...major issues and upcoming changes in the environment. The analysis looks at five areas of interest, which are 1) Power of the Buyers; 2) Power of the Suppliers; 3) Threat of Substitute Products; 4) Threat of New Entrants; and 5) Intensity of Rivalry. Notice in the following diagram, how these interact and influence each other. MGMT 488 Chapter 3 – Macro Environment POWER OF BUYERS STRONGER WHEN • • • • • • • • • • Buyers have low switching costs Buyers are large; large volume sales are important Large number of small buyers can band together Buyer demand is weak or declining Buyer demand dramatically slows (aka “a buyer’s market”) Buyer identity is important Quality and quantity of information to buyers is high Buyers can postpone purchase until a later date Product is a commodity Threat of substitute products is high WEAKER WHEN • • • • • • • Buyers purchase infrequently or in small quantities Many buyers Buyer switching costs are high Buyer demand surges (aka “a seller’s market”) Brand reputation is important Highly differentiated product Threat of substitute products is low POWER OF SUPPLIERS STRONGER WHEN • • • • • Industry members have high switching costs Input in short supply Specialized or highly differentiated input Very few suppliers Threat of forward integration by suppliers WEAKER WHEN • • • • • • Commodity input Many suppliers Industry members have low switching...
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...organisation’s position with respect to the forces operating in the microenvironment • It can be used to explain the performance of competitors in a market • From the analysis a number of generic competitive strategies can be derived • Cost leadership • Differentiation • Focus The five forces • The ability of firms to earn an good return depends on five forces: namely the… • Threat of new entrants‐ the ability of new competitors to enter the industry • Bargaining power of suppliers • Bargaining power of customers • Threat of substitute products • Degree of competitive rivalry The five forces framework Threat of Substitute Products Bargaining Power of Suppliers Intensity of rivalry within the industry Bargaining Power of Buyers (Customers) Threat of New Entrants The threat of new entrants Threat of new entrants • If new entrants move into an industry they will gain market share, rivalry will accelerate and profits will decline • If it is difficult to enter an industry the position of existing firms will be strengthened • Impediments to the entry of new firms are known as barriers to entry • If barriers to entry are low then the threat of new entrants will be high, and vice versa Barriers to entry • Capital cost of entry • High cost will deter entry • High capital requirements might mean that only large firms can compete • Economies of scale available to existing firms • If they enjoy absolute cost advantages based on large scale then...
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...economy to search for profitability and attractiveness. In learnmarketing, Porter's fives forces model is an excellent model to analyse a particular industry. This 5 forces are: 1) Competitive rivalry 2) Power of suppliers 3) Power of buyers 4) Threats of substitutes 5) Threat of new entrants. As the above factors influence industry performance, it is useful to find out about these factors before you enter an industry or if you are wondering why your business industry is not doing well. 2.1 Threat of New Entrant Accordin to theManager, the competition in an industry will be the higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. Jim Wilkinson states that, a profitable industry will attract more competitors looking to achieve profits. If it is easy for these new entrants to enter the market – if entry barriers are low – this poses a threat to the firms already competing in that market. More competition – or increased production capacity without concurrent increase in consumer demand – means less profit to go around. Jim Wilkinson also stated that there's a high threat of entry of new competitors when Profitability does not require...
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...I. Industry Analysis Threat of Substitutes Threat of substitutes occurs when companies within one industry are forced to compete with industries producing substitute products or services. Substitutes can be competitive when the switching cost is low and there is less differentiation between products. With surplus cranberries and changing American households some enterprising growers began canning cranberries that were below-grade for fresh market. Competition between canners was fierce because profits were thin. Threat of substitutes is a strong competitive force. Other fruit-based juices, beverages not containing fruit, and water are considered to be strong substitutes for cranberry juice – especially in single serving packages. There are fewer substitutes for cranberry products sold for seasonal consumption. Threat of New Entrants Threat of new entry is a weak competitive force for NCC due to excess production capacity already and competition for retail shelf space. Northland Cranberries had recently entered the fruit juice industry, but had yet to gain notable success and only contributed to a further price war among producers. PepsiCo and Coca-Cola have entered the fruit juice industry through acquisitions and have met with far greater success. However, both of these beverage powerhouses were able to leverage their vast distribution capacity and bargaining power with retailers to become successful. Both companies also have tremendous scale advantages in production and bottling...
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...Steel Industry in the United States of America Threat of new entrants Bargaining Power of Suppliers Bargaining Power of Buyers Internal rivalry within Industry Threat of Substitutes 2. Bargaining Power of Buyer’s a. With an increase in domestic competition in steel sector in the USA, the options for buyers are on a rise. b. Low Product Differentiation. c. Switching costs is low. d. Buyers buying in large scale posses strong negotiating power. Buyer’s Market !!! 3. Bargaining Power of Supplier’s a. Scarcity of raw-materials like steel shreds, iron ore, coke, recycled steel. b. Few Suppliers. c. Most of the raw-materials are imported. Cost strategy drives Joint ventures, Mergers and Acquisitions between suppliers and manufactures !!! 4. Major players in the United States of America Major M&A involving foreign partner 5. Internal Rivalry a. Domestic market – more than 20 players. b. Intense rivalry – Price wars. c. No differentiated product. d. Joint ventures helps in driving economies of scale. Low fixed manufacturing cost is the key !!! 6. Threat of Substitutes a. No primary substitutes. b. Secondary substitutes: aluminium, plastic and wood. Continuous high demand for Steel !!! 7. Threat of New Entrants Barriers to entry for Domestic...
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...By determining the relative importance of each of these forces we can: • identify the controlling forces and trends • explain and predict the profitability of the industry • identify an organisation’s competitive position within the industry • suggest ways to improve the competitive position (e.g. vertical integration) Threat of new entrants ← New entrants are businesses that enter the marketplace with the same product as the current members of the industry ← Includes imports from firms seeking economies of scale ← If it is easy to enter the industry this will tend to force industry prices down ← Threat depends on the height of barriers to entry ← Examples of entry barriers: ← Economies of scale - entrant must either enter on a large scale or accept a cost disadvantage ← Differentiation - brand identification and customer loyalty has to be overcome ← Capital requirements - how much finance is needed to enter and compete? ← Cost disadvantages independent of size - the learning curves, access to cheap labour, patents etc. ← Access to distribution channels - are they closed to new entrants? ← Government policy - legislation, tariff and non-tariff barriers Supplier bargaining power ← Includes suppliers of raw materials, components, labour, power, plant and equipment, finance ← High supplier power means that firms in the industry will have to pay high prices for...
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...1 1.1. The Mobile phone Industry of Tanzania 1 2.0 .PORTER’S FIVE FORCES FRAMEWORK MODEL, PFFF 1 2.1. Degree of rivalry among existing firms. 2 2.2. Threat of substitute Products or Service. 3 2.3. Threats of new entrants 4 2.4 Bargaining power of buyers/Customers. 5 2.5. Bargaining power of Suppliers 5 2.6. Mapping the Porter’s Five Forces Model in the Mobile Industry in TANZANIA. 5 3.0. CONCLUSION. 7 4.0.REFERENCE 8 ABSTRACT The Mobile Phone industry of Tanzania has been growing very slowly in terms of the number of firms in the industry during the last two decades. The growth rate in terms of the number of customers has been very fast. Number of things ishappening within the industry after its liberalization. The aspect of competition is now crucial for the operators who are within the Mobile Phone industry. Porter’s Five Forces Framework is one of the strategic models used to assess the attractiveness of the industry (being service or manufacturing). This model is defined by the five key forces which are; Rivalry among the existing firms, Threat of new entrants,Threat of substitutes, Bargaining power of suppliers and bargaining power of customers. The mobile phone industry of Tanzania has 7 mobile phone operators, and two (2) substitute service provider.Bargaining Power of Suppliers, threat of new...
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...differentiation of RIM, buyer’s incentive. Barriers to entry: Government policy, entrance of new firms with old technology, access to distribution, Brand Identity. Threat of Substitute: switching costs, Supplier Power: Discuss the differences between processors used by RIM and its competitor and compare switching cost or prices. Buyer Power: Increase in buyer’s power, product differentiation of RIM, buyer’s incentive. Barriers to entry: Government policy, entrance of new firms with old technology, access to distribution, Brand Identity. Threat of Substitute: switching costs, Supplier Power: Discuss the differences between processors used by RIM and its competitor and compare switching cost or prices. Buyer Power: Increase in buyer’s power, product differentiation of RIM, buyer’s incentive. Barriers to entry: Government policy, entrance of new firms with old technology, access to distribution, Brand Identity. Threat of Substitute: switching costs, Supplier Power: Discuss the differences between processors used by RIM and its competitor and compare switching cost or prices. Buyer Power: Increase in buyer’s power, product differentiation of RIM, buyer’s incentive. Barriers to entry: Government policy, entrance of new firms with old technology, access to distribution, Brand Identity. Threat of Substitute: switching costs, Supplier Power: Discuss the differences between processors used by RIM and its competitor and compare switching cost or prices. Buyer...
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...Porter's Five Forces Model: analysing industry structure Author: Jim Riley Last updated: Sunday 23 September, 2012 Overview of the Five Forces Model Porter identified five factors that act together to determine the nature of competition within an industry. These are the: Threat of new entrants to a market Bargaining power of suppliers Bargaining power of customers (“buyers”) Threat of substitute products Degree of competitive rivalry He identified that high or low industry profits (e.g. soft drinks v airlines) are associated with the following characteristics: Let’s look at each one of the five forces in a little more detail to explain how they work. Threat of new entrants to an industry If new entrants move into an industry they will gain market share & rivalry will intensify The position of existing firms is stronger if there are barriers to entering the market If barriers to entry are low then the threat of new entrants will be high, and vice versa Barriers to entry are, therefore, very important in determining the threat of new entrants. An industry can have one or more barriers. The following are common examples of successful barriers: Barrier Investment cost Notes High cost will deter entry High capital requirements might mean that only large businesses can compete Lower unit costs make it difficult for smaller newcomers to break into the market and compete effectively Each restriction can act as a barrier to entry E.g. patents provide the patent holder with protection...
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...Five forces * Threat of new entrants * Bargaining power of suppliers (SUPPLIER POWER) * Rivalry among existing competitors (RIVALRY) * Bargaining power of customers (BUYER POWER) * Threat of substitutes Anomalies * Some anomalies occur due to a variety of reasons with regards to profit over time * Ex: Tobacco was not profitable in 2007 due to lawsuits but was much more profitable during 2008 What is 5 forces analysis? * A framework for analysing industryprofitability * NOT company profitability – that depends on competitive positioning How we evaluate these: * Opportunity threats * Company position vs competitors * Anticipate changes in the industry RIVALRY * Often the most visibly competitive force (price reduction, new product intros, additional services, etc…) * Threats to industry profits * Homogeneous products perfect subs * No buyer switching costs product choice drive by price comparison * Airlines: when there’s no buyer switching costs compete like crazy * Perishable products short shelf life encourages discounting * Everything travel related have a perishable inventory (hotels, cruise ships) * Infrequent, large volume sales transactions discounting to “smooth” sales * Excess industry capacity supply adjusts easily to increased demand * High fixed-to-variable cost ratio pressure to increase market * Many, similarly powerful...
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...are many substitutes, there is an issue to try to gain economies of scale and become a leader in the wine market. Wine tends to stay it its local region, which makes it harder to compete with its substitutes. In the strategic analysis portion of this case analysis, we discuss Porter’s Five Forces and how they affect the Robert Mondavi Winery. We conclude that in order for the winery to stay competitive and gain economies of scale, they should develop new joint ventures and reform their company structure into a decentralized federation. PROBLEM IDENTIFICATION After analyzing Robert Mondavi Winery the biggest problem they face being in the wine industry is the threat of substitution of their product. There is a range of different products in the alcohol industry. Wine is not the most consumed alcoholic drink in the world, making it a treat to having sustained and effective substitute products. Robert Mondavi Winery’s second biggest problem they must overcome is being able to sustain a competitive advantage over rival companies in different areas. Such areas include the Winery staying local and not being able to compete in markets in other parts of the world. This is where a firm’s structure is important. Does a firm want to be internationally integrated or have more of a local responsiveness approach? These are the main problems Robert Mondavi Winery has and most overcome to become a better company. STRATEGIC ANALYSIS Porters Five Forces: 1. Threat of Rivalry ...
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...framework of forces by including the sixth force as well, which will subsequently be analyzed according to said industry. Porter’s Six Forces Model Analysis The extension of Porter’s five forces model is actually regarded as Porter’s six forces model. The enhanced stimuli of forces did not gain such popularity as that of its previous model integrating five forces only, because of its less positive acceptance. The model is similar to the five forces model with only difference of sixth force in the framework. Hence, all Porter’s (1980) forces are explained below with their certitude rating in the parameters of airline industry. Force 1: Threats of New Entrants The threat of new firm into the same industry is the force which describes the dependability of new entrants on the entering barriers. These barriers are a kind of great threat to any industry, if they are feasible and flexible because it will increase the number of potential competitors in the industry and on the contrary they can react in diverse manner to the potential entrants to replicate the incumbents’ position. These barriers may exist within economies of scale, distribution channel, cost of entry, government legislation and product...
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...Competitors/Substitutes Analyzing Competitive Forces • Threat of intense segment rivalry Currently in the home security industry, there is intense competition for growth in the market, making the threat of intense rivalry high. Market growth for security is rising because of various safety factors and consumers wanting their families and assets protected. By adding an insurance feature to our existing product line, ADT Security & Insurance can significantly lower its threat of segment rivalry because it takes out our direct competition. In order to keep this threat low, we will need to stay proactive in the market with our new extension and continue to increase our customer loyalty and branding, while continuing to create innovative new ideas for enhancing our services and maintaining a high competitive advantage. • Threat of new entrants At the present time, the threat of new entrants into the home security market is high. It has been recently reported that existing companies such as Verizon and Comcast are currently attempting to enter the home security market, offering some of the same products and services as ADT Security, along with competitive price points (www.verticalresearchpartners.com). There are however a few barriers that may slow their attempt. Although these companies are well-established names in the cable/telecom industries, with the current economic standings the way they are, gaining revenue to add, advertise and market...
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...food, different menus, catering service, new time suggesting of specialty food and providing inviting neighborly atmosphere. According to the text, Panera Bread serves nearly six million customers a week systemwide and become one of the largest chains. This shows that the unique position has contributed to its success. In my opinion, I think Panera Bread will reach its goal because the company is relying on its unique position strategy, its signature foods and savvy execution to make this goal a reality. Q2. Analyse the restaurant industry using Porter’s five forces model. In what ways has Panera Bread successfully positioned itself against the forces that are suppressing the profitability of the restaurant industry as a whole? | Threat to Industry Profitability | Competitive Force | Low | Medium |...
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...managers and budgets to cash flow, profitability targets, and occupation cost demands. However, the industry is changing rapidly, with substitute business models coming up. A Marketline Industry profile of April 2014, described “A new substitute in the form of private rentals, widely available through on line services such as Airbnb and Flipkey is a potential threat to the hospitality industry.” Chains such as Airbnb are described as being an emerging threat to the hotel industry. Airbnb has accomplished more growth than the top 10 global hotel companies have been able to grow in 20 to 240 years. The growth accomplished by Airbnb and OVRP’s regarding numbers of listings and revenue is unprecedented. Airbnb has become one of the world’s most valuable startups within only 6 years. OYO, through its international expansion plans, aims to replicate Airbnb’s success in foreign markets. Porter’s five forces analysis: The hotel industry is a group of like companies providing products and services that satisfy a similar need, function and use, and is highly influenced by travel and tourism trends and is vulnerable to global economic conditions. The following five forces analysis considers the general international market, to understand Oyo’s opportunity for global expansion: Threat of substitute products: Threat of shared economy substitutes, like Airbnb is high, with a...
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