Post on 19-Jan-2023
BuyersSuppliers
Substitute
products
Potential
entrants
Industry competitors
Rivalry among
existing firms
Threat of
new entrants
Bargaining power
of suppliersBargaining power
of buyers
Threat of
substitutes
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
2
STRUCTURAL ANALYSIS AND
COMPETITIVE STRATEGY
ESSENCE OF COMPETITIVE STRATEGY IS RELATING A COMPANY TO ITS ENVIRONMENT
INDUSTRY STRUCTURE DETERMINES LEVEL OF COMPETITION AND HENCE INDUSTRY PROFITABILITY
UNDERSTANDING THE STRUCTURE IS CRITICAL IN FORMULATING STRATEGY
POSITIONING THE FIRM TO COMPETE
INFLUENCING THE BALANCE OF FORCES THROUGH STRATEGIC MOVES
EXPLOITING CHANGE
3
THREAT TO ENTRYBARRIERS TO ENTRY
THERE ARE SEVEN MAJOR SOURCES OF BARRIERS OF ENTRY
ECONOMIES OF SCALE
PRODUCT DIFFERENTIATION
CAPITAL REQUIREMENTS
SWITCHING COSTS
ACCESS TO DISTRIBUTION CHANNELS
COST DISADVANTAGE INDEPENDENT OF SCALE
GOVERNMENT POLICY
4
INTENSITY OF RIVALRY AMONG EXISTING
COMPETITORS
NUMEROUS OR EQUALLY BALANCED COMPETITORS
SLOW INDUSTRY GROWTH
HIGH FIXED OR STORAGE COSTS
LACK OF DIFFERENTIATION OR SWITCHING COSTS
CAPACITY AUGMENTED IN LARGE INCREMENTS
DIVERSE COMPETITORS
HIGH STRATEGIC STAKES
HIGH EXIT BARRIERS
5
BARGAINING POWER OF SUPPLIERS
IT IS DOMINATED BY A FEW COMPANIES AND IS MORE CONCENTRATED THAN THE INDUSTRY IT SELLS TO.
IT IS NOT OBLIGED TO CONTEND WITH OTHER SUBSTITUTE PRODUCTS FOR SALE TO THE INDUSTRY.
THE INDUSTRY IS NOT AN IMPORTANT CUSTOMER OF THE SUPPLIER GROUP.
THE SUPPLIERS’ PRODUCT IS AN IMPORTANT INPUT TO THE BUYER’S BUSINESS.
THE SUPPLIER GROUP’S PRODUCTS ARE DIFFERENTIATED OR IT HAS BUILT UP SWITHING COSTS.
THE SUPPLIER GROUP POSES A CREDIBLE THREAT OF FORWARD INTEGRATION.
6
BARGAINING POWER OF BUYERS
IT IS CONCENTRATED OR PURCHASES LARGE VOLUMES RELATIVE TO SELLER SALES
THE PRODUCTS IT PURCHASES FROM THE INDUSTRY REPRESENT A SIGNIFICANT FRACTION OF THE BUYER’S COSTS OR PURCHASES.
THE PRODUCTS IT PURCHASES FROM THE INDUSTRY ARE STANDARD OR UNDIFFERENTIATED.
IT FACES FEW SWITCHING COSTS.
IT EARNS LOW PROFITS.
BUYERS POSE A CREDIBLE THREAT OF BACKWARD INTEGRATION
THE INDUSTRY’S PRODUCT IS UNIMPORTANT TO THE QUALITY OF THE BUYERS’ PRODUCTS OR SERVICES.
THE BUYER HAS FULL INFORMATION.
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BARRIERS AND PROFITABILITY
ENTRY BARRIERS // EXIT BARRIERS
8
L O W H I G H
L O W L O W S T A B L E L O W , R I S K Y
R E T U R N R E T U R N
H I G H H I G H , S T A B L E H I G H , R I S K Y
R E T U R N S R E T U R N
PRESSURE FROM SUBSTITUTE PRODUCTS
SUBSTITUTE PRODUCTS THAT DESERVE THE MOST
ATTENTION ARE THOSE THAT
ARE SUBJECT TO TRENDS IMPROVING THEIR PRICE-
PERFORMANCE TRADEOFF WITH THE INDUSTRY’S
PRODUCT,
OR
ARE PRODUCED BY INDUSTRIES EARNING HIGH PROFITS.
9
Breadth of
Competitive
Scope
Source of Competitive Advantage
Broad
Target
Market
NarrowTarget
Market
Cost
Focused
Differen-
tiation
Cost
Leadership
Differen-
tiation
Focused
Low Cost
Generic Business Level Strategies
Uniqueness
10
Gaining competitive advantage out of Generic strategy
Example
11
Resources, Capabilities, and Competitive
Advantage: The Basic Relationships14
COMPETITIVE
ADVANTAGE STRATEGY
INDUSTRY
KEY
SUCCESS
FACTORS -
EXTERNAL
ORGANIZATIONAL
CAPABILITIES
RESOURCES
Tangible Intangible Human
Outcomes from External and
Internal Environmental Analyses
15
Examine opportunities
and threats
Examine unique
resources, capabilities,
and competencies
Distinctive Competencies and
Role of Resources and Capabilities17
Resources• Tangible (physical) and intangible (non-physical)
• Allow a company to create value for its customers
• Must have skills to take advantage of the resources
• Firm-specific and difficult-to-imitate resources
as well as valuable resources that create strong
demand for a company’s products lead to
distinctive competencies
Capabilities• Coordinating resources & putting to productive use
• Skills reside in the organization’s rules, routines
and procedures
• Product of its organization, processes & controls
• Firm-specific capabilities to manage its resources
lead to distinctive competencies
Core Compt. and Tree
Leaves-
End
Products
Branches- Businesses
Stem- Core Products Roots- Core
Competence
What core competence is Core competencies are the collective learning in an
organization, on how to coordinate & integrate
diverse streams of technological ability
Competencies are the glue that bind existing
businesses
They guide patterns of diversification and market
entry
Core products/businesses contribute to a wide
range of end products, thus it is vital to protect them
from being acquired by a rival
20
Core competence have following
characteristics….
Core Competence
Different Markets
Difficult to
imitate
Valuable
21
The Value Chain
Supportactivities
Primary activitiesInbound logistics Materials receiving, storing, and distribution to manufacturing premisesOperations Transforming inputs into finished products.Outbound logistics Storing and distributing productsMarketing and Sales Promotions and sales forceService Service to maintain or enhance product valueCorporate infrastructure Support of entire value chain, e.g. general management planning,
financing, accounting, legal services, government affairs, and QMHuman resources management Recruiting, hiring, training, and developmentTechnology Development Improving product and manufacturing processProcurement Purchasing input
22
Inbound Logistics
Inbound
LogisticsOperations
Outbound
Logistics
Marketing and Sales
Service
Inbound logistics
Activities used to receive, store,
and disseminate inputs to a
product (materials handling,
warehousing, inventory control,
vehicle scheduling, return to
suppliers, etc.)
Walmart’s Logistics, Fed Ex: sorting
of Packages
GE’s investment in bar coding,
sorting and inventory checking
system
Honda and Toyota’s inventory less
ordering, JIT
23
Operations
Inbound
LogisticsOperations
Outbound
Logistics
Marketing and Sales
Service
Operation
Activities necessary to convert the inputs
provided by inbound logistics into final
product form (machining, packaging,
assembly, testing, printing facility operations,
etc.)
Type of technology used, size of plant, degree
of automation, productivity gains, wage rates
E.g. Toyota’s and Samsung’s
Flexible Manufacturing System , check
clearing for brokerage houses, TQM, Mini-mills
in steel, Intel standardized machinery and
processes, stoppages of flow in chemical
industry
24
Outbound Logistics
Inbound
LogisticsOperations
Outbound
Logistics
Marketing and Sales
Service
Outbound logistics
Activities involved with collecting,
storing, and physically distributing
the product to customers (finished
goods warehousing, order
processing, scheduling, delivery
vehicle operations, etc.)
E.g. HUL’s distribution, Asian Paints,
Cemex’s , P and G’s linkages with
wholesalers and retailers(bar
coding, RFID), Walmart, ordering
and tracking systems
25
Marketing and Sales
Inbound
LogisticsOperations
Outbound
Logistics
Marketing and Sales
Service
Marketing and sales
Activities completed to provide means through which customers can purchase products and to induce them to do so (advertising, promotion, distribution channels, sales force, quoting, channel selection, channel relations, product design, pricing etc.)
E.g. Virgin, Coca Cola vs. Rest, Invst. Banking
26
Service
Inbound
LogisticsOperations
Outbound
Logistics
Marketing and Sales
Service
Service
Activities designed to enhance or
maintain a product’s value (repair,
training, adjustment, parts supply,
product adjustment, installation,
etc.)
E.g. Maruti, Tata, UPS allows
customer to track their packages
so does Fedex, Using Internet for
feedback E.g. Intel, Dell, GE,
Amazon customers order to
distribution centre, factories and
suppliers
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Support Activities-Procurement
HR •HR
Pro
cu
rem
en
t •Procurement
Tec
hn
olo
gy •Technology
Procurement
Activities completed to
purchase the inputs
needed to produce a
firm’s products
(documentation and
ordering
processsystems for raw
materials and supplies,
machines, laboratory
equipment, etc.)
E.g. Walmart, Future
Group, Reliance, Nirma
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HR
•HR
Pro
cu
rem
en
t
•Procurement
Tec
hn
olo
gy
•Technology
Primary Activities
Su
pp
ort
Act
ivit
ies
Cost Effective
MIS Systems
Relatively Few
Management Layers to
Reduce Overhead
Simplified Planning
Practices to Reduce
Planning Costs
Consistent Policies to
Reduce Turnover Costs
Effective Training Programs
to Improve Worker
Efficiency and Effectiveness
Highly Efficient
Systems to Link
Suppliers’
Products with the
Firm’s Production
Processes Timing of Asset
Purchases
Efficient Plant
Scale to Minimize
Manufacturing
CostsSelection of Low
Cost Transport
Carriers
Delivery Schedule
that Reduces
Costs
National Scale
Advertising
Products Priced to
Generate Sales
Volume
Small, Highly
Trained Sales
Force
Effective Product
Installations to
Reduce Frequency
and Severity
of Recalls
Easy-to-Use Manufacturing
Technologies
Investments in Technology in order
to Reduce Costs Associated with
Manufacturing Processes
Systems and Procedures to find the
Lowest Cost Products to Purchase
Raw Materials
Frequent Evaluation Processes to
Monitor Suppliers’ Performances
Located in Close
Proximity with
Suppliers
Policy Choice of
Plant Technology
Organizational
Learning
Efficient Order
Sizes
Interrelationships
with Sister Units
Value Creating Activities common
to a
Cost Leadership Business Level
Strategy
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A company wide
emphasis on producing
high quality products
Highly Developed Information
Systems to better understand
customers’ purchasing preferences
Compensation programs
intended to encourage worker
creativity and productivity
Extensive use of subjective
rather than objective
performance measures
Superior
handling of
incoming raw
materials to
minimize
damage and
improve the
quality of the
final product
Rapid responses
to customers
unique
manufacturing
specifications
Consistent
manufacturing of
attractive
products
Accurate and
responsive order
processing
procedures
Complete field
stocking of
replacement parts
Strong
capability in
basic research
Investments in technologies that will
allow the firm to consistently produce
highly differentiated products
Systems and procedures used to find
the highest quality raw materials
Purchase of highest quality
replacement parts
Rapid and timely
product deliveries
to customers
Superior
personnel
training
Coordination among R&D,
product development and
marketing
Extensive
personal
relationships
with buyers
Strong Coordin-
ation among
functions in R&D,
Marketing and
Product
Development
Premium
Pricing
Value Creating Activities common
to a
Differentiation Business Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
30
The Product Manager’s Interactions
Product
Manager
Advertising
agencyManufacturing
and
distribution
Research
and
development
Legal
Fiscal
Market
research
Sales
Publicity
Purchasing
Packaging
Promotion
services
Media
Agency media dept.
Company media dept.
Media sales reps
Premium suppliers
Premium screening
Store testing
Sampling
Couponing
Designers
Researchers
Suppliers
Trade
Research
Suppliers
Suppliers
Trade
Suppliers
SIX CATEGORIES OF NEW PRODUCTS
New-to-the-world product. New products that create an entirely new market.
New-product line. New products that allow a company to enter an established market for the first time.
Additions to existing product lines. New products that supplement a company’s established product lines.
Improvements in/revisions to existing products. New products that provide improved performance or greater perceived value and replace existing products.
Repositioning. Existing products that are targeted to new markets or market segments.
Cost reductions. New products that provide similar performance at lower cost.
PROBLEMS IN NEW PRODUCT
DEVELOPMENT IN FUTURE Shortage of important new-product ideas in certain areas. Some
scientists think there are too few feasible new technologies with the investment potential that was provided by automobiles, television, computers, xerography, and wonder drugs in times past.
Fragmented markets. Keen competition is leading to increasingly fragmented markets. Companies have to aim new products at smaller market segments rather than the mass market, and this means lower sales and profits for each product.
Social and governmental constraints. New products have to satisfy public-interest criteria such as consumer safety and ecological compatibility. Government requirements have slowed down innovation in the drug industry and have complicated product-design and advertising decisions in such industries as industrial equipments, chemicals, automobiles, and toys.
Costliness of the new-product-development process. A company typically has to generate many new-product ideas in order to finish with a few good ones. Furthermore, the company has to face rising R&D, manufacturing, and marketing costs.
contd…
PROBLEMS IN NEW PRODUCT
DEVELOPMENT IN FUTURE
Capital shortage. Some companies with good ideas cannot raise the funds needed to research them. Venture capital has, in recent years, become much more cautious.
Shortened time span to completion. Many competitors are likely to get the same idea at the same time, and the victory often goes to the swiftest. Alert companies have to compress development time by using computer-aided design and manufacturing techniques, joint partners, early concept tests, and advanced marketing planning. Japanese companies see the challenge as “achieving better quality at a cheaper price at a faster speed than competitors.”
Shorter life spans for successful products. When a new product is successful, rivals are to quick to imitate it that the new product’s life cycle is considerably shortened. Thus IBM finds dozens of imitators offering IBM-compatible personal computers; and Apple finds foreign “knockoffs” of its computers being sold in the Far East.
Three Levels of Product
Core
benefit
or
service
Packaging
Brand Features
name
Quality Shape Styling
Brand Name Warranty
After
Sale
serviceDelivery
and
credit
InstallationAugmented
Product
The Secondary
level product
Tangible Product
Core
Product
Design Texture / color
PRODUCT HIERARCHY
Need family. The core need that underlies the product family. Example : security.
Product family All the product classes that can satisfy a core need with more or less effectiveness. Example : savings and income
Product class. A group of products within the product family that are recognized as having a certain functional coherence. Example : financial instruments.
Product line.. A group of products within a product class that are closely related because they function in a similar manner, or are sold to the same customer groups, or are marketed through the same types of outlets, or fall within given price ranges. Example : life insurance.
Product type. Those items within a product line that share one of several possible forms of the product. Example : term life.
Brand. The name associated with one or more items in the product line that is used to identify the source or character of the item(s). Example : Prudential.
Item. A distinct unit within a brand or product line that is distinguishable by size, price appearance, or some other attribute. The item is called a stockkeeping unit, or product variant. Example : Prudential renewable term insurance.