Porter's 5 forces

Porter's 5 forces

1. 1 THREAT OF ENTRY

   • Depends in the height of entry barriers, the sources are:
     • 1 Supplier-side economies of scale
     • 2 Demand-side benefits of scale
       • Se refiere a que los clientes probablemente no quieran migrar a un nuevo competidor
     • 3 Customer Switching costs
       • Ejemplo, querer migrar de SAP a otro tipo de ERP, el costo de cambio es alto
     • 4 Capital requirements
       • ej: el capital necesario para ingresar a aerolineas, aunque existe financiamiento.
     • 5 Incumbency advantages independent of size
       • ej: propietary technology
     • 6 Unequal access to distribution channels
       • ej: las aerolíneas que tuvieron que habilitar portales de internet ya que las agencias solo apoyaban a las aerolineas establecidas
     • 7 Restrictive goverment policy

2. 2 THE POWER OF SUPPLIERS

   • Powerful suppliers capture more of the value for themselves 
   • A supplier group is powerful if:
     • 1 Is more concentrated that the industry it sells to
       • Ej: the monopoly of Microsoft in OS
     • 2 The supplier group does not depend on the industry for its revenues
   • 3 Industry parcitipants face switching costs in changing suppliers
   • 4 Suppliers offer products that are differentiated
   • 5 There is not substitute for what supplies
   • 6 The supplier group can credibly threaten to integrate forward into the industry

3. 3 THE POWER OF BUYERS

   • Buyers are powerful if they have negotiating leverage
   • Buyer group is powerful if:
     • 1 There are few buyers
     • 2 The products are standarized or undifferentiated
     • 3 Buyers face low switching cost
     • 4 Buyers can creadibly threat produce the product by themselfs
     • EXTRA: Intermediate have power if they can influence final customer
       • Ej: Dupont with stainmaster
   • Buyer group is price sensitive if:
     • 1 if the product represents a significant fraction of its costs
     • 2 The buyer earn low profits
     • 3 The buyer's quality product is low affected by industry product
     • 4 The industry product has low effect in the buyer's other costs
       • Service can pay for itself many times over improving performance: i.e.: tax accounting

4. 4 THE THREAT OF SUBSTITUTES

   • The threat of substitutes is high if:
     • 1 It offers an atractive price-performance
     • 2 The buyers cost of switching is low

5. 5 RIVALRY AMONG EXISTING COMPETITORS

   • The intensity of rivalry is greatest if:
     • 1 Competitors are numerous or equal in size and power
     • 2 Industry grow is low
     • 3 Exit barriers are high
     • 4 If there are aspirations for leadership
     • 5 If can't read each others signals
   • Price competition is most liable to occur if:
     • 1 Products are nearly identical
     • 2 Fixed cost are high and marginal cost low
     • 3 Capacity must be expanded in large increments to be efficient
     • 4 The product is perishable

6. INDUSTRY ATTRIBUTES

   • attributes, not forces
   • 1 Industry grow rate
   • 2 Technology and innovation
   • 3 Goverment
   • 4 Complementary products and services

7. CHANGES IN INDUSTRY STRUCTURE

   • 1 Shifting threat of new entry
     • Changes in the barriers can lower or raise  the threat of new entry
   • 2 Changing supplier or buyers power
     • ej: when airlines begin to sell tickets online
   • 3 Shifting threat of substitution
     • technology advances is the main factor for this
   • 4 New bases of rivalry

8. POSIBLY STRATEGIES

   • 1 Positioning the company
     • i.e: Paccar focus on one group of customers: owner operators
   • 2 Exploting industry change
     • ej: the labels adopt to the new internet market, they began to share risk of distribution
   • 3 Shaping industry structure
     • 1 Redividing profitability
       • by standardize specifications for parts to make easier to switch among suppliers
     • 2 Expanding the overall profit pool
       • i.e: when soft drink producers rationalized their independent bottle network to make them more efficient and effective
   • 4 Defining the industry
     • 1 Scope of products and services
     • 2 Geographic scope

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