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Exhibit 4: Five Forces Model

Exhibit 4: Five Forces Model. Industry Competitors. Intensity of Rivalry. Five Forces Model - Summary. Nearly all of the forces are present in most industries, but it is the intensity of the forces that will determine their impact on any industry.

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Exhibit 4: Five Forces Model

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  1. Exhibit 4: Five Forces Model Industry Competitors Intensity of Rivalry

  2. Five Forces Model - Summary • Nearly all of the forces are present in most industries, but it is the intensity of the forces that will determine their impact on any industry. • As intensity of the forces increases, the industry environment becomes more hostile and overall industry profitability will decline.

  3. Limitations of the Five Forces Model • Inability to suggest strategies for managers. • Porter states that managers have two options if they find their firms in unattractive industries: • Diversify their firms away from or exit completely the industry. • Firms often lack sufficient resources to do this. • Diversification can be risky for firms with little diversification experience.

  4. Limitations of the Five Forces Model (cont.) • Attempt to minimize the impact of any of the forces that are acting to make the industry unattractive. • Make their industries more attractive by reducing the power of the five forces; or • Shield or protect their companies from the power of the forces. • Certain actions may lead to allegations of collusion or other unfair practices (Microsoft vs. Justice Department).

  5. Limitations of the Five Forces Model (cont.) • Another key limitation is suggested by changes occurring in pharmaceutical industry: • Model provides “snapshot” of industry at that time, but fails to show how industry is changing. • Most managers assume that conditions will remain relatively stable.

  6. Segmentation Analysis: The Principal Stages • Identify key variables and categories. • Construct a segmentation matrix • Analyze segment attractiveness • Identify KSFs in each segment • Analyze benefits of broad vs. narrow scope. Identify segmentation variables Reduce to 2 or 3 variables Identify discrete categories for each variable Potential for economies of scope across segments Similarity of KSFs Product differentiation benefits of segment focus

  7. *Size *Technical sophistication *OEM/replacement The Basis for Segmentation: Customer and Product Characteristics Industrial buyers Characteristics of the Buyers *Demographics *Lifestyle *Purchase occasion Household buyers *Size *Distributor/broker *Exclusive/ nonexclusive *General/special list Distribution channel Opportunities for Differentiation Geographical location *Physical size *Price level *Product features *Technology design *Inputs used (e.g. raw materials) *Performance characteristics *Pre-sales & post-sales services Characteristics of the Product

  8. Strategic Group Analysis A strategic group is a group of firms in an industry following the same or similar strategy. • Identifying strategic groups: • Identify principal strategic • variables which distinguish • firms. • Position each firm in relation • to these variables. • Identify clusters.

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