Porter’s Five Forces: A Guide for Strategic Planning

I want
them to do their own research and make discoveries along the way. Correctness � if such exists � is a product of the logic
used in the analysis. What matters is that the
student reasons through the problem and finds a means of justifying a position. If I give too much detail it limits the imagination of the student and prevents
discoveries that could be significant.

They might arise as developments in the market you serve, or in the technology you use. By methodically answering several questions in each category, it allows you to distinguish yourself from your competitors thus gaining a competitive advantage by assessing your company’s strengths and market position. The dividing industry analysis in strategic management line between which firms are competitors and which firms offer substitutes is a challenging issue for executives. Most observers would agree that, from Subway’s perspective, sandwich maker Quiznos should be considered a competitor and that grocery stores such as Kroger offer a substitute for Subway’s offerings.

Story #3: Strategic Analysis Vs. Customer Relationship Management

An example would be the cereal industry, which has
established pull through such that major grocery chains have to carry major
brands. This pull through gives the cereal industry power over the buyers,
making the industry attractive. This is not a marketing paper, so don�t think
ultimate consumer.

A variety of supplies are important to companies, including raw materials, financial resources, and labor (Table 3.13). For restaurant firms such as Subway, key suppliers include such firms as Sysco that bring various foods to their doors, restaurant supply stores that sell kitchen equipment, and employees that provide labor. Industry concentration is an important aspect of competition in many industries. Industry concentration is the extent to which a small number of firms dominate an industry (Table 3.10).

Industry Analysis – What is Industry Analysis and Why is it Important? (Introduction)

You should take some time to find and study already published reports relevant to your industry. You would probably find a well-detailed report, and studying it would answer your questions. It doesn’t mean that you should completely rely on such published reports. Internal factors that already exist and have contributed to the current position and may continue to exist.

The threat of entry depends on the presence of entry barriers and the reaction that can be expected from existing competitors. An entry barrier is an obstruction that makes it difficult for a company to enter an industry. Potential competitors are companies that currently are not competing in an industry but have the capability to do so if they choose.

Industry Analysis – Competitive Intelligence

The many qualitative methods available seemed to work well only in the hands of their developers and were limited in their ability to provide robust, fact-based analysis. Porter’s 5 forces analysis is done to study aspects like Suppliers, Buyers, Competitors, new potential entrants and substitutes of that industry. It provides a road map for answering the extremely difficult question relating to potential of a business inherent in diversification decisions.

• Industry analysis is a vital responsibility of any business analyst.
• A company’s immediate competitors are those in its strategic group.
• While we were
  concerned about threats in the “entrants” section, here we are concerned with
  power.
• It is difficult for a competitor to break into a market if there is an established operator who knows that market well, has good relationships with the key buyers and suppliers and knows how to overcome market and operating problems.
• This situation changed, however, when executives at DIRECTV grew weary of their relationship with TiVo.

Ultimately, the total rate of defaults experienced by the subprime mortgage providers was not sufficiently covered by the high interest rates charged, and profitability collapsed. Fragmented industries enjoy low entry barriers and are characterized by commodity- type products that are difficult to differentiate. The entry barriers being low, new firms enter into the industry hoping to cash in on the boom.

Similar to Strategic Industry Analysis(

Similarly to the opportunities, one could use a PESTLEE analysis and a Porter’s Five Forces models to assess the elements in the environment that could harm the organization. Examples of harmful macro-environmental developments could be an increasing unemployment rate, disruptive technologies, protests from NGO’s and increasing government corruption levels. In terms of industry specific threats, one could think about new competitors entering the arena, the availability of substitute products and increasing bargaining power from suppliers. Porter’s five forces is important because it helps you evaluate the attractiveness of your industry and the potential for profitability.

If demand is growing, companies can have increased revenues without taking market share away from the competitors. Thus growing demand provides a company a major opportunity to expand operations. But the strong competitive force implying significant price competition may enrage price war among companies within an industry. Price competition by lowering down the profit margins reduces the profitability of the companies. The extent of rivalry also determines the organizational performance.

The Steps in a Business Research Process

But what about full-service restaurants, such as Ruth’s Chris Steak House, and “fast casual” outlets, such as Panera Bread? Whether firms such as these are considered competitors or substitutes depends on how the industry is defined. Under a broad definition—Subway competes in the restaurant business—Ruth’s Chris and Panera should be considered competitors. Under a narrower definition—Subway competes in the sandwich business—Panera is a competitor and Ruth’s Chris is a substitute.