business porter s five forces Top Trumps Resources for Courses Teacher Instructions This activity is best done after a brief introduction to Porter s five forces a model which can be used to analyse the power of various external influences upon a firm. This can then be used to help a business decide which industry to enter and possibly influence business strategy. For example, if a business has a powerful customer but weak supplier, costs might be easily negotiated down with suppliers to enable the customer to benefit from lower prices. Activity 1 Students are to complete the worksheet which asks them to consider what factors affect how much firms/industries are affected by. The first part of the worksheet has been done for them as an example. Bargaining power of suppliers Threat of new entrants Bargaining power of buyers business strategy Threat of substitutes Rivalry among existing competitors
Worksheet The first box has been completed for you as an example External influence Threat of new entrants Supplier power Buyer power Rivalry among existing competitors What factors will affect whether a business benefits/suffers from this or not? Barriers to entry will affect this. How easy is it for new firms to enter the market? Are there high start up costs? Do existing firms have loyal customers following years of expensive marketing campaigns? Is there intellectual property which is protected making it hard to enter the market? Is the idea easily copied and cannot
Worksheet Suggested Answers External influence Threat of new entrants What factors will affect whether a business benefits/suffers from this or not? Barriers to entry will affect this. How easy is it for new firms to enter the market? Are there high start up costs? Do existing firms have loyal customers following years of expensive marketing campaigns? Is there intellectual property which is protected making it hard to enter the market? Is the idea easily copied and cannot Supplier power Are there many potential suppliers of raw materials/services/machinery? Do firms have information about the potential suppliers? Are they all providing similar products or are they differentiated? Would the supplier choice matter to the customer or impact a unique selling point? Would changing supplier be costly and time consuming? What contract is the business tied into with their current supplier? Buyer power Are there many small buyers or a few big powerful buyers? Are there many other substitutes for these buyers to turn to? Are there many alternative buyers for the firm to sell to? Is the buyer price sensitive and has a lot of information about the other similar products available? Are there high switching costs or delays involved if the buyer did decide to change supplier? A substitute refers to a product in another industry that could offer similar benefits to customers. How specialised is the product offered by the firms in the industry? Would a similar product from another industry suffice? What benefits do substitutes have over products offered by firms in the industry and vice versa? E.g. a substitute to getting a train is getting a bus, however, if travelling over a long distance, a bus journey would take far longer and be much more inconvenient so would be a very poor substitute. Do customers know about other available substitutes Can they switch to them easily and at low cost? Rivalry among existing competitors This looks at the extent to which firms within an industry compete intensely with each other e.g. to gain market share, to force others to lower prices etc. If the market is growing slowly, the only way to gain sales will be for firms to take customers from one another, making rivalry higher. If firms are of a similar size with no clear market leader, rivalry could be higher. If consumers are less brand loyal and there are few costs for them switching supplier, it will be easier to tempt them, again making rivalry higher.
Porter s five forces top trumps Resources for Courses Teacher Instructions Activity 2 Give each pair of students one copy of the top trumps cards templates. One card (Tesco) has been completed for them. Ask them to discuss in their pairs: 1 Why do you think those figures have been chosen for Tesco 2 Do you agree or disagree with any figures? Reasoning: Competition between existing firms e.g. Asda and Morisons is intense. Supermarkets frequently offer similar schemes e.g. 25% off if you buy 6 bottles of alcohol or more, over the Christmas period was run by both Sainsburys and Tesco. Brand matching and price matching schemes are common. The media often talks about potential price wars. All of the big four are now competing for both customers in store and online. The limited number of existing competitors is what prevents this score being a 5. Though the chances of a new traditional supermarket is small, there is competition from discounters such as Aldi and Lidl. Amazon pantry is entering the market as well as meal kit delivery companies such as Hello Fresh and Gousto Tesco Supermarket industry Tesco deals with many small individual customers rather than having sales dominated by a few large companies. Customers may also be loyal due to being tied in to delivery plan saver schemes and enticed by the Tesco clubcard. 1 2 2 3 4 Barriers to entry to becoming a supermarket like one of the big Four are huge. It is unlikely that any entrepreneur would enter this industry due to the scale and finance needed. Plus even incumbent (existing) firms have been struggling with profitability. Many individual suppliers to Tesco have low power. This applies particularly to firms who provide identical products such as dairy farmers, who also provide perishable products, reducing the farmers bargaining power. Bargaining power does depend on who they are dealing with e.g. large brands such as Unilever wield their own supplier power.
Porter s five forces top trumps Resources for Courses Activity 3 Extension task 1 what information would be useful? What might your rating depend on? Extension task 2 complete some top trumps cards for a business of your choice on the blank cards provided. This could be a good opportunity to tailor to your local area. Activity 4 Compare cards with another pair s. Which cards/numbering do they broadly agree with? Which are the greatest areas of difference? Students should discuss their differing views and reasons for their differences of opinion. Activity 5 In fours, (or threes) choose one set of cards to play with. Cut and play top trumps! Many students will be familiar with the idea but for those who are not: 1 Put the cards face down and shuffle. 2 Deal out an equal number to each player. 3 Each player holds their cards so they can see the top card only. The player to the left of the dealer goes first. They choose a category which they think gives them the best chance of winning with that card - the highest number probably. So they might say Supplier Power, 4. 4 The person to their left reads out their number for supplier power and so on until every one in the group has read out their number for their given category. The person who has the highest number for that category takes all four cards and puts them to the back of their cards in their hands. If there is a draw, the four cards go in the centre. The winner of the next round will take all eight cards next time. 5 The person with all the cards at the end is the winner. Activity 6 (could also be done prior to playing the game e.g. after activity 4) Ask students to discuss in pairs/fours What limitations of can you see? Example answers: It involves value judgements about the perceived size of power and threats It only looks at a market at one point in time Sometimes it is difficult to define an industry and distinguish between an industry and a substitute e.g. are Tesco and a local corner shop in the same industry (groceries) or is the corner a shop a substitute as it is a smaller but perhaps more convenient alternative? Not all external influences are considered e.g. the economy, changes in the law It doesn t necessarily provide solutions to problems perhaps it should be done in conjunction with a SWOT analysis
Tesco Supermarket industry Hasbro Board game industry Manchester United Football Club 1 2 2 3 4 Apple Smartphone industry Bing Search engine Local taxi company WHSmith Book retailer Snapchat Communications app Burger King Fast food retailer
Abel and Cole Weekly organic fresh veg box deliveries Dairy Farmer Independent dairy farmer Local free house pub Pub owned independently of a brewery River Island High street fashion retailer Hotel Chocolat Luxury chocolate retailer Music Magpie Buys your unwanted DVDs, CDs &books & sells them online & on the high street (formerly That s Entertainment) London Underground Public transport system in the UK s capital The Guardian Broadsheet newspaper Argos Catalogue retailer selling homeware, jewellery, toys etc