swot and porter-  -²s five forces

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SWOT ANALYSIS AND PORTER’S FIVE FORCES Presented by : Ces Abris Marketing Management  Dr.Ed Garrovillas

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SWOT ANALYSIS AND

PORTER’S FIVE FORCES 

Presented by : Ces Abris

Marketing Management – Dr.Ed Garrovillas

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S.W.O.T. ANALYSIS

Strengths

Opportunities

Weakness

Threats

Factors Internalto Organization

Factors Externalto Organization

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S.W.O.T.

•The origins of the SWOT analysis technique is

credited by Albert Humphrey, who led a researchproject at Stanford University in the 1960s and1970s using data from many top companies.

• Humphrey and his research team used thecategories “What is good in the present isSatisfactory, good in the future is an Opportunity;bad in the present is a Fault and bad in the future is

a Threat.” 

• In 1964 Urick and Orr at a conference changedthe F to W and changed the soFt to sWot 

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SWOT: DESCRIPTION

• A SWOT analysis generates information that is

helpful in matching an organization or group’s goals, programs, and capacities to the socialenvironment in which it operates.

• It is an instrument within strategic planning, whencombined with dialogue becomes a participatoryprocess

• It is a process to identify where you are strong andvulnerable – where you should defend and attack.

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SWOT: INTERNAL FACTORS

Strengths- Positive tangible and intangible

attributes, internal to an organization.They are within the organization’s 

control.

Weakness

- Factors that are within anorganization’s control that detract fromits ability to attain the core goal. Whichareas might the organization improve?

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SWOT: EXTERNAL FACTORS

Opportunities External attractive factors that represent the reasonfor an organization to exist and develop. What opportunities exist in the environment, whichwill propel the organization?

Identify them by their “time frames” Threats

External factors, beyond an organization’s control,which could place the organization mission or operationat risk.The organization may benefit by having contingencyplans to address them if they should occur.Classify them by their “seriousness” and “probability ofoccurrence”.

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STEPS ON HOW TO DO A SWOT

ANALYSIS

1. Information collection - here and now

- List all strengths and all weaknesses that

exist now.2. What might be

- List all opportunities that will exist in thefuture.

3. Plan of action

- Review you SWOT matrix with a view tocreating an action plan to address each ofthe four areas.

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WHAT MAKES A SWOT ANALYSIS

WORK?

• Trust• Ability and willingness to implement change• Diversity• Time

Generating Strategies: get them USED How can a firm 

U se each strength?

S top each weakness?E xploit each opportunity?D efend against threat?

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Threat of 

Substitute

Products

Threat of 

New

Entrants

Threat of New

Entrants

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of 

Buyers

Bargaining

Power of 

Suppliers

PORTER’S FIVE FORCES 

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ADVANTAGE OF THE MODEL

According to Porter, businesses can use the model to identify how 

to position itself to take advantage of opportunities and overcome threats. 

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Expected Retaliation

Government Policy

Economies of Scale

Product Differentiation

Capital Requirements

Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent

of Scale

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Suppliers are likely to be powerful if:

Supplier industry is dominated by afew firms

Suppliers’ products have few

substitutes

Buyer is not an important customerto 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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Buyer

Buyers are concentrated or purchases

are large relative to seller’s sales 

Purchase accounts for a significant

fraction of supplier’s sales 

Products are undifferentiated

Buyers face few switching costs

Buyers’ industry earns low profits 

Buyer presents a credible threat of

backward integration

Product unimportant to quality

Buyer has full information

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Threat of Substitute Products

Products

with similar

function limitthe 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

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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

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

offAdvertising battles may increase total industry demand,

but may be costly to smaller competitors

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PORTER’S 5 FORCES AND PROFIT 

Force Profitability will be

higher if:

Profitability will be

lower if:

Bargaining power

of suppliers

Weak suppliers Strong suppliers

Bargaining power

of buyers

Weak buyers Strong buyers

Threat of new

entrants

High entry barriers Low entry barriers

Threat of

substitutes

Few possible

substitutes

Many possible

substitutes

Competitive rivalry Little rivalry Intense rivalry

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 SUMMARY  … 

As rivalry among competing 

firms intensifies , industry 

profits decline , in some cases to the point where an industry 

becomes  inherently unattractive .

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COMPETITIVE POSITIONING SCHOOL OF

THOUGHT (“OUTSIDE IN”) 

Based on Porter’s 5 Forces, generic strategy,

and value chain frameworks

In which industry should the organization compete?(Use Porter’s 5 Forces Model) 

Which generic strategy to use? (Use Porter’s Generic

Strategy Framework)

How to configure the value chain to support the strategy?

(Use the value chain analysis framework)

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GENERIC STRATEGY 

According to Porter, competitive advantage , and thus higher profits will result either from: 

Differentiation of products (distinctive, more 

product features) and selling them at a premium 

price , OR 

Producing products at a lower price than 

competitors  

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GENERIC STRATEGY (CONT.)

In association with choosing differentiation or cost leadership, the organization mustdecide between:

Targeting the whole market with the chosenstrategy, OR

Targeting a specific segment of the market

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GENERIC STRATEGY FRAMEWORK

Cost leadership Differentiation

Cost focus Differentiationfocus

 S 

 t  r  a t   e gi   c  S  c  o p e

B r  o a d 

N  ar r  ow

Low cost Differentiation

NOTE: If 2 or more competitors choose the same box, competition will increase

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GENERIC STRATEGY FRAMEWORK

Cost leadership Differentiation

Cost focus Differentiationfocus

 S 

 t  r  a t   e gi   c  S  c  o p e

B r  o a d 

N  ar r  ow

Low cost Differentiation

NOTE: If 2 or more competitors choose the same box, competition will increase

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COST LEADERSHIP STRATEGY:

ADVANTAGES

• Higher profits resulting from charging pricesbelow that of competitors, because unit costs arelower

Increase market share and sales by reducingthe price below that charged by competitors(assuming price elasticity of demand)

• Ability to enter new markets by charging lowerprices is a barrier to entry for competitors trying toenter the industry

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COST LEADERSHIP AND THE VALUE

CHAIN

With a cost leadership strategy, the value chainmust be organized to:

• Reduce per unit costs by copying, rather than

original design, using cheaper resources,producing basic products, reducing labor costsand increasing labor productivity

• Achieve economies of scale by high-volume

sales using high-volume purchasing to getdiscounts

• Locating where costs are low

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COST LEADERSHIP AND PRICE

ELASTICITY OF DEMAND

• Cost leadership strategy is best used in a marketor segment when demand is price elastic, OR

• When charging a similar price to competitors atthe same time as increasing advertising toincrease sales

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GENERIC STRATEGY FRAMEWORK

Cost leadership Differentiation

Cost focus Differentiationfocus

 S  t  r  a t   e gi   c  S  c  o p e

B r  o a d 

N  ar r  ow

Low cost Differentiation

NOTE: If 2 or more competitors choose the same box, competition will increase

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DIFFERENTIATION STRATEGY:

ADVANTAGES

• Products will get a premium price

• Demand for products is less price

elastic than that for competitor’sproducts

• It is an additional barrier to entry for

competitors to enter the industry

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DIFFERENTIATION STRATEGY AND THE

VALUE CHAIN

Analysis of the value chain identifies in

what parts of the chain and through

which links superior products can becreated and customer perception may

be changed

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DIFFERENTIATION STRATEGY AND THE

VALUE CHAIN

With differentiation strategy, the valuechain must be organized to:

• Create products that are superior to

competitors’ products in design, technology,performance, etc.

• Offer superior after-sales service

• Have superior distribution channels• Create a strong brand name

• Create distinctive or superior packaging

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GENERIC STRATEGY FRAMEWORK

Cost leadership Differentiation

Cost focus Differentiationfocus

 S  t  r  a t   e gi   c  S  c  o p e

B r  o a d 

N  ar r  ow

Low cost Differentiation

NOTE: If 2 or more competitors choose the same box, competition will increase

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FOCUS STRATEGY: ADVANTAGES

•Lower investment costs required comparedto a strategy aimed at the entire market or

many markets

•It allows for specialization and greaterknowledge

•It makes entry into a new market more

simple

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ALTERNATIVE TO 5 FORCES ANALYSIS:

RESOURCE-BASED FRAMEWORK

•Resource-based framework is designed tocompensate for disadvantages in traditionalmodels (like Porter’s 5 Forces) 

•Emphasizes the importance of corecompetence in achieving competitive

advantage

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RESOURCE-BASED FRAMEWORK

• Complicated and comprehensive analysis of 5 inter-related

areas:

Organization

Industry

Product markets

Resource markets

Other industries

• Focuses on competences, core competences, resources andvalue chain This part of the analysis includes an analysis of:

•Resources•Organizational competences, core competences andactivities

•Value chain

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RESOURCE-BASED FRAMEWORK

ResourceMarkets

ProductMarkets

Organization

CompanyIndustry

CompetenceRelatedIndustry

Organization’s Products

New Markets

Substitutes

SupplierPower

Competitive Rivalry

Threat of new entrants

Buyer

Power

Threat of Substitutes

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RESOURCE-BASED FRAMEWORK:

INDUSTRY 

Focuses on analysis of competitors’: 

•Skills and competences

•Configuration of value-adding activities

•Technology•Number and size

•Performance (focus on financial performance)

•Ease of entry and exit (barriers)•Strategic groupings

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A NOTE ON STRATEGIC GROUPINGS

Strategic groups – the group of competitors

representing an organization’s closest competitors

Example:A group of branded clothes including Polo (Ralph

Lauren), Tommy Hilfiger, and Izod (Lacoste),among others, may be a strategic group, eventhough there are other lower quality brands thatare technically competitors

Example 2:Rolex, Tag Heuer, Tissot may be part of a strategicgroup that does not include Swatch, Timex, Seiko,

even though they are all watchmakers

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RESOURCE-BASED FRAMEWORK:

PRODUCT MARKETS

Analysis is focused on:•Customer needs and satisfaction

•Unmet customer needs

•Market segments and profitability•Number of competitors to the market and relativemarket share

•Number of customers and their purchasing power

•Access to distribution channels

•Ease of entry

•Potential for competence leveraging

•Need for new competence building

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PRODUCT-BASED FRAMEWORK:

RESOURCE MARKETS

Resource markets: where organizations obtainfinance, human resources, human resources,physical resources, technological resources

Analysis focuses on:•Resource requirements

•Number of actual and potential suppliers

•Size of suppliers

•Potential collaboration with suppliers (cooperation)

•Access by competitors to suppliers

•Nature of the resource and availability of substitutes

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RESOURCE-BASED FRAMEWORK:

COMPETENCE-RELATED INDUSTRIES

Focuses on analysis of other industries withsimilar competences and which may produceproducts that can be substitutes of the

organization’s products 

Analysis is useful to identify:

•Potential threats

•Other industries in which the organization maybe able to leverage their competences

•New markets

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PORTER’S FIVE COMPETITIVEFORCES:

SAN MIGUEL CORPORATION

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Tarlac-Pangasinan-La UnionExpressway to be completed on2013

Universal LRT Corp. Ltd. MRT Line 7from San Jose Del Monte Bulacan toNorth Avenue, Quezon City

Caticlan Airport with Trans Aire

- Daguma Agro Minerals Inc- Bonanza Energy Resources Inc- Sultan Energy Phils. Inc.,

Sual Power Plant

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END OF REPORT.

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