Competitive Rivalry - Porter's Five Forces Model

3/19/2017 CompetitiveRivalry|Porter'sFiveForcesModel
CLEVERISM
CLEVERISM
Competitive Rivalry | Porters Five Forces Model

August 31, 2014 | by Martin 0 0
Upgrade Your
Job Search

Set up your personal Jobfeed and get matched to relevant, exciting jobs perfec
Home Magazine Competitive Rivalry | Porters Five Forces Model Start Here!
The last of Porters five forces deals with firms competing within the industry and the extent to which they
Takes just 15 seconds
exert pressure on each other. This pressure leads to limits on the profit potential of these firms. In
industries where there is fierce competitive rivalry to contend with, there are efforts to gain the most profit
and market share from each other. This battle can end up decreasing the potential for profit for all of the
companies.
https://www.cleverism.com/competitiverivalryportersfiveforcesmodel/ 1/17
CLEVERISM
CLEVERISM
Upgrade Your
Job Search
Start Here!
Entrepreneurial Insights based on the concept of Porters 5 Forces
In this article we will look at 1) an introduction to competitive rivalry, 2) the factors determining
competitive rivalry, 3) analyzing the intensity of rivalry, 4) the consumer benefits of competitive
rivalry, 5) the challenges and opportunities for companies in a competitive market, and 6) an
example of Canon Inc.
INTRODUCTION
The factor of competitive rivalry has significant impact on the competitive environment a company
operates in because the degree of competitiveness has direct impact on the potential for profit that a
company can expect. A highly competitive market may end up being detrimental to all companies
involved, with lower profit margins and less ability to decide price points.
A highly competitive market may act as a barrier to entry for new companies considering joining the fray.
Since the profit potential is not high, there may be less incentive to invest in the market. On the other
hand, low competition may make the market attractive to potential new entrants.
Forms of Industry Rivalry

Forms of Industry Rivalry

CLEVERISM
The competitive pressure in an industry may manifest itself through a number of different tactics. These
can include competition based on price, advertising wars, new products, etc. The rivalry may gain traction
CLEVERISM
when a company feels pushed by a competitor or identifies an opportunity to grow its share of the
market. Whatever the reason, the actions of one company will have an impact on competitors. In turn,
they will take action to retaliate against these actions. This has the potential of turning into a cycle which
may end up harming the industry as a whole.
If the competition ends up being based on price, it can become very unstable and affect profit margins.
On the other hand, advertising battles may end up raising the demand for a profit across the industry.
FACTORSUpgrade
DETERMINING
Your
COMPETITIVE
Job Search RIVALRY
Start Here!
Entrepreneurial Insights
The structure and nature of an industry may determine the nature of the competitive rivalry that may exist
in it. Some of the factors that may make an industry competitive include:
Multiple Equal Competitors: If an industry has numerous competitors who all operate at an equal
level of product or service quality, then there is a higher threat of competition. Companies may feel
the need to engage in more aggressive activities to gain a higher share of the market If they do not
enjoy any sort of clear advantage over competitors.
Sluggish Growth within the Industry: If the industry does not enjoy a rapid growth rate, then the
only way for a company to increase its market share is to take it away from a competitor. There is
also a higher degree of protectiveness towards any existing share in the market, as once lost, it may
be hard to regain.
Higher Fixed Costs: If fixed costs within an industry are higher, then there may be more pressure to
CLEVERISM
produce at full capacity in order to achieve economies of scale. In order to ensure that this stock is
cleared, companies may guard their market share aggressively and also try to obtain more as well.
In addition, to ensure that this stock is cleared, the company may have to sell at lower prices.
CLEVERISM
Undifferentiated Product: If the main product of an industry is generic and there are no grounds to
base differentiation on, then the products may be treated as a commodity. This means that
consumer choice will be based on price and value for money. This will naturally lead to price based
competition.
Switching Costs: If there are little or no switching costs for a consumer then the industry may be
more competitive. This happens often in undifferentiated industries or ones where the products are
very similar in benefits, features and quality.
Capacity Increases: If the need for economies of scale warrants an increase in production
capacity, then there may be a brief disruption in the demand and supply of the market. This may
Upgrade Your
result in overcapacity of products and price cutting to make sure products do not remain unsold.
Job Search
Diversity of Competition: If the industry is made of different types of companies who differ in their
Set up
origins and strategies, then there your
may be personal Jobfeed
diverse ways to doand get matched
business. Theseto relevant,methods
alternate exciting jobs perfec
may change the nature of competition and the way of doing business.
Strategic Focus: Often a company may have high stakes in ensuring thatStart Here!
it stays in business over
the long term. In this situation, the company may sacrifice short term profitability to ensure its long
term presence in the market. These companies will focus foremost on Takes just 15and
maintaining seconds
growing
market share.
Barriers to Exit: If there are barriers to exit within the industry, then companies with low profit and
growth may also have to remain active. In these cases, there will be competitive pressure to stay
relevant and earn profits by any means necessary. Some potential exit barriers may be the result of
ownership of specialized assets, fixed costs of exit and governmental regulations.
ANALYZING INTENSITY OF
RIVALRY
While trying to assess whether there are likely to be high competitive pressures within an industry, a
company can ask the following questions:
Are there numerous competing firms in the industry?
Are these competitors generally of an equal size in their operations?

CLEVERISM
Do these competitors have similar shares in the market?
Is the industry growing slowly or rapidly?

CLEVERISM
Are fixed costs low or high?
Are products differentiated or generic?
Are there any switching costs?
Is brand loyalty an important factor?
Does any company have more brand loyalty than others?
Are competitors diverse in their operations and strategies?
Is there unused production capacity? Upgrade Your

Is there over production? Job Search
Are there any barriers to exit?Set up your personal Jobfeed and get matched to relevant, exciting jobs perfec
CONSUMER BENEFITS OF
Start Here!
COMPETITIVE RIVALRY
Though potentially detrimental to the profit potential of an industry, high levels of competition can benefit
the consumer in a number of ways. Competition is often sought after by regulators and consumers in
order to create a strong and effective market. Through healthy competition, consumers can end up
getting the best value for their money which they otherwise may not. Competition allows consumers a
variety of choices in who provides the product or service that they are interested in.
Competition encourages companies to innovate, utilize production capacity, reduce costs and increase
efficiency. If done right, competition can help foster a productive economy.
Potential Benets of Competitive Markets

A competitive market offers many potential benefits including lower prices, economic growth, incentive to
keep costs of production low, technological improvements and advancements, product variety,
innovation, quality improvements, and the availability of more information allowing for more informed
CLEVERISM
choices by consumers.
ThreeMain Benets
CLEVERISM
1. Innovation
Faced with competitors, companies will seek to innovate in order to differentiate themselves from others
and gain more consumers as well as market share. This benefits consumers by providing more choices
and better quality of goods and services. In extreme cases, these innovations may lead to changes in
society and lifestyles. The invention of cars, cellphones and personal computers are examples of
innovations with wide-ranging impact.
2. Lower Prices
When there are low switching costs and a variety of choices, there is always the chance of a consumer
Upgrade Your
moving to a competitor. To avoid this, companies will make efforts to reduce costs of doing business and
offer the best possible prices to theJob Search
customer. Along with the drop in prices, companies will also make
efforts to better understand unmet consumer needs and work towards developing products and features
to meet these needs.
3. Economic Growth
Start Here!
Competition also drives economic growth. In the technology industry, advancements in smartphones
have led to growth in several world economies. Takes just 15 seconds
CHALLENGES
ANDOPPORTUNITIES FOR
COMPANIES IN
COMPETITIVE MARKETS
Opportunities
A company can choose to treat competition as a positive factor and use it to build a better and stronger
business. If there is more than enough market share available, then there is a chance of a company
becoming complacent and take the customer for granted. Customer service, product quality and
CLEVERISM
innovation may also suffer. Here are some ways in which competition can benefit the business.
Better Customer Service: When faced with the threat of more competition, it is a good idea to
CLEVERISM
evaluate and appreciate all customers and figure out the best way to serve their needs. With
customer loyalty secured, it will be easier to retain customers if a stronger or more aggressive
competitor comes around.
Innovation: When a market is served by multiple similar companies selling similar products, then it
becomes necessary to focus on innovation. Innovation allows a company to stay ahead of trends
and continue to serve customers proactively.
A Focus on Strengths and Weaknesses: When trying to manage competition, a companys own
strengths and weaknesses are highlighted. This helps focus on the things that are being done well
and allows a company to continue to do them better.
Upgrade Your
A Focus on Key Customers: If a competitor is after a companys share of the market, it becomes
Job Search
necessary for the company to identify and retain those customers that make up a larger chunk of
the business. This means that the right people are paid attention and better ways are devised to
fulfill their needs. Set up your personal Jobfeed and get matched to relevant, exciting jobs perfec
Threat Identification: In dealing with competitors, a company learns to keep a vigilant eye on any
Startto
plans, strategies, new technology or products that a competitor may introduce Here!
the market and
become a possible problem.
Business and Market Growth: Competitive rivalry in an industry come up with new and innovative
ways to serve customers. There is more inventive solutions and original ideas leading to a more
exciting and growing market.
Solutions to Industry Wide Problems: With more players in the market, there are also more ideas
and more support for common issues and their solutions. Companies can be in a better position to
negotiate with common suppliers, or a strong regulatory body.
Challenges
As expected, a highly competitive industry comes with its unique set of challenges. More competition can
lead to marker saturation. This means that the supply in the market is either more than the demand or it is
the same. A saturated market means both limited profits and limited growth.
Higher Costs: The higher the competition, the more money needs to be spent on activities to make
a company stand out in the crowd. This means more R&D costs, higher quality products,
innovation, new products, and consistent relationship building with customers.
Low Customer Growth: More competition means that there is no new demand for a product and
CLEVERISM
that all customers are being served by either one company or the other. The revenue being earned
remains consistent with little chance of increase or access to new business. This limited profit
means limited growth potential for the company.
CLEVERISM
High Pressure to Grow: With fewer customers to compete for, a company may need to look
outward and find new markets to serve or new products to offer. This means researching potential
business ideas and new markets.
Product Irrelevance: With more competition there may be less of a demand for a particular
product. In order to move this inventory, a company may have to mark down prices to ensure sales.
Profit is lost in such cases.
EXAMPLEUpgrade
CANON
Your INC.
Job Search
Canon is a multinational company that originated
Set up in Japan,
your personal Jobfeed and get matched to relevant, exciting jobs perfec
with headquarters based in Ota, Tokyo. The company
specializes primarily in manufacturing of imaging and
optical products. This includes cameras, video cameras, Start
Wikimedia commons Here!
| Wordmark of Canon
photocopy machines, computer printers, and medical
equipment. Takes just 15 seconds
In 1937, Precision Optical Instruments laboratory was created by a group of people in Tokyo. The first
cameras produced by the company used Nikkor lenses, produced by the company that later became
Nikon. The company has always been focused on innovation. Some of its achievements have included
the development of Japans first indirect X-ray camera in 1940. In 1958, the company introduced a field
zoom lens for television broadcasting. In 1959, it introduced the Reflex Zoom 8 which was the first movie
camera with a zoom lens in the world. In 1964, Canon launched the first Japanese made 10 key
calculator.
In the early 70s, the company launched a high end SLR camera and an FD lens range and the worlds first
camera with an embedded micro-computer. In the 80s the company launched an inkjet printer and its
Electro-Optical System or the EOS. In the 90s the company introduce the first camera with eye controlled
AF and its first digital camera. The company launched its camcorder in the late 90s and an LCD projector
in 2004.
Digital Camera Market
The company has manufactured and sold digital cameras since 1984. It launched the RC series and
followed these with the PowerShot and Digital IXUS series. Canon also introduced the EOS series of
DSLRs which include both consumer and professional models.

CLEVERISM
With the increasing trend to use cellphone cameras, there has been a fall in compact camera sales. This
has been felt by Canon as well, with operating profits in the first quarter of 2013 falling by 34 percent.
CLEVERISM
Competitive Rivalry in the Industry
Over the years, there have been significant competition in the camera business. The big three companies
that enjoy the most profits are Canon, Nikon and Sony. Other major players have included Pentax,
Olympus, Kodak, Samsung, Panasonic and Casio.
The market is mature and highly saturated. There is slow growth and high exit barriers. Since it is an
industry that requires specialized expertise and assets as well as capital investments, it would not be
easy for a company to leave the market. Each new product development is met and matched by
competitors so that products by Nikon and Canon have little or no difference in their quality and features.
Differentiation is based on brand loyalty alone.
Upgrade Your
The industry structure is such that the few major players are innovators while the others settle to follow
JobBigger
and serve a smaller share of the market. Search
companies have maintained longer term success by the
ability to leverage their technology into similar complimentary products and markets. For example, the
launch of video cameras, printers and copiers are a good diversification of business.
With the remaining market for compact cameras, there is little scope for brand loyalty as customers are
Start Here!
focused on best value and quality for their money. Differentiation based on brand image is still stronger in
the DSLR market as most buyers are professionals who value specific features and benefits.
In general, the competition in the market for digital cameras in extremely high, intense and aggressive.
There needs to be a constant focus on the environment and competitor moves as well as consistent
product development and technological innovation.
Image credit: Wikimedia commons | Wordmark of Canon under public domain.
SHARE TWEET
POCKET
ADD TO FAVORITES
Share your thoughts and experience

Name* Email*
Subscribe
CLEVERISM
CLEVERISM
Submit
HOT JOBS
PHP & Backend

Webdeveloper
San Francisco, United
States
Upgrade Your
Job Search
See all ...
Start Here!
LEADING EMPLOYERS
Airbnb
1001-5000 employees
KPMG
10000+ employees
Omnicell
1001-5000 employees
Xerox
10000+ employees
Atos
10000+ employees
CLEVERISM See all ...
CLEVERISM
Related posts
Ultimate Guide to Ad Blocker
# Business, Marketing
Upgrade Your
Job Search
1 0
Start Here!
How to Make Cold Calling Work
# Business, Sales
0 0
Beginners Guide to Employment

Law
# Business, Career, Career tips, Human Resources
0 0
CLEVERISM
51.000+
CLEVERISM
job opportunities
Let's nd the one for you
Start here!
Already a member? Log in
Upgrade Your
Job Search
Start Here!
FOLLOW US
Contact Terms of use Privacy Disclosure
2017 CLEVERISM
CLEVERISM FEATUREDDOWNLOAD
UnlockYourMarketingMixChecklist!
CLEVERISM
Andgetregulartipsandtricksontopicssuchasmarketing,financing,strategy,andmanagement,soyoucan
startandgrowyourcompanymoresuccessful.
YourEmail DOWNLOADNOW

Upgrade Your
Job Search
Discoverthe#1Mistake87%ofJobApplicantsMake
Enteryouremail,click"I'min"andyou'llgettheprovenstepbystepprocessyoucanusetoget4xmorejob
interviews.
Start Here!
YourName YourEmail I'MIN


Competitive Rivalry - Porter's Five Forces Model

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Competitive Rivalry - Porter's Five Forces Model

Uploaded by

Copyright:

Available Formats

3/19/2017 CompetitiveRivalry|Porter'sFiveForcesModel

Competitive Rivalry | Porters Five Forces Model

Forms of Industry Rivalry

Forms of Industry Rivalry

Takes just 15 seconds

Are there numerous competing firms in the industry?

Are these competitors generally of an equal size in their operations?

Is the industry growing slowly or rapidly?

Are products differentiated or generic?

Are there any switching costs?

Is brand loyalty an important factor?

Does any company have more brand loyalty than others?

Are competitors diverse in their operations and strategies?

Is there unused production capacity? Upgrade Your

Takes just 15 seconds

Potential Benets of Competitive Markets

Digital Camera Market

DSLRs which include both consumer and professional models.

Image credit: Wikimedia commons | Wordmark of Canon under public domain.

Share your thoughts and experience

PHP & Backend

CLEVERISM See all ...

Beginners Guide to Employment

# Business, Career, Career tips, Human Resources

Already a member? Log in

Takes just 15 seconds

Contact Terms of use Privacy Disclosure

You might also like