• To shape every industry and market
• determine competition’s intensity > profitability and attractiveness of industry.
Bargaining Power of Suppliers
• suppliers overpowerfirms in an industry?
• Supplier’s bargaining power high/low?
ﺎ high when:
Few large suppliers dominate market than fragmented source of supply
no substitutes for particular input
suppliers customers fragmented
switching costs from one supplier to another are high
Bargaining power of customers
Determines how much pressure can they impose on margins and volumes
ﺎ high when: buying large volumes, there is a concentration of buyers
product undifferentiated and can be replaced
Switching to alternative product simple and not costly
Customers with low margins,price-sensitive and know production costs
Threat of New Entrants
• Higher competition, easier entrance
• new entrants could change major determinants of market environment (market shares, prices,customer loyalty)
• Threat will depend on extent of barriers to enter. typically:
Economies of scale (minimum size requirements for profitable operations)
High initial investments and fixedcosts
• Customer’s brand loyalty
• Protected intellectual property (patents, licenses)
• Scarcity of important resources (qualified expert staff)
• Access to raw materials & distribution channelscontrolled by existing players
• High switching costs for customers
• Legislation & government action
Threat of Substitutes
• if alternative products exist > potentially attract significantproportion of market volume, reduce potential sales volume for existing players.
• Similarly to threat of new entrants:
• Customer brand loyalty
• Close customer relationships
• Switching costs forcustomers
• relative price for performance of substitutes
• Current trends
Competitive Rivalry between Existing Players
• intensity of competition
• High> pressures prices, margins, hence, on...