porter+5+forces.ppt

7/29/2019 Porter+5+Forces.ppt

1/30

Ch2-1

Chapter 2

The External Environment:

Opportunities, Threats, Industry

Competition, and Competitor Analysis

Aviation Marketing

By:

Imtiaz Hussain

Superior University


2/30

Ch2-2

The purpose of

Five-Forces Analysis The five forces are environmental forces

that impact on a companys ability tocompete 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.


3/30

Ch2-3

Threat of

Substitute

Products

Threat ofNew

Entrants

Threat of

New

Entrants

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Porters Five Forces

Model of Competition


4/30

Ch2-4

NOKIA

Threat of new entrants: low The mobile phone industry is already a well established market high investments in R&D, technology and marketing.

Nokia hold 29% of the market share in the industry, the highest market share in the industry.

Power of suppliers: moderate Although Nokia rely on its suppliers to supply equipment for their advanced mobile phones there are

actually a number of large equipment makers, which Nokia could switch to.

The software suppliers for their Smartphone's are now Microsoft, who will have a very high bargainingpower.

Powers of buyers: high The power that customers have is rising because of the increasing number of choices in the mobile

telecommunication industry.

With a lot of the Nokia competitors all offering similar products and packages

Long term contracts so switching from one handset to another will be difficult

Threats of substitutes products: low Mobile phones are an everyday essential in peoples lives today.

social networking websites, email and home telephones.

Digital camera can take better photos then smart phones, notebooks can surf the web just as effectively

and PDAs can plan a day the same way a smart phone can.

Competitive rivalry: high Apple and HTC.


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Ch2-5

Example

This worries him:

The threat of new entry is quite high

Competitive rivalry is extremely high: if someone raises prices, they'll be quickly undercut.

Buyer Poweris strong, again implying strong downward pressure on prices. There is some threat of substitution


6/30

Ch2-6

Porters Five Forces Model

&Its Application in Aviation


7/30Ch2-7

1. Rivalry Amongst Existing

FirmsLow competition

Same type of aircrafts

Same type of fares

Less fare for economy class

High fare for business class


8/30Ch2-8

2.Substitution

Telecommunication

Surface transport

Air Freight industry


9/30Ch2-9

3. New Entry

Regulatory Limitations

Airport Slots

Staff Resources

Maintenance and Ground handling

Economies of Scale

Learning Curve effects

High Risks

Where there is muck theres brass


10/30Ch2-10

4. Power of Customers

Number of customers

True customers are decreasing

Over-ride comissions

Bucket Shops

Why not to do the job YOURSELF?

Integrated Carriers

Switching Costs

Golden Hello tactic


11/30Ch2-11

5. Power of Suppliers

Monopoly

Airports and ATCs

Aircraft manufacturers (B747, A380)

Global Distribution System (GDSs)

SABRE and Galileo International

Cost to be mutually share by agent and airline

Airlines continued to pay

85 to 90%


12/30Ch2-12

Threat ofNew

Entrants

Threat of

New

Entrants

Porters Five Forces



13/30Ch2-13

Threat of New Entrants

Barriers to

Entry

Expected Retaliation

Government Policy

Economies of Scale

Product Differentiation

Capital Requirements

Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent

of Scale


14/30Ch2-14

Bargaining

Power of

Suppliers

Threat ofNew

Entrants

Threat of

New

Entrants

Porters Five Forces



15/30Ch2-15

Bargaining Power of Suppliers

Suppliers exert power

in the industry by:

* Threatening to raise

prices or to reduce quali ty

Powerful suppliers

can squeeze industry

profitability if firms

are unable to recover

cost increases

Suppliers are likely to be powerful if:

Supplier industry is dominated by afew firms

Suppliers products have few substitutes

Buyer is not an important customer tosupplier

Suppliers product is an importantinput to buyers product

Suppliers products are differentiatedSuppliers products have highswitching costs

Supplier poses credible threat of

forward integration


16/30Ch2-16

Bargaining

Power of

Buyers

Threat ofNew

Entrants

Threat of

New

Entrants

Bargaining

Power of

Suppliers

Porters Five Forces



17/30Ch2-17

Bargaining Power of Buyers

Buyers compete

with the supplying

industry by:

* Bargaining down prices

* Forcing higher quality

* Playing fi rms off of

each other

Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases

are large relative to sellers sales

Purchase accounts for a significantfraction of suppliers sales

Products are undifferentiated

Buyers face few switching costs

Buyers industry earns low profits

Buyer presents a credible threat ofbackward integration

Product unimportant to quality

Buyer has full information


18/30Ch2-18

Threat of

Substitute

Products

Threat ofNew

Entrants

Threat of

New

Entrants

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Porters Five Forces



19/30Ch2-19

Threat of Substitute Products

Products

with similar

functionlimit the

prices firms

can charge

Keys to evaluate substitute products:

Products with improving

price/performance tradeoffs

relative to present industryproducts

Example:

Electronic security systems inplace of security guards

Fax machines in place of

overnight mail delivery


20/30Ch2-20

Threat of

Substitute

Products

Threat ofNew

Entrants

Threat of

New

Entrants

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Porters Five Forces



21/30Ch2-21

Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:

Jockeying for strategic position

Using price competition

Staging advertising battles

Making new product introductions

Increasing consumer warranties or service

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


22/30

Ch2-22

Cutthroatcompetitionis more likely to occur when:

Rivalry Among Existing Competitors

Numerous or equally balanced competitors

Slow growth industry

High fixed costs

Lack of differentiation or switching costs

High storage costs

Capacity added in large increments

High strategic stakes

High exit barriers

Diverse competitors


23/30

Ch2-23

The Five Forces are Unique to

Your Industry

Five-Forces Analysis is a framework for

analyzing a particular industry. Yet, the five forces affect all the other

businesses in that industry.


24/30

Ch2-24

Competitor Analysis

The follow-up to Industry Analysis is

effective analysis of a firms Competitors

Competitive

Environment

Industry

Environment


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Ch2-25

Competitor Analysis

Assumptions

What assumptions do ourcompetitors hold about the futureof industry and themselves?

Current Strategy

Does our current strategy supportchanges in the competitiveenvironment?

Future Objectives

How do our goals compare to our

competitors goals?

Capabilities

How do our capabilities compare

to our competitors?

Response

What will ourcompetitors do in thefuture?

Where do we have acompetitiveadvantage?

How will this changeour relationship withour competition?


26/30

Ch2-26

Future Objectives

How do our goals compare

to our competitors goals?

Where will emphasis be

placed in the future?

What is the attitude

toward risk?

What Drives the competitor?

Competitor Analysis


27/30

Ch2-27

What is the competitor doing?

What can the competitor do?

Future Objectives






toward risk?

Current Strategy

How are we currently

competing?

Does this strategy

support changes in the

competitive structure?

Competitor Analysis


28/30

Ch2-28

What does the competitor believe

about itself and the industry?

Future Objectives






toward risk?

Current Strategy


competing?Does this strategy


competition structure?

Do we assume the future

will be volatile?

Are we assuming stable

competitive conditions?

What assumptions do our

competitors hold about the

industry and themselves?

Assumptions

Competitor Analysis


29/30

Ch2-29

What are the competitors

capabilities?

Future Objectives






toward risk?

Current Strategy






will be volatile?

Are we operating under

a status quo?




Assumptions

What are my competitors

strengths and weaknesses?

How do our capabilities

compare to our

competitors?

Capabilities

Competitor Analysis


30/30

Future Objectives






toward risk?

Current Strategy






will be volatile?

Are we operating under

a status quo?




Assumptions

Response

What will our competitors

do in the future?

Where do we have a

competitive advantage?

How will this change our

relationship with our

competition?

Capabilities

What are my competitors

strengths and weaknesses?

How do our capabilities

compare to our

competitors?

Competitor Analysis

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