The Porter's Five Forces tool is a simple but powerful tool for understanding where power lies in a business

situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit. Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations. Understanding the Tool: Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are: 1. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. 2. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you. 3. Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. 4. Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. 5. Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it. These forces can be neatly brought together in a diagram like the one in figure 1 below: Figure 1 - Porter's Five Forces

He then subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation Focus". . He creates the following Five Forces Analysis as he thinks the situation through: Figure 2 .Porter's Five Forces Example . "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market). Porter called the generic strategies "Cost Leadership" (no frills). These are shown in Figure 1 below. and to organizations of all sizes.Example: Martin Johnson is deciding whether to switch career and become a farmer – he's always loved the countryside.Buying a Farm POERTER’S GFENERIC STRATEGY These three approaches are examples of "generic strategies". They were first set out by Michael Porter in 1985 in his book Competitive Advantage: Creating and Sustaining Superior Performance. because they can be applied to products or services in all industries. and wants to switch to a career where he's his own boss.

developing the "edge" that gets you the sale and takes it away from your competitors. while charging industry-average prices. facilities).The Cost Leadership Strategy Porter's generic strategies are ways of gaining competitive advantage – in other words. The cost or price paid by the customer is a separate issue! The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. as you leave yourself wide open to attack by other low cost producers who may undercut your prices and therefore block your attempts to increase market share. There are two main ways of achieving this within a Cost Leadership strategy:  Increasing profits by reducing costs. The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you.  Increasing market share through charging lower prices. and that other competitors copy your cost reduction strategies. A low cost base (labor. One successful way of doing this is by adopting the Japanese Kaizenphilosophy of "continuous improvement". while still making a reasonable profit on each sale because you've reduced costs. You therefore need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Simply being amongst the lowest-cost producers is not good enough. and a way of sustainably cutting costs below those of other competitors. . This is why it's important to continuously find ways of reducing every cost. Companies that are successful in achieving Cost Leadership usually have:  Access to the capital needed to invest in technology that will bring costs down. Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. materials.   Very efficient logistics.

It should also be hard for competitors to replicate. This makes their particular market segment less attractive to competitors. Otherwise. it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its own. by understanding the dynamics of that market and the unique needs of customers within it. Generic strategies apply to not-for-profit organizations too. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market (if you do. Effective sales and marketing. Local charities are great examples of organizations using Focus strategies to get donations and contribute to their communities. they tend to build strong brand loyalty amongst their customers. Definition of 'Core Competencies' The main strengths or strategic advantages of a business. As with broad market strategies. . The Focus Strategy Companies that use Focus strategies concentrate on particular niche markets and. but will typically involve features. How you do this depends on the exact nature of your industry and of the products and services themselves. Theoretically. Because they serve customers in their market uniquely well. A not-for-profit can use a Cost Leadership strategy to minimize the cost of getting donations and achieving more for their income. development and innovation.   The ability to deliver high-quality products or services. you risk competing against better-resourced broad market companies' offerings. a core competency should allow a company to expand into new end markets as well as provide a significant benefit to customers. organizations need:  Good research. even if the volume of work they do as a result is lower. they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments. Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. develop uniquely low cost or wellspecified products for the market. while one with pursing a Differentiation strategy will be committed to the very best outcomes. the key to making a success of a generic Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche. so that the market understands the benefits offered by the differentiated offerings. functionality. Core competencies are the combination of pooled knowledge and technical capacities that allow a business to be competitive in the marketplace. support and also brand image that your customers value.DIFFRENTIATION STRATEGY Differentiation involves making your products or services different from and more attractive those of your competitors. durability. But whether you use Cost Focus or Differentiation Focus.) The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs). To make a success of a Differentiation strategy.

omit to undertake or incorporate marketing actions that are less comfortable for them. then the competence they value may be "component integration and miniaturization". Think of the most time-consuming and costly things that you do either as an individual or a company. 6. 4. Review the two screened lists. Most small businesses look at their marketing and select marketing formats to action that they are comfortable with. If you have no core competences. if customers value small products (e. screen them against the tests of Relevance. 3. 2. Holistic Marketing is a term used to describe a strategy that enables you to look at your marketing efforts as a 'whole'. If you're doing this for yourself. Brainstorm the factors that are important to your clients. screen them using these tests to see if you could develop these as core competences. or think about finding a new environment that suits your competences. and therefore. Difficulty of Imitation and Breadth of Application. and see if any of the competences you've listed are core competences. cell phones). If you're doing this on behalf of your company. then either there's something else that you can use to create uniqueness in the market (see our USP Analysis article). or for new roles you want. 4. clearing down time so that you can focus on core competences. Then dig into these factors. identify the factors that influence people's purchase decisions when they're buying products or services like yours (make sure that you move beyond just product or service features and include all decision-making points. and work to build them.To identify your core competences.) 3. If any of these things do not contribute to a core competence.g. 5. 7. 2. and identify the competences that lie behind them. and think about them:    If you've identified core competences that you already have. brainstorm the factors (for example) that people use in assessing you for annual performance reviews or promotion. . As a corporate example. If you have no core competences and it doesn't look as if you can build any that customers would value. For the list of your own competences. ask yourself if you can outsource them effectively. which in turn helps you develop an overall or 'holistic marketing' plan. For the list of factors that are important to clients. Brainstorm your existing competences and the things you do well. then great! Work on them and make sure that you build them as far as sensibly possible. use the following steps: 1. then look at ones that you could develop.

[Marketing partners (channels. McCathy classified these activities as marketing mix tools of four broad kinds. supplies. Internal marketing is the task of hiring. Internal Marketing: -Holistic marketing incorporates internal marketing. Place & Promotion. enduring relationship with people & organization that could directly indirectly affect the success of the firms marketing activities. dealers. Price. as well as addressing borders concern & their legal ethical. Relationship marketing aims to build mutually satisfying long-term relationship with key constituents (components) in order to earn or retain the business. Integrated Marketing: -The Marketers task is to devise marketing activities &assemble fully integrated marketing programs to create.a key goal of marketing is to develop deep. and motivating able employees who want to serve customer. communicate and deliver value for the customers. distributors.Financial Accountability should be there in the company. 3.A quick look of component of holistic marketing:1. especially senior management. ensuring that everyone in the organization embraces appropriate marketing principals. agencies)] 4. social & environment effects. Social responsibility marketing is also a part of performance marketing. 2. which he called the four P’s of Marketing – Product. Relationship Marketing: . . Performance Marketing: -Holistic marketing incorporates performance marketing and understanding the returns to the business from marketing activities and programs. training.

The extended service marketing mix places 3 further P’s which include People. Place . Product – The product in service marketing mix is intangible in nature. Similarly a software company will be better placed in a business hub with a lot of companies nearby rather than being placed in a town or rural area. These are discussed in my article on product marketing mix – the 4 P’s. The service product thus has to be designed with care. Pricing. A place where there is minimum traffic is a wrong location to start a petrol pump. But then who will pay for the nice ambience you have built up for your cust . Promotion – Promotions have become a critical factor in the service marketing mix. 7 P’S OF SERVICE MARKETING The product marketing mix consists of the 4 P’s which are Product. Relationship marketing contrasts with transactional marketing.Place in case of services determine where is the service product going to be located. Process and Physical evidence. service products cannot be measured. Like physical products such as a soap or a detergent. perishable and cannot beowned. Thus banks. Generally service blue printing is done to define the service product. an approach that focuses on increasing the number of individual sales. You will find a lot of banks and telecom companies promoting themselves rigorously. Tourism industry or the education industry can be an excellent example. Services are easy to be duplicated and hence it is generally the brand which sets a service apart from its counterpart.Relationship marketing is designed to develop strong connections with customers by providing them with information directly suited to their needs and interests and by promoting open communication. and dotcoms place themselves above the rest by advertising or promotions. Pricing – Pricing in case of services is rather more difficult than in case of products. IT companies. At the same time service products are heterogenous. Why is that? It is because competition in this service sector is generally high and promotions is necessary to survive. If you were a restaurant owner. you can price people only for the food you are serving. Let us discuss the same in further detail. Most organizations combine elements of both relationship and transaction marketing strategies. Promotions and Placement. All of these factors are necessary for optimum service delivery. This service blue print defines exactly how the product (in this case the restaurant) is going to be. This approach often results in increased word-of-mouth activity. repeat business and a willingness on the customer’s part to provide information to the organization. The best place to open up a petrol pump is on the highway or in the city. For example – a restaurant blue print will be prepared before establishing a restaurant business.

services are intangible in nature. wherein before establishing the service.omers? Who will pay for the band you have for music? Thus these elements have to be taken into consideration while costing. to create a better customer experience tangible elements are also delivered with the service. your chef and service staff defines you. That’s physical evidence. employees in your branch and their behavior towards customers defines you. Several times. Generally service pricing involves taking into consideration labor. Thus physical evidence acts as a differentiator. or a restaurant which has ambient lighting. It is also a critical component in the service blueprint. People – People is one of the elements of service marketing mix. Physical Evidence – The last element in the service marketing mix is a very important element. nice music along with good seating arrangement and this also serves good food. Which one will you prefer? The one with the nice ambience. Here on we start towards the extended service marketing mix. Both the companies thrive on their quick service and the reason they can do that is their confidence on their processes. people can make or break an organization. On top of it. People define a service. . Thus many companies nowadays are involved into specially getting their staff trained in interpersonal skills and customer service with a focus towards customer satisfaction. Process – Service process is the way in which a service is delivered to the end customer. physical evidence is used as a differentiator in service marketing. the demand of these services is such that they have to deliver optimally without a loss in quality. In fact many companies have to undergo accreditation to show that their staff is better than the rest. Same cannot be said for a government hospital. If you have a restaurant. If you are into banking. Thus the process of a service company in delivering its product is of utmost importance. In case of service marketing. material cost and overhead costs. If you have an IT company. Take an example of a restaurant which has only chairs and tables and good food. This is the service marketing mix (7p) which is also known as the extended marketing mix. Definitely a USP in case of services. However. Lets take the example of two very good companies – Mcdonalds and Fedex. As said before. A private hospital will have plush offices and well dressed staff. You can also read about pricing strategies. Imagine a private hospital and a government hospital. the company defines exactly what should be the process of the service product reaching the end customer. your software engineers define you. By adding a profit mark up you get your final service pricing.

g. user preferences and anything that might interest the consumer BYPASS ATTACK By diversifying into unrelated products or markets neglected by the leader Could overtake the leader by using new technologies e.Types of Attack Strategies      Frontal attack Flank attack Encirclement attack Bypass attack Guerrilla attack FRONTAL ATTACK Seldom work unless The challenger has sufficient fire-power (a 3:1 advantage) and staying power. price and low cost FLANK ATTACK Attack the enemy at its weak points or blind spots i. Japanese and Korean firms launched frontal attacks in various ASPAC countries through quality.g. Yaohan(japanese dept store) attacked Mitsukoshi and Seibu’s flanks by opening numerous stores in overseas markets ENCIRCLEMENT ATTACK Attack the enemy at many fronts at the same timeIdeal for challenger having superior resources e.g. features.g.g. In the 1990s. airlines use short promotions to attack the national carriers especially when passenger loads in certain routes are low . Seiko attacked on fashion. andThe challenger has clear distinctive advantage(s) e. intermittent hit-and-run attacks to harass and destabilize the leader Usually use to precede a stronger attack e. its flanksIdeal for challenger who does not have sufficient resourcese.e. Pepsi use a bypass attack strategy against Coke in China by locating its bottling plants in the interior provinces GURILLA ATTACK By launching small.

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