PORTERS GENERIC STRATEGIES AND

FIVE FORCES
By: Kavita, Chris, and Jake

WHAT IS IT?

Michael Porter

Is this profitable?

Where is the power?

What is my current competitive

position?

FIVE FORCES
Is this an attractive market or industry for us to compete in?

GENERIC STRATEGIES
How can we best compete for customers in this market/industry?

GENERIC STRATEGIES
Market Scope asks
How broad or narrow is our target market?

Source For Competitive Advantage asks

Will you compete for competitive advantage by lower price or product
uniqueness?

GENERIC STRATEGIES

GENERIC STRATEGIES
Differentiation Strategy
Organizations resources and attention are directed toward making its
products appear different from those of the competition (ex: Coke, Pepsi)

Market scope = Broad

Source of competitive advantage = Unique product

GENERIC STRATEGIES
Cost Leadership
Organizations resources and attention are directed toward minimizing
costs to operate more efficiently than the competition (ex: Wal-Mart)

Market scope = Broad

Source of competitive advantage = Low price

GENERIC STRATEGIES
Focused Differentiation
Concentrates on a particular market segment and tries to offer the most
unique product in that segment
Market scope = Narrow

Source for competitive advantage = Unique product

Focused Cost Leadership

Concentrates on a particular market segment and tries to be the
with the lowest costs in that segment
Market scope = Narrow

Source for competitive advantage = Low price

provider

GENERIC STRATEGIES
Differentiation Strategy (in depth)

Seeks advantage though uniqueness

Done by:
Certain look (ex: Polo Ralph Lauren, American Apparel, Roots)
Lifestyle advertising (ex: Coca Cola, Pepsi, Much Music)
____________________________________________________________
Goal is to attract consumers who will be loyal and ignore the
competitions products
This strategy requires organizational strengths in marketing, research and
development, and creativity. Differentiations success is dependent upon
the consumers continuing perceptions of quality and uniqueness.

GENERIC STRATEGIES
Cost Leadership Strategy (in depth)

Your goal is to have the lowest prices available to receive the

largest

profit

Done by:

Continually improving operating efficiencies of production,

distribution, and other organizational systems.
_________________________________________________

Requires tight cost and managerial controls as well as products that

are easy to manufacture and distribute

Perfect example is Wal-Mart

GENERIC STRATEGIES
Focus Strategies (in depth)

Concentrate on a special market segment with the objective to

serve it better than anyone else

Focus organizational resources and attention on a particular

customer
, geographical region, or product/service line

Seek the competitive advantage in that singular segment through

product differentiation or cost leadership

Example = WestJet

COMPETITIVE RIVALRY

Number of competitors

Can other companies offer equally

attractive products?

Quality differences

Other (product) differences

Who holds the power?

Switching costs

Can other companies do what you do?

Customer loyalty

Will your customers stay or go?

Costs of leaving the market

Fixed costs/value added

Brand identity

Diversity of rivals

Industry growth

Corporate stakes

COMPETITIVE RIVALRY

Rivalry drives profits to zero

Varies across industries

Industry concentration

Companies can choose from various

rival strategies to win a competitive
advantage

There are many characteristics to

determine the intensity of rivalry

BUYER POWER
Buyer Power depends on the following:

Number of customers

Size of each order

Differences between competitors

Price sensitivity

Ability to substitute

Cost of changing

Monopsony: multiple suppliers and

one buyer

SUPPLIER POWER

How easy it is for suppliers to drive up

prices

Less suppliers = more power for the

suppliers

THREAT OF NEW ENTRY

Profitable markets that yield high returns will
attract new firms
New companies= decrease profits
Types:

Time and cost of entry

Investment cost
Technology protection
Barriers to entry
Specialized Assets

Experience is needed
Training is available
Economies of scale
Brand identity
Access to distribution

HIGH VS. LOW INDUSTRY PROFITS

High industry profits associated with:
Weak suppliers
High entry barriers
Few substitutes
Little rivalry

Low industry profits associated with:

Strong suppliers
Low entry barriers
Many substitutes
Intense rivalry

BARRIERS TO ENTRY

Examples of Barriers to Entry:

-Patents
-Copy Rights

Most attractive market segment is one in which entry barriers are high and exit barriers are
low

Governments creates barriers too permits, grants, restrictions ..etc.

ENTERING AND EXITING A MARKET

Easy to enter if:

Difficult to Enter if there is:

Access to distribution channels

Little Brand Identity
Common technology

Patents
Difficulty in brand switching
Restricted distribution channels

Easy to Exit if there are:

Difficult to Exit if there are:

Low exit cost

Independent businesses
Assets are easy to sell

Hard to sell assets

High exit costs
Interrelated Businesses

BRAND IDENTITY

Consumers will believe that a product with a well-known name is better than products with a
less well-known name

New firms wont join if there is a big name brand

ECONOMICS OF SCALE

This has to do with the MES which is the Minimum Efficient Scale

Unit cost for production are at a minimum ex. the most cost efficient level of production

If MES for firms in an industry is known, then we can determine the amount of market share
necessary for low cost entry

Creates a barrier:

The greater the difference between industry MES and entry unit cost, the greater the barrier to
entry.

SPECIALIZED ASSETS

Extent to which the firms assets can be utilized to produce a different product

Expensive assets/ equipment

Provides a barrier for two reason:

1. when a firm already holds specialized assets, new companies dont bother in joining the
market segment because it would be intense rivalry (not a lot of profit)
2. Potential entrants do not want to make huge investments in highly specialized assets
-hard to sell if venture fails

OTHERS.

Time and cost of entry:

-is it expensive to enter the market? Does it require a lot of time to enter?
______________________________________________________________________________

Access to distribution:

-is there a company that already has the distribution rights?

-A lack of access will make it difficult for newcomers to enter the market
______________________________________________________________________________

Training is available:

-do your employees need to be specially trained? Can they get the training somewhere?
Ex- CPR training

OTHERS

Experience is needed:

-do you already have to have experience in the field to join the market?
------------------------------------------------------------------------------------------------------------------------- Investment Cost:
-High cost will deter entry
-High capital requirements might mean that only large businesses can compete

THREAT OF SUBSTITUTES

Refers to products in other industries

Substitution is easy=weakens your power

Ex:

Instead of

THREAT OF SUBSTITUTES

Threat of Substitute exists when a products demand is affected by the price change of
substitute products

Price elasticity: as more substitutes become available, demand becomes more elastic since
buyers have more options

A close substitute product constrains the ability of firms in an industry to raise prices

Substitute performance: price and performance of the substitute can match the industrys
product

Cost of Change: if it is low cost to switch then you is in serious trouble