STAKEHOLDERS – PRESSURES, EXPECTATIONS

PORTER’S FIVE FORCES MODEL

NCAER

NSSO

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 Stakeholders – Pressures & Expectations
SHAREHOLDERS
Pressure Exerted Expectations
Delegate decision power Above average return on
to board but recent equity improving return
increase in activism over on assets, share value
remuneration and rising
appointments. Selling
shares is the real threat
as a falling share price
attracts takeover
predators.

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 Stakeholders – Pressures & Expectations
EMPLOYEES
Pressure Exerted Expectations
Absenteeism, turnover, Above average
low morale, media leaks, remuneration, training
unionization, poor and skill development,
productivity company growth /
promotion, employment
security/job satisfaction,
improving conditions
and wages

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 Stakeholders – Pressures & Expectations
CUSTOMERS
Pressure Exerted Expectations
Reduce purchases; buy Value for money, product
from competitors, safety / quality
organize boycotts, assurance, innovation /
complain to other improved design, better
potential customers, service
press for legislation

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Stakeholders – Pressures & Expectations
CREDITORS

Pressure Exerted Expectations

Limit credit, withdraw Regular / timely
credit, cut credit rating, repayment, early
charge higher rates notification of problems

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Stakeholders – Pressures & Expectations
DISTRIBUTORS
Pressure Exerted Expectations

Stock and promote Reliable supplies, support

competing brands/own- in promotion, progressive
label, integrate product development,
backwards, delay good communications
payment

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Stakeholders – Pressures & Expectations
SUPPLIERS
Pressure Exerted Expectations

Supply competitors, Reliable payment, regular

reduce priority, limit supply schedules,
trade credit, poor development support,
quality service, ability to interrogate
integrate forward stock/production systems

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 The purpose of
Five-Forces Analysis
• The five forces are environmental forces
that impact on a company’s ability to
compete in a given market.
• The purpose of five-forces analysis is to
diagnose the principal competitive
pressures in a market and assess how
strong and important each one is.

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Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants

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 Threat of New Entrants
Economies of Scale

Barriers to Product Differentiation

Entry Capital Requirements
Switching Costs
Access to Distribution Channels

Cost Disadvantages Independent

of Scale
Government Policy

Expected Retaliation
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 Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants

Bargaining
Power of
Suppliers

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 Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
Suppliers exert power
in the industry by:
* Threatening to raise
prices or to reduce quality
Powerful suppliers
can squeeze industry
profitability if firms
are unable to recover
cost increases
Supplier industry is dominated by a
few firms
Suppliers’ products have few substitutes
Buyer is not an important customer to
supplier
Suppliers’ product is an important
input to buyers’ product
Suppliers’ products are differentiated
Suppliers’ products have high
switching costs
Supplier poses credible threat of
forward integration
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 Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants

Bargaining Bargaining
Power of Power of
Suppliers Buyers

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 Bargaining Power of Buyers
Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases

are large relative to seller’s sales Buyers compete
Purchase accounts for a significant with the supplying
fraction of supplier’s sales industry by:

Products are undifferentiated * Bargaining down prices

Buyers face few switching costs * Forcing higher quality

* Playing firms off of
Buyers’ industry earns low profits
each other
Buyer presents a credible threat of
backward integration
Product unimportant to quality
Buyer has full information Ch2-
 Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants

Bargaining Bargaining
Power of Power of
Suppliers Buyers

Threat of
Substitute
Products
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 Threat of Substitute Products
Keys to evaluate substitute products:

Products Products with improving

with similar price/performance tradeoffs
function relative to present industry
limit the products
prices firms
can charge Example:
Electronic security systems in
place of security guards
Fax machines in place of
overnight mail delivery
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 Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants

Bargaining Rivalry Among Bargaining

Power of Competing Firms Power of
Suppliers in Industry Buyers

Threat of
Substitute
Products
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 Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position
Using price competition
Staging advertising battles
Increasing consumer warranties or service
Making new product introductions

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but
may be costly to smaller competitors

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Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
High storage costs
Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors
High strategic stakes
High exit barriers
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The Five Forces are Unique to
Industry
• Five-Forces Analysis is a framework for
analyzing a particular industry.
– Yet, the five forces affect all the other
businesses in that industry.

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Jordache - changed industry forces. Introduced designer jeans – entry barrier
created. Upfront advt expenditure – created strong consumer preference –
diluted bargaining power of buyers.
Structural forces surrounding industry neutralized, Jordache getting itself
competitive advantage

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 NCAER
(National Council for Applied Economic Reaearch)
• NCAER Activities   Develop policy reports for clients. To examine
domestic agricultural market structures, price policy, linkages
between agricultural price policy and poverty, and, the role of the
Panchayats in fostering sustainable development.
• Track key sectors of the economy for subscribers Forecast the
economic outlook Conduct, design, and analyse surveys that
illuminate public policy issues as well as assist private sector
decisions Disseminate research findings.
• NCAER depends on contract research with the government, the
private sector and the non-government sector and institutions at the
national and international levels. Sponsors for the different studies
undertaken by the Council include the central and state
governments, public and private corporations, and international
organisations such as Ford Foundation, UNDP and the World Bank.

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Useful NCAER Research findings
- helps customer relations
• Market Information Survey of Households
(MISH)
• Tracking consumer demographics and
consumption patterns across product
categories
• Firm’s can avail NCAER research services
customized to their market needs

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