Factors affecting the barriers to entry are: Economies of scale
First mover advantage
Relationships with suppliers and customers
Legal barriers
Competitive Force 3: Threat of Substitute Products
The degree to which substitute products or services exist affects the industry bargaining power with suppliers and customers, and ultimately profitability. The degree to which substitutes exist depends upon the relative price and performance of competing products or services, and the willingness of customers to accept substitutes.
Competitive Force 4: Bargaining Power of Buyers
Buyer bargaining power can exert downward pressure on prices. Factors that can affect this bargaining power are:
– Buyer price sensitivity to product or service
– Relative bargaining power of buyers competitive Force Bargaining
Power of Suppliers
A mirror image of the bargaining power of buyers.
– Suppliers have bargaining power when there are few substitutes and/or few suppliers relative to the number of customers demanding a product or service.
Applying Industry Analysis to the European Airline Industry
During the early asses, profitability in the industry was low.
Competitive forces:
Moderate industry growth
Fragmented industry
Few opportunities to differentiate; low switching costs
High excess capacity
– Threat of new entrants:
Budget airlines
– Bargaining power of suppliers and buyers
Suppliers: aircraft, oil, ground handling Buyers: high price transparency
Competitive Strategy Analysis I
ndividual firms must choose appropriate strategies to succeed within their industry segment. Two basic competitive strategies are:
– Cost leadership
– Product/service differentiation
Figure 2-2 conveniently summarizes aspects of cost leadership and differentiation.
Purling (c) 2010 south-western
Coinage Learning Strategies for Creating Competitive Advantage
Achieving and Sustaining Competitive Advantage
Choice of strategy is an important first step for a firm.
The likelihood of achieving and sustaining competitive advantage must be evaluated. Factors to evaluate include:
– Resources and capabilities to implement strategies.
– Whether the firm’s activities, infrastructure, and other operating elements consistent with its competitive strategy.
Applying Competitive Strategy Analysis to the KEA group What was Kike’s superior performance based on? Low-cost competitive strategy
Global strategy Sourcing of production Economic designs Logistics Sales Corporate Strategy Analysis Companies with multiple business segments require an analysis how the separate segments are managed within the corporate governance structure. Factors to analyze include:
– Transaction costs
– Specific benefits to operating under one corporate umbrella
The case of gregarious.
Concluding Comments
The industry analysis approach has notable strengths and some limitations.
Porter’s “five forces” framework is valuable in evaluating the strategy and actions of firms within an industry.
