outsourced? Or automated? What is Porter’s five Forces model? This model helps marketers and business managers to look at the ‘balance of power’ in a market between different types of organisations, and to analyse the attractiveness and potential profitability of an industry sector. It’s a strategic tool designed to give a global overview, rather than a detailed business analysis technique. It helps review the strengths of a market position, based on five key forces. Porter’s Five Forces works best when looking at an entire market sector, rather than your own business and a few competitors. Task


Transcript: ARE WE HAVING FUN? "Easy drinking, Ease of Selection, Sense of fun and adventure." Rivalry: Competition in the aero engine market is dominated by 3 firms. Rolls Royce Case Study RIVALRY YELLOWTAIL WINERIES The number of suppliers is heavily saturated,leaving them with fragmented power. "BOS" CASE STUDY THREAT OF SUBSTITUTES BOS Threat to entry is small, largely due to the complexity of the process. Two on One? That's not fair! ALL SYSTEMS IN SYNC THREAT OF NEW ENTRANTS BLUE OCEAN STRATEGY ALL SYSTEMS ARE GO! REFERENCES A company can use innovation to differentiate itself. The threat of substitutes is minor, with little air travel becoming increasingly popular, Rolls Royce concedes there are some credible threats however. We're lovers not fighters, that's why we're doing are own thing! STRATEGY by Andrew Burke, André van Stel, and Roy Thurik Kim, WCh, Mauborgne, R. 2005c. Value Innovation: A Leap into the Blue Ocean, Journal of Business Strategy 26, 22-28. Kim, WCh, Mauborgne, R. 2005b. Blue Ocean Strategy: From Theory to Practice, California Management Review 47, 105-121. Porter, ME. 1998. Clusters and the New Economics of Competition, Harvard Business Review, 76, 77-90. Porter, ME. 2000. Location, Competition and Economic Development: Local Clusters in a Global Economy, Economic Development Quarterly, 14, 15-34. Websites: Now we move onto BOS aKa "BLUE OCEAN STRATEGY" PORTERS 5 V BOS PORTERS 5 V BOS??? WHICH TEAM ARE YOU ON?? Yellow Tail eliminated "Oneological terminology and distinctions, Aging qualities, Above the line marketing." SUPPLIER POWER The number of aero engine buyers are low, therefore handing power to the buyers. EVOKE NEW DEMAND ELIMINATING COMPETITION PORTERS 5 BUYER POWER By reducing "Wine complexity, Wine range, Vineyard prestige." Making the competition irrelevant. Entry into the market weakens an already established companies power. Intensity of the competition among existing competitors in the market. This is how much control buyers have to drive down your products price. This is how strong the position of a seller is. SO LETS COMPARE! THANK YOU! Creating the Market PORTERS 5 FORCES CREATE YOUR OWN MARKET Power of Suppliers Threat to Substitutes By creating and differentiating products a company can sets themselves apart from the rest. How easily consumers can switch to competitors products. COMPETITION? WHAT COMPETITION? Power of Buyers Threat of Entry "Price versus Budget Wines, Simplicity of retail store environment, Enthusiasm of Sales People." It is critical that company molds its thinking striving for innovation and a well adjusted cost strategy. EVOKED NEW DEMAND

Porters 5 forces

Transcript: Product for Product - Post v email Improved processes/product that reduce the need for other processes products - Phone cameras replaced point and press - Jessops Competition for the same money - Furniture v White Goods New Entrants Size - Large/Less competition Growth - In a growth industry it is easy to grow Global Markets Over Capacity Differentiation High Costs If buyers have any power and can negotiate then the industry is less attractive Concentration - Banks Switching costs - Aero engines Brand - Levis Forward Intergration easy Customer highly fragmented - Brewery E of S - Nestle Capital - BMW Access to distribution - Breweries Experience/Reputation - Boeing Retaliation - BA Government legislation - Licences Differentiation - Apple Concentration of buyers Volumes - Tescos Homogenous product High % of costs Switching is low Backward intergration is easy Substitutes The pressure of substitutes can lower the attractiveness of the industry The industry will be more competitive the easier it is to enter or exit the industry Suppliers Porters 5 Forces Buyers If suppliers have high bargaining power over a company then the industry is less attractive Competitive Rivalry The nature of competition within the industry will have an impact on the potential to make profits Some industries are more profitable than others. Why - The answer lies in understanding the dynamics of competitive structure in an industry The most influential analytical model for assessing the nature of competition in an industry is Michael Porter's Five Forces Model

Porters 5 Forces.

Transcript: Power of Buyers LOW Power of Buyer The power of buyers are low as the product is highly differentiated in regards to being the only female imitated form of contraception to protect users from both pregnancies and STIs, therefore there are no substitutes available. Users may use contraceptives such as the pill, implant and the coil, which are free with the NHS as a substitute however these do not protect from STIs. The switching of costs would be low as the Femex will be priced marginally at an affordable price allowing consumers of all incomes to afford it. LOW S.M.A.R.T. GOAL To inform and educate the targeted segment (women aged 16-30 years old) about the advantages of hormone-free contraception and the impact hormonal contraception can have on both mental and physical health, whilst reaching an audience of 15,000 on social media within the first 2-3 months. SMART Goal Competitive Rivalry -Medium Competitive Rivalry The female condom market is small, the only competitor being the FC2 which can only be ordered online. Femex will be accessible both online and in stores removing this threat. However male condom industry leaders: Durex may replicate the product, which would be high risk as they are a pre-established brand with a high following. Requires a high switching cost of people converting from hormonal contraception to the Femex. MEDIUM S.M.A.R.T. GOAL SMART Goals The social media: Facebook, Twitter, will have a collective following of 10,000 in the first 3 months, and regularly engage with the audience with polls, competitions, and support lines to build a strong relationship with the audience, encouraging loyalty. Threat of Substitutes LOW Threat of Substitute Femex will be the only female-initiated form of contraception which prevents both pregnancies and STIs which can be bought nationwide in high-street stores. Substitutes of other branded female condoms can be purchased online or prescribed, however Femex will be more widely accessible, via the use of intermediaries and online stores. There are other forms of contraceptives substitutes: the pill, coil, and implant. However these do not protect from STIs and can impact the user's mental health. One in four women believes the pill has negatively impacted their mental health (Petter, 2019). LOW S.M.A.R.T. GOAL SMART Goal To have Femex stocked nation-wide in a variety of easily accessible high street shops: Boots, Superdrug, Ann Summers… whilst also stocked in supermarkets within the first 2 years of operations. Supplier Power LOW Supplier Power Female condoms can be manufactured using multiple materials: polyurethane, polyisoprene, or synthetic nitrile. Therefore the supplier power is low. If the suppliers raise the price, change the quality or reduce availability alternate products can easily be sourced and used, and this will not drastically impact the pricing. LOW Threat of New Entry HIGH Threat of New Entry The female condom market is small creating a threat of new entry and replications of product, however Femex will utilize the time advantage in the first 6 months of business to ensure maximum reach and conversions, and a strong push on the support and care to create loyalty. HIGH S.M.A.R.T. GOAL SMART Goal Complete monthly consumer feedback and small marketing business audits for the first year of business to be aware of the markets changes, needs, and demands, creating Femex the opportunity to act on these before new entry companies do.

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