ANALYZING INDUSTRY ATTRACTIVENESS

Porter’s Five Forces of Competition

Framework
SUPPLIERS
Bargaining power of suppliers

INDUSTRY
COMPETITORS

POTENTIAL Threat of Threat of

SUBSTITUTES
ENTRANTS new entrants substitutes
Rivalry among
existing firms

Bargaining power of buyers

BUYERS
EXTENDING 5-FORCES ANALYSIS

Five Forces or Six?

Introducing Complements
The suppliers of
complements create
SUPPLIERS value for the industry
and can exercise
Bargaining power of suppliers bargaining power

INDUSTRY
COMPETITORS COMPLEMENTS

POTENTIAL Threat of
ENTRANTS Threat of
new entrants SUBSTITUTES
Rivalry among
existing firms substitutes

Bargaining power of buyers

BUYERS
IDENTIFYING KEY SUCCESS FACTORS

Identifying Key Success Factors

Pre-requisites for success

What do How does the firm

customers want? survive competition

Analysis of competition
Analysis of demand
• What drives competition?
• Who are our •• What
What are
drives
the competition?
main
customers? • What are the
dimensions of main
competition?
dimensions of competition?
• What do they want? •How
• Howintense
intenseisiscompetition?
competition?
• Howcan
•How canweweobtain
obtainaasuperior
superior competitive
competitive position? position?

KEY SUCCESS FACTORS

IDENTIFYING KEY SUCCESS FACTORS

KSFs in Steel, Fashion Clothing, and Supermarkets

WHAT DO CUSTOMERS WANT? HOW FIRMS SURVIVE COMPETITION?

Steel  Low price  Strong price competition and cyclical

 Product consistency demand require low costs and financial
 Reliability of supply strength
 Specific technical specifications for special
steels

Fashion  Demand segmented by garment type, style,  Intensely competitive due to low entry
clothing quality, color barriers, low seller concentration, and
 Price premium for brand, style, exclusivity, strong retail buying power
and quality  Differentiation can yield substantial price
 Mass market highly price sensitive premium, but imitation rapid

Super-  Low prices  Markets localized

markets  Convenient location  Intensity of price competition depends on
 Wide product range adapted to local tastes number and proximity of competitors
 Fresh produce, good service, pleasant  Bargaining power essential to low input
ambience, easy parking costs
IDENTIFYING KEY SUCCESS FACTORS

KSFs in Steel, Fashion Clothing, and Supermarkets

WHAT DO CUSTOMERS WANT?
Steel  Low price
 Product consistency
 Reliability of supply
 Specific technical
specifications for special
steels
HOW FIRMS SURVIVE KEY SUCCESS FACTORS
COMPETITION?
 Strong price competition  Cost efficiency requires either
and cyclical demand require large plants in low-cost locations,
low costs and financial or hi-tech, flexible, mini-mills
strength close to customers
 Quality and service differentiation

Fashion  Demand segmented by  Intensely competitive due to  Combining differentiation with

clothing garment type, style, quality, low entry barriers, low seller low-costs
color concentration, and strong  Key differentiation variables:
 Price premium for brand, retail buying power design, speedy to fashion trends,
style, exclusivity, and quality  Differentiation can yield brand reputation, quality
 Mass market highly price substantial price premium,  Cost efficiency requires low labor
sensitive but imitation rapid costs
Super-  Low prices  Markets localized  Low-costs require operational
markets  Convenient location  Intensity of price efficiency, efficient supply chain,
 Wide product range adapted competition depends on buying power, low wage costs.
to local tastes number and proximity of  Differentiation requires wide
 Fresh produce, good service, competitors product range (hence, large
pleasant ambience, easy  Bargaining power essential stores), convenient location, easy
parking to low input costs parking
IDENTIFYING KEY SUCCESS FACTORS

Identifying KSFs Through Modeling

Profitability: The Airline Industry
Profitability = Yield x Load factor - Unit Cost
Income = Revenue
x RPMs - Expenses
ASMs RPMs ASMs ASMs

• Strength of competition on • Price competitiveness. • Wage rates.

routes. • Efficiency of route • Fuel efficiency of
• Responsiveness to changing planning. planes.
market conditions • Flexibility and • Employee
responsiveness. productivity.
• % business travelers.
• Customer loyalty. • Load factors.
• Achieving differentiation
• Meeting customer • Administrative
advantage
requirements. overhead.

NOTE: ASM = Available Seat Miles; RPM = Revenue Passenger Miles

IDENTIFYING KEY SUCCESS FACTORS

Identifying KSFs by Analyzing

Profit Drivers: Retailing
Sales mix of products

Avoiding markdowns through

Return on Sales tight inventory control

Max. buying power to minimize

cost of goods purchased
ROCE
Max. sales/sq. foot through:
*location *product mix
*customer service *quality control

Sales/Capital Max. inventory turnover through

Employed electronic data interchange, close
vendor relationships, fast delivery

Minimize capital deployment

through outsourcing & leasing