Five Forces/PEST Analysis Flashcards
Existing Rivalry
What kind of competition would we have to face and how hard would it be to squeeze the profit potential out of an industry
Rivalries: The Concentration and balance of Competitors
what is your competitors overall strength in the industry compared to your own
Rivalries: Industry Growth
are you facing a young and growing industry with lots of buyers or a old and declining industry with fewer buyers that you must fight over with competitors
Rivalries: Product/ Service characteristics
one characteristic is commodity product, in which buyers don’t see or care about the differences of a product and default to price for their decision. You can avoid this by create differentiation.
Rivalries: Fixed or storage costs/perishable goods
How costly is it to store goods and if it is alot then they will respond by slashing their prices
Rivalries: Capacity
Products are made in large batches as it brings down the costs for its producers, they will then make more products than there is a demand for them and with the excess it will lead to them having to slice prices lowering profit potential.
Threat of New Entrants
Company’s entering the market bringing new capacity, a desire to increase market share, and substantial resources
Entrants: Economies of scale
Cost Adv due to large size of production, research or marketing
Entrants: Existing Brand Loyalties
Brand preferences and customer loyalty to brand or product
Entrants: Capital Requirements and/or other specialized resources requirements
Requirements to do business in the industry, not only for fixed facilities, but also for R&D and marketing
Entrants: Cost and resources disadvantages independent of size
Familiarity with the industry (learning and experience curve); relationship with suppliers, favorable locations
Entrants: Access to distribution channels (Think new show)
Being able to secure distribution for products, having to persuade retailers to carry products through price breaks or other means.
Entrants: Government policies (Think license)
Special approval needed before being permitted to compete in an industry
Threat of substitute products
A product that can perform the same function as your product by comes from a different industry
When are substitute products a strong force?
If they are readily available, attractively priced, and if they are comparable or better
Power of Suppliers
When organizations supplying raw materials or services to an industry raise the prices or reduce the quality or quantity of goods or services.
Power of the Buyers
The power of the buyer/customer influences the terms and conditions of a sale. when they have more power they can barging for lower prices and better quality at the same price/ additional services.
When do Buyers have power?
When they are switching to competing brands or substitutes, have a large presence, large volume purchases are important to sellers, few buyers exist, and buyers have ability to postpone purchases
What are the strategic implications of the forces?
by understanding when a competitive environment is unattractive or attractive from a standpoint of earning good profits
What does PEST Stand for and are they Micro or Macro focused?
- Political
- Economic
- Socio Demographic
- Technological
Macro Focused
What are the Five forces and are they Micro or Macro focused
- Buyer
- Supplier
- New Entry
- Existing Rivals
- Substitutes
Micro focused
