1945

Vietnam
WAR
 1979
Harvard Business School
BUSINESS
New
Entrants

Supplier Customer
Rivalry

Substitutes
 Competitive Rivalry within The industry

 Large number of equally-balanced competitor.

 increases rivalry

customers

resources
 Competitive Rivalry within The industry

Large number of equally-balanced competitor.

Slow industry growth
 causes firms to fight
 Competitive Rivalry within The industry

 Large number of equally-balanced competitor.

 Slow industry growth
 High fixed and/or storage cost
 increases rivalry

1€/ball

0.6€/ball
 Competitive Rivalry within The industry

 Large number of equally-balanced competitor.

 Slow industry growth
 High fixed and/or storage cost
 Lack of differentiation and low switching cost
increases rivalry
?
? ?
 Competitive Rivalry within The industry

 Large number of equally-balanced competitor.

 Slow industry growth
 High fixed and/or storage cost
 Lack of differentiation and low switching cost
 High exit barriers
 The firm must compete
 Competitive Rivalry within The industry

 Large number of equally-balanced competitor.

 Slow industry growth
 High fixed and/or storage cost
 Lack of differentiation and low switching cost
 High exit barriers
 A diversity of rivals
 Rivalry is volatile
 Competitive Rivalry within The industry

 Large number of equally-balanced competitor.

 Slow industry growth
 High fixed and/or storage cost
 Lack of differentiation and low switching cost
 High exit barriers
 A diversity of rivals
 Industry Shakeout
BUSINESS
New
Entrants

Supplier Customer
Rivalry

Substitutes
 Bargaining power of customer

DISTRIBUTOR CUSTOMER

Buyers are Powerful if:

 They purchase large volumes of industry’s output
 Bargaining power of customer

Buyers are Powerful if:

 They purchase large volumes of industry’s output
 There are low switching cost to another product
 Bargaining power of customer

Buyers are Powerful if:

 They purchase large volumes of industry’s output
 There are low switching cost to another product
 The product in not a priority for the buyer
….
 Bargaining power of customer

Buyers are Weak if:

 Producers threaten forward integration
 Bargaining power of customer

Buyers are Weak if:

 Producers threaten forward integration
Significant buyer switching costs
 Bargaining power of customer

Buyers are Weak if:

 Producers threaten forward integration
Significant buyer switching costs
Buyers are fragmented (many, different)
 Bargaining power of customer

Buyers are Weak if:

 Producers threaten forward integration
Significant buyer switching costs
Buyers are fragmented (many, different)
Producers supply critical portions of buyers' input
BUSINESS
New
Entrants

Supplier Customer
Rivalry

Substitutes
 Bargaining power of suppliers

 High switching cost to another supplier /product

Transport cost
Storage cost
….
 Bargaining power of suppliers

 Highswitching cost to another supplier /product

 Domination of a few supplier for specific product
 Non-existence of substitutes for the product
 Bargaining power of suppliers

 Highswitching cost to another supplier /product

 Domination of a few supplier for specific product
 Non-existence of substitutes for the product
 Supplier’s customers are fragmented
 High product importance to buyer/industry
BUSINESS
New
Entrants

Supplier Customer
Rivalry

Substitutes
 Availability of substitutes

The competition engendered by a Threat of Substitute

comes from products outside the industry
 Availability of substitutes

Some factor prevent customers switch

 Brand loyalty (advocate)
 Availability of substitutes

Some factor prevent customers switch

 Brand loyalty
 Close customer relationships

Market > < Super market

 Availability of substitutes

Some factor prevent customers switch

 Brand loyalty
 Close customer relationships
 High switching cost
 Availability of substitutes

Some factor prevent customers switch

 Brand loyalty
 Close customer relationships
 High switching cost
 Current trends
….
BUSINESS
New
Entrants

Supplier Customer
Rivalry

Substitutes
 Threat of new entrants

It is not only incumbent rivals

that pose a threat to firms in
an industry; the possibility
that new firms may enter the
industry also affects
competition.
 Threat of new entrants

Entry barrier depend on:

 Economies of scale
Product differentiation
 Capital requirement
 Switching costs
 Access to distribution channel
Government policy
Porter's Five Forces Threat of
New
Entrants

Competitive
Bargaining power of rivalry within Bargaining power of
Supplier Customer
the industry

Analyze
external Threat of
Substitutes
environment
EXAMPLE
 Threat
of New
Entrants

Bargaining power of Bargaining power of

Supplier Customer

A war of love

Threat of GOOD LUCK TO YOU!

Substitutes
 Disadvantages of the
model Porter’s Five Force?
“The major weakness of the model lies in
its historical context. When Porter’s Five
Force Model was created the economy
was based on a cyclical growth and two
major focuses – profitability and survival.
Nowadays , the economy is focusing on
much more than that and yet it is more
complex and much more intense the
model itself assumes “