Porter s Five Forces. Business Framework

Transcription

1 Business Framework Porter s Five Forces 1. Potential new competitors Threat by new competitors 4. Suppliers Suppliers negotiation power 2. Competitors in the industry Rivalry among existing companies 5. Customers Buyers negotiation power Developed by Michael Porter, Porter s Five Forces is a classic business framework for evaluating the attractiveness of a particular industry by analyzing 5 forces. It is useful to utilize Porter s Five Forces in conjunction with a SWOT analysis of the industry. 3. Substitution products Threat by substitution products Find our other documents at

2 Porter s Five Forces Framework Diagram 1. Potential new competitors Threat by new competitors 4. Suppliers Suppliers negotiation power 2. Competitors in the industry Rivalry among existing companies 5. Customers Buyers negotiation power 3. Substitution products Threat by substitution products 3

3 The publishing industry has seen only modest increases in sales in recent years EXAMPLE Total U.S. printed media revenues, Includes both consumer and advertising spending $ Billions Total revenues CAGR % 93 Newspapers 94 Books Magazines E 5.7% 95E 96E 97E The internet provides an innovative new distribution medium that magazines and newspapers can use to recover readers and lure advertisers. 98E 99E Newspaper and magazine revenue growth has been driven by price increases, as circulation has been flat to falling Newspapers and magazines share of total advertisers spending has also fallen from 32% to 28% over the last five years Book publishers have seen growth in book unit volumes, with stable prices: Books remain a popular source for access to fiction and non-fiction despite a growing number of substitutes Recent growth of discount stores has helped increase sales Source: Note: Veronis, Suhler & Associates; S&P Industry Survey Magazine and newspaper spending includes both advertising and consumer spending 5

4 Leaders in the PC business have changed as quickly as the need for computing power EXAMPLE U.S. Unit Market Share 70% 60% 50% 40% 30% 20% 10% 0% U.S. Unit Market Share of top 10 competitors (quarterly changes in market share) 1Q Q Q Q Q Q Q Q 1994 New entrants and industry consolidation are forcing competitors to continually redefine their business strategies. 7

5 Several factors determine the bargaining power of buyers A buyer group is powerful when: It is concentrated or purchases large volumes relative to seller sales Its purchases from the industry represent a significant fraction of the buyers costs or purchases It purchases standard or undifferentiated products Brand identification is Its switching costs are Its profits are It poses a credible threat of backward integration Its purchases from the industry is unimportant for the quality of its products or services It possesses full information These factors may change over time and alter buyer power. 9

6 Distinct distribution channels serve the two major different end-user segments EXAMPLE Value-added channels Channels Direct Sales System Integrators (SI) Value-Added Resellers (VAR) Dealers Definitions Those sales made by a manufacturers sales force, agent, or representative Provide customized value-added solutions for clients Offer unique, tangible solutions off-the-shelf to targeted customers The traditional computer dealer channel. Do not add unique value to the system but do offer some value in the form of support, training, or other services Typical buyer Business Mainstream channels Computer Superstores Mass Merchants Consumer Electronic Stores Office Stores Mail Order Large, well-merchandized store fronts, with most revenue generated by computer-related sales Typically offer a wide range of products, including computer-related equipment Offer a wide range of electronic merchandise, including computerrelated items Retailers and resellers focusing on office supplies Third-party computer sales that use telephone to perform all levels of sale This document is a partial Direct preview. Response Full document download Direct telephone can be sales found from on manufacturers Flevy: not using third parties Home users Massive increase of home PC usage has increased the strength of the mainstream channel, especially retailers. Source: IDC and Merrin Information Services, Inc. 11

7 Supply Chain pressures have encouraged publishers to explore non-print opportunities EXAMPLE New innovation As a substitute for Books Magazines Newspapers Telephone Info. Services Fax Services Books on cassette CD-ROM Online / internet Print publishers are rushing into these substitutes to pre-empt a push from niche players. 13

8 Paper companies strong leverage is pushing publishers to explore nonprint options EXAMPLE Paper Companies North American Market Share, 1994 Independent Printers Ink Suppliers Other Top 5 Top 10 Books 51.2% 74.7% Magazines 56.7% 86.5% Newspapers 41.1% 64.4% Publishers Many publishers and printers have seen the price of paper double in the first half of 1995 alone: A world paper shortage has resulted from increased demand for paper-based information North American paper producers have the option to sell to more lucrative foreign markets, leading to a sharp rise in North American exports Foreign producers also prefer to sell to more lucrative markets This Even document partial movement is a partial towards preview. non-print Full document media download affords can publishers be found greater on Flevy: bargaining power with conventional suppliers Many newspapers and magazines are already on the web, piloting the feasibility of an online presence. Source: Publishers Weekly 15

9 Porter s Five Forces Top Tips Hints and Pitfalls Data Sources Do: Define precisely the industry before conducting analysis. Quantify your findings where possible. Don't: Just use as a static tool show trends in each of the areas. Industry reports Analysts reports Database searches See also related analytics sources Related Analytics PEST SWOT Segment attractiveness Product life cycle Product substitution Competitors comparison 17

10 Porter s Five Forces Metrics & Scoring (1 of 6) Highly unattractive Unattractive Neutral Attractive Highly attractive Entry barriers Exit barriers Rivalry among competitors Economies of scale Product differentiation Brand identity Conversion costs Access to sales channels Capital needs Access to state-of-the-art technology Access to raw materials Protection by government Experience effect Specialized assets One-time exit costs Strategic linkages Emotional restraints Legal and social restrictions Number of comparable competitors Industry growth Fixed or storage costs Product characteristics Capacity increases Diversification of competitors Strategic assignments little poor poor broad broad broad not available unimportant many many many many many s consumables large steps many pronounced limited limited limited strong very important few few few few few fast specialised prod. continuous few 19

11 Porter s Five Forces Metrics & Scoring (3 of 6) Highly unattractive Unattractive Neutral Attractive Highly attractive Availability of substitution products Availability of closely related substitution products Users conversion costs Profitability and aggressiveness of the substitution product manufacturers Value for money of substitution products Industry protection disadvantageous advantageous Industry regulations disadvantageous advantageous Authority measures Political continuity International capital transfer Customs Foreign exchange operations Foreign ownership Help for competitors limited limited limited substantial unlimited unlimited unlimited no 21

12 Porter s Five Forces Metrics & Scoring (5 of 6) Competitive Dimensions Suppliers Factors Influencing the Relevant Competitive Dimensions Factors increasing the suppliers negotiation power : Large competitive advantages of the delivered product Low number of potential suppliers Great importance of the product for the quality of the client s product High conversion costs when switching the supplier Low significance of the client for the supplier Credible interest in a forward integration Short Characterization of the Industry Customers Factors increasing the buyers negotiation power: High market power at buyer side Large number of alternative providers for the buyer (standardised exchangeable products) Cost and market transparency for the buyers (ex. marketplaces) Few buyers emerge in a concentrated fashion Low conversion costs and risks for the buyer when switching the supplier High industry products share of total costs at buyer side (strategic purchasing policy) This document is a partial preview. Revenue Full problems document at buyer download side, who can want be to pass found them on Flevy: on to their suppliers Credible threat with backward integration in the value chain 23

13 Porter s Five Forces Metrics & Scoring Template Industry Attractiveness Currently Future middle middle Overall assessment 25

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