Harvard business review porter model

The answer is: not in every industry. Jockeying for position Rivalry among existing competitors takes the familiar form of jockeying for position—using tactics like price competition, product introduction, and advertising slugfests.

A supplier group is powerful if: It is dominated by a few companies and is more concentrated than the industry it sells to.

Porters five forces original reference

Jockeying for position Rivalry among existing competitors takes the familiar form of jockeying for position—using tactics like price competition, product introduction, and advertising slugfests. These advantages can stem from the effects of the learning curve and of its first cousin, the experience curve , proprietary technology, access to the best raw materials sources, assets purchased at preinflation prices, government subsidies, or favorable locations. This campaign built strong brand identification and great customer loyalty. It is perhaps the most important entry barrier in soft drinks, over-the-counter drugs, cosmetics, investment banking, and public accounting. If there are only one or two suppliers of an essential input product, for example, or if switching suppliers is expensive or time consuming, a supplier group wields more power. Today, for example, the solar heating business is populated by dozens and perhaps hundreds of companies, none with a major market position. Sugar producers confronted with the large-scale commercialization of high-fructose corn syrup, a sugar substitute, are learning this lesson today. I shall consider each strategic approach in turn. The essence of strategy formulation is coping with competition. Consider vertical integration. If, however, experience can be kept proprietary, the leaders will maintain a cost advantage.

Actually, entry brings new capacity and pressure on prices and costs. Porter makes clear that for diversified companies, the primary issue in corporate strategy is the selection of industries lines of business in which the company will compete.

porters five forces ppt

If barriers to entry are high and newcomers can expect sharp retaliation from the entrenched competitors, obviously the newcomers will not pose a serious threat of entering.

The power of each important supplier or buyer group depends on a number of characteristics of its market situation and on the relative importance of its sales or purchases to the industry compared with its overall business.

The average Fortune Global 1, company competes in 52 industries [4].

How to use porters five forces

These substitutes are bound to become an even stronger force once the current round of plant additions by fiberglass insulation producers has boosted capacity enough to meet demand and then some. Companies compete away the value they create. This is true in services like investment banking and public accounting, where errors in judgment can be costly and embarrassing, and in businesses like the logging of oil wells, where an accurate survey can save thousands of dollars in drilling costs. The key to growth—even survival—is to stake out a position that is less vulnerable to attack from head-to-head opponents, whether established or new, and less vulnerable to erosion from the direction of buyers, suppliers, and substitute goods. Dr Pepper chose a strategy of avoiding the largest-selling drink segment, maintaining a narrow flavor line, forgoing the development of a captive bottler network, and marketing heavily. Intense rivalry is related to the presence of a number of factors: Competitors are numerous or are roughly equal in size and power. The five forces govern the profit structure of an industry by determining how the economic value it creates is apportioned. Positioning pertains to how the public perceives a product and distinguishes it from competitors. These trends are not so important in themselves; what is critical is whether they affect the sources of competition. Obviously, the trends carrying the highest priority from a strategic standpoint are those that affect the most important sources of competition in the industry and those that elevate new causes to the forefront. In contract aerosol packaging, for example, the trend toward less product differentiation is now dominant. Moreover, in the fight for market share, competition is not manifested only in the other players. In the producers of fiberglass insulation enjoyed unprecedented demand as a result of high energy costs and severe winter weather. This artful positioning combined with good implementation has led to an enviable record in earnings and in the stock market. Substitutes often come rapidly into play if some development increases competition in their industries and causes price reduction or performance improvement.

The state of competition in an industry depends on five basic forces, which are diagrammed in the Exhibit. Dr Pepper chose a strategy of avoiding the largest-selling drink segment, maintaining a narrow flavor line, forgoing the development of a captive bottler network, and marketing heavily.

the five competitive forces that shape strategy summary

A few characteristics are critical to the strength of each competitive force. Dr Pepper, however, maximized product differentiation by maintaining a narrow line of beverages built around an unusual flavor. That uncertainty is low, allowing participants in a market to plan for and respond to changes in competitive behavior.

Harvard business review porter model

These advantages can stem from the effects of the learning curve and of its first cousin, the experience curveproprietary technology, access to the best raw materials sources, assets purchased at preinflation prices, government subsidies, or favorable locations.

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Porter's five forces analysis