BUS 497: analyzing the industry environment

1. Phil Gorman, Ph.D. BUS 497: analyzing the industry environment

2. Porter 5 forces model of ‘industry attractiveness’ • Each of the 5 forces is comprised of a number of factors • There is no mathematical formula; judgment is needed • A snapshot of how attractive the industry is for incumbents

3. “Industry attractiveness”: Porter 5 forces Threat of potential entrants Entry barriers Supplier power Buyer power Rivalry Threat of substitutes

4. “Industry attractiveness”: Porter 5 forces • Example: discount retail sales • Wal-Mart and Target are rivals • Procter & Gamble (toothpaste) is a supplier • You and I are buyers Supplier power Buyer power Rivalry

5. “Industry attractiveness”: Porter 5 forces • Discount retail sales • Wal-Mart and Target are rivals • Procter & Gamble (toothpaste) is a supplier • You and I are buyers Supplier power Buyer power Rivalry • Example: toothpaste • Procter & Gamble and Colgate Palmolive are rivals • People who supply the raw ingredients, • and the tubes, are suppliers • Wal-Mart is a buyer

6. “Industry attractiveness”: Porter 5 forces Threat of potential entrants Entry barriers Supplier power Buyer power Rivalry Threat of substitutes

7. “Industry attractiveness”: Porter 5 forces Threat of potential entrants Entry barriers Supplier power Buyer power Rivalry Threat of substitutes

8. “Industry attractiveness”: Porter 5 forces Threat of potential entrants Entry barriers Supplier power Buyer power Rivalry Threat of substitutes

9. “Industry attractiveness”: Porter 5 forces Threat of potential entrants Entry barriers Supplier power Buyer power Rivalry Threat of substitutes

10. “Industry attractiveness”: Porter 5 forces Threat of potential entrants Entry barriers Supplier power Buyer power Rivalry Threat of substitutes

11. Porter 5 forces: notes • It is a snapshot; need to turn it into a moving picture • Depends on how you draw the boundaries of the playing field • There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces • In the end you make a judgment call

12. Porter 5 forces: notes • It is a snapshot; need to turn it into a moving picture • Depends on how you draw the boundaries of the playing field • There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces • In the end you make a judgment call

13. Porter 5 forces: notes • It is a snapshot; need to turn it into a moving picture • Depends on how you draw the boundaries of the playing field • There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces • In the end you make a judgment call

14. Porter 5 forces: notes • It is a snapshot; need to turn it into a moving picture • Depends on how you draw the boundaries of the playing field • There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces • In the end you make a judgment call

15. Industry life cycle • As the industry evolves, so does the list of things a company needs to pay attention to

16. Industry life cycle • Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway) • Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product • Maturity: when consumers know exactly what the product is about; demand is leveling off • Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

17. Industry life cycle • Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway) • Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product • Maturity: when consumers know exactly what the product is about; demand is leveling off • Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

18. Industry life cycle • Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway) • Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product • Maturity: when consumers know exactly what the product is about; demand is leveling off • Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

19. Industry life cycle • Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway) • Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product • Maturity: when consumers know exactly what the product is about; demand is leveling off • Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

20. Industry life cycle • Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway) • Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product • Maturity: when consumers know exactly what the product is about; demand is leveling off • Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

21. Summary • Porter 5 forces: industry attractiveness • It is a snapshot • Must also assess the trajectory (“moving picture”) • Industry life cycle • Industries generally move in a predictable direction • But the timing is not know ahead of time (15 years to maturity? 100 years to maturity?)