Customers Suppliers - Competitors
1. Factors influencing different buyers.
Consumers Availability
Convenience Credit
Price
Quality Reputation
Variety
Warranty
Customers Suppliers - Competitors
1. Factors influencing different buyers.
Retailers and/or Whole-sellers
Competitive product Consumer recognition Product availability Product line breadth Product turnover Profit potential Promotional & merchandising supply Supply dependability
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Customers Suppliers - Competitors
1. Factors influencing different buyers.
Industrial and/or Institutional buyers
Cost Vs profitability Price Financing Legal conformity Product information Product line Product Performance Source availability Technical assistance
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Customers Suppliers - Competitors
1. Factors influencing different buyers.
2. Demographic factors: Changes in population, age shifts, Income distribution
3. Geographic factors: New Locations to add markets
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Customers Suppliers - Competitors
Reference to Michael Porter on relative power of supplier. 1. 2. The power of the supplier to raise profits, the farther away greater the power. The power the supplier has to raise prices and lower buyer profits is reduced if the buying firm is a monopolist or oligopolist. The power is greatest when buyer is not an important customer
3.
4.
5.
The power is greatest when business is integrated.
The supplier threat can be offset by backward integration.
Customers Suppliers - Competitors
Four Factors need to examines regarding competition
1.
Entry and Exit of major competition.
2. Substitutes and Complements for current product of services and major strategic changes by current competition.
Porters Model of Industry Attractiveness
2 Potential Entrants Economies of Scale Absolute Cost Advantage Brand Identity Access to List Switching Cost Government Policy
Threat of Entrant
Suppliers Supplier Concentration Number of Buyers Switching Cost Substitute Raw Materials Threat of Forward Integration.
Bargain Power of Suppliers
1 The Industry Competitions Numbers of Group Industry Growth Access Intensity Product Differentiation Exit Barriers
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Bargain Power of Customers
Buyers Buyer Concentration List of Suppliers Switching Costs Substitute Products Threat of Backward Integration
Threat of Substitute
3 Substitutes Functional Similarity Price/Performance Trend Product Identity
Barriers to Entry
Economies of Scale Product Differentiation Brand Identity Switching Cost Capital Requirements Access to Distribution Channels Absolute Cost Advantages Proprietary Learning Curve Access to necessary inputs Government Policy Expected Retaliation
Barriers to Exit
Managerial values prevent it Other product services are related to exit candidates Costs are sunk in assets
Direct exit costs are high
Indirect cost may reduce Exit behaviour
Determinants of Rivalry
Industry growth Fixed (or storage) cost/value added Intermittent Capacity Product Differences Brand Identity Switching costs Concentration of Balances Informational complexity Diversity of competitors Exit barriers
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Determinants of Substitution Threat
Relative price/ Performance of substitute Switching costs Buyer propensity to substitute
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Determinant of Supplier Power
Differentiation of Inputs Switching costs of suppliers and firms in the industry Presence of substitute inputs Supplier concentration Importance of volume to supplier Cost relative to total purchaces in the industry Impact of inputs on cost or differentiation Threats of forward integration relative to threat of backward integration by firms in the industry
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Determinant of Buyer Power
Bargaining leverage Buyer concentration vs firm concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products Pull through Price sensitivity Price/Total purchases Product differences Brand identity Impact on quality/performance Buyer profits Decision makers incentive
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Intensity of Competitive rivalry (rivalry)
Increases and profit falls as numbers of Competitors increase Increases as industry slows Increases, where costs are high Increases as products become less differentiated Increases as industry become more diverse in personality, strategic approach
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FIGURE
2.2
The Five Forces of Competition Model
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Barriers to Entry
Economies of Scale
Marginal improvements in efficiency that a firm experiences as it incrementally increases its size
Factors (advantages and disadvantages) related to large- and small-scale entry
Flexibility in pricing and market share
Costs related to scale economies
Competitor retaliation
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Barriers to Entry (contd)
Product differentiation
Unique products Customer loyalty Products at competitive prices
Switching Costs
One-time costs customers incur when they buy from a different supplier
New equipment Retraining employees Psychic costs of ending a relationship Access to Distribution Channels Stocking or shelf space Price breaks Cooperative advertising allowances
Capital Requirements
Physical facilities Inventories Marketing activities Availability of capital
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Barriers to Entry (contd)
Cost Disadvantages Independent of Scale
Proprietary product technology Favorable access to raw materials Desirable locations
Expected retaliation
Responses by existing competitors may depend on a firms present stake in the industry (available business options)
Government policy
Licensing and permit requirements Deregulation of industries
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Bargaining Power of Suppliers
Supplier power increases when:
Suppliers are large and few in number. Suitable substitute products are not available. Individual buyers are not large customers of suppliers and there are many of them. Suppliers goods are critical to the buyers marketplace success.
Suppliers products create high switching costs.
Suppliers pose a threat to integrate forward into buyers industry.
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Bargaining Power of Buyers Buyer power increases when:
Buyers are large and few in number.
Buyers purchase a large portion of an industrys total output. Buyers purchases are a significant portion of a suppliers annual revenues.
Buyers switching costs are low.
Buyers can pose threat to integrate backward into 20 the sellers industry.
Threat of Substitute Products
The threat of substitute products increases when:
Buyers face few switching costs. The substitute products price is lower.
Substitute products quality and performance are equal to or greater than the existing product.
Differentiated industry products that are valued by customers reduce this threat.
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Intensity of Rivalry Among Competitors
Industry rivalry increases when:
There are numerous or equally balanced competitors.
Industry growth slows or declines. There are high fixed costs or high storage costs. There is a lack of differentiation opportunities or low switching costs. When the strategic stakes are high. When high exit barriers prevent competitors from 22
Interpreting Industry Analyses
Low entry barriers Suppliers and buyers have strong positions
Strong threats from substitute products
Intense rivalry among competitors
Unattractive Industry
Low profit potential
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Interpreting Industry Analyses (contd)
High entry barriers Suppliers and buyers have weak positions Few threats from substitute products
Attractive Industry
High profit potential
Moderate rivalry among competitors
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Different ways a competitive Advantage can be created
Strategies based on Competitive advantage:
SMALL
1) Little Space Strategy: 1. Carve out on position hold it 2. Emhasise profits 3. Minimise investment 4. Caution on expansion 3) A pure Cost Game Strategy: 1. Use aggressive costing 2. Emphasise efficiency 3. Manage increase cash flow 4. Look for Diversification 2) 1. 2. 3. 4. 4) 1. 2. 3. 4.
LARGE
Specialized approach Strategy: Seek niche Select Segments Stay ahead of rivals Watch out for change Those with large competitions adv. Strategy Pursue economics of scale Volume increase Get the Customers of weak firm Get new ways to complete
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FEW
MANY
Size of the Competitive advantage which can be achieved.
Generic Strategy Alternations
Expand Retrench Stabilise Combination
Products
Add
Drop
Maintain
Markets
Diversify
Drop
Maintain
Process
Forward
Decrease
Maintain
Discuss: Why companies follow different routes of Strategic Alternative
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Considering Strategy Variations
Possible Strategy Variation
Expansion 1. Internal Stability Retrenchment Reduce Cost, assets, drop production, Markets & Function
Combination
Penetrate existing Reorganize Markets, add new Production production, add New Markets
Subcontracting
2. External Acquisition Mergers 3. Related
Maintain Divest, Market Share liquidation, bankruptcy Eliminate relate production Market or Function
Cross License JV
Seek Synergy Improve from NPD, NMkt, Production or Concentrate
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Considering Strategy Variations
Possible Strategy Variation
Expansion 4. Unrelated Conglomerate direction in production market or function Add Competitive Product or Markets Add new Function Stability Retrenchment Eliminate relate production Market or Function Eliminate Competitive Product or Markets Reduce Function
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Combination
5. Horizontal
6. Vertical
Considering Strategy Variations
Possible Strategy Variation
Expansion 7. Active Innovative, Entrepreneuri-al moves Initiator in R&D, New Product Stability Retrenchment Combination
8. Passive
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Internal Expansion through markets & Products Products
Current New
Current
Markets
Penetrate existing Market(s) with existing Product(s)
Add New Markets
New
Add New Products
Add New Products & New Markets
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Three Joint Venture Strategies (Strategic Alliance)
1. Spider Web: A small firm establishes and serves Joint Ventures for its survival. 2. Go Together: Joint Ventures for a specific project then quit. 3. Successive integration: From weak relationship to final merger.
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Competition: A Marketing Warfare
1. Defensive Warfare:
2.
3. 4.
Offensive Warfare:
Flanking Warfare: Guerrilla Warfare:
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