Place ceiling on the prices that firms in the industry can profitably charge • Products that perform the same function as the industry’s offerings can exist in very different industries – e.g. video conferencing as a substitute for air travel to business meetings
Factors That Increase Intensity of Competitive Rivalry • Numerous or equally balanced competitors • Slow industry growth • High fixed costs • Lack of differentiation • Low switching costs • Capacity augmented in large increments
Use of Porter’s Five Forces Model • Goals of model are to: – assess attractiveness of an industry – Identify forces that must be neutralized to achieve success • Generally speaking… – An attractive industry supports: • Entry into the market • Investment in resources needed to compete • A variety of strategies – An unattractive industry supports: • Possible exit from the market, or entry into a new market • Limited, or no incremental, investment • Necessity for very clear strategy
Criticisms of Five Forces Analysis • Managers should not always avoid low profit industries or market segments – High returns can be obtained for some players with sound strategies • Five-forces analysis implicitly assumes a zero-sum game – May overlook opportunity to develop constructive win-win relationships with suppliers and customers • Analytic framework is static – External forces are continually changing the structure of industries – Need to anticipate changes, especially cause-and-effect changes
Competitor Analysis • Competitors represent key aspect of external environment • Key choices in analysis: – Choice of competitors (direct vs. adjacent, size) – Key success factors • Price point • Quality • Other product features • Goal is to develop assessment of strategic position relative to competitors
Rogers Chocolates Competitive Analysis Key Success Factors in Retail Chocolate
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- Summer '12
- Management, Porter five forces analysis, external environment