Global marketing – strategic principles

Strategic principles are the essence of marketing, becouse it is responsible for successfully relating the strenghts of an organization to its enviroment. The way you can gain insight competitors is trough industry analysis. We can define industry as a group of firms that produce products that are close substitutes for each other. Michael E. Porter developed a five forces model that explains competition in an industry: - The threat of new entrants - The threat of substitute products or services - The bargaining power of buyers - The bargaining power of suppliers - The competitive rivalry among current members of the industry

Threat of new entrants New entrants to an industry bring new capacity, desire to get position and market share, also sometimes new approaches to serving customer needs. Porter describes eight major sources of barriers to entry, the presence or abcsence of which determines the extent of threat of new industry entrants. Product differentiation can be achived as a result of unique product attributes or effective marketing communications, the third entery barrier relates to capital requirements, a fourth would be switching costs which is caused by the need to change suppliers and products. Now we come to the fifth barrier to entry that is refered to distribution channels, sixth apears as government policy. Some established firms may come acros enjoying costs advantages independent of scale economies, and finallly but as much important, that can be a major entry barrier is competitor response.

Threat of substitute products The second thing influencing competition in an industry is the threat of substitute products, their availability places limits on the prices market leaders can charge in an industry, high prices may induce buyers to switch to the substitute.

Bargaining power of buyers In Porters model “buyers“ refers to ,manufacturers and retilers rather than consumers. The ultimate aim of such buyers is to pay the lowest possible price to obtaine the products or service that they require. Ussually if they can, buyers drive down profitability in the supplier industry. To accomplish this the buyers have to gain leverage over their vendors. One way they can do this is to purchase in such large quantities that supplier highly depends on them. When the suppliers products are viewed as commodities buyers are likely to bargain hard for low prices because many firms can meet their needs. Buyers will also try to bargain hard when the suppliers industry s products or services represent a significant portion of the buying firm costs. Fourth source of buyer power is the willingness ond ability to achieve backward integration, example: it purches massive quantities of goods for resale, walmart is in a position to dictate terms to eny vendor wishing to distribute its products in their retail stores.

Bargaining power of suppliers Lets say that the suppliers have enough leverage over industry firms, in that case they can raise prices high to significantly influence the profitability of their organizational customers. Suppliers will have the advantage if they are large and relativly few in member. When the supplier products of service are important inputsto user firms, are highly differentiated, or carry switching costs, the suppliers will have considerable advantage over buyers. Suppliers will also enjoy bargaining power if alternative products do not threaten their buisiness. A fourth source of suppliers power is the willignes
S and ability of suppliers to develop their own products and brand names if they are unable to get satisfactoiry terms from industry buyers. Microsoft and Intel are those two companies with substantial supplier power.

Rivalry among competitors Rivalry among firms refers to all the action taken by firms to all the actions taken by firms in the industry to improve their positions and gain advantage over each other. It manifests itself in price competition, advertising battles, product positioning, and atempts at differentiation. To the extent that rivalry among firms forces companies to rationalize costs, it is a positive force. To the extent that it drives down prices, and therefore rofitability, and creates instability in the industry, it is a negative factor.
Mature industry firms focus on market share and how it can be gained at the expense of others.
Second industries characterized by high fixed costs are always under pressure to keep production at full capacity to cover the fixed costs. Once the industry accumulates excess capacity, the drive to fill capacity will push prices therefor the profitability down.
Third factor affecting rivalry is lack of differentiation or an absance of switching costs, which encourages buyers to treat the products or services as commodities and shop for the best prices. Again, there is downward pressure on prices and profitability. Firms with high strategic stakes in achiveing success in an industry generaly destabilizing because they may be willing to accept below avrege profit margins to establish themselves, hold position, or expand would take the fourth place.

Competitive advantage It exists when there is a match between a firms distinctive competencies and the factor critical for success within its industry. There are two ways to achive competitive advantage. First, a firm can pursue a low-cost strategy that enables it to offer products at lower prices than competitors. Competitive advantage ma also be gined by a strategy of differentiating products so that the costumers perceive unique benefits, often accompanied by a premium price. Both of the strategies have the same effect.