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BU111 > Porter's 5 forces > Flashcards

Porter's 5 forces Flashcards

1
Q

focus on

A

• Challenges and constraints when it comes to profitability
• What the competitive environment looks like
o The external factors in the industry that might negatively impact profitability
• Which industries you should enter

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2
Q

industry competition

A

• Rivalry among existing firms
o Produce the same type of products
o Ford, Toyota, gm

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3
Q

industry competition

factors

A

many competitors, low industry growth rate, capacity of competitors, low consumer switching costs, products are commodities or perishable, exit barriers

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4
Q

many competitors of equal size and capability

A

o Harder to stand apart from competitors

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5
Q

low industry growth rate

A

o Not a lot of new customers, so to grow you have to steal customers

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6
Q

capacity of competitors

A

o Max capacity  labour and capital

o Lower capacity means more rivalry motivated to produce more

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7
Q

low consumer switching costs

A

o If it is easy for consumers to move between products
o Lower switching costs= increased rivalry, competitors will try and take consumers away
o High switching costs= customers think twice before switching and will stay with the company longer decreased rivalry

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8
Q

products are commodities or perishable

A

o Commodity- consumers do not see a difference in the brands, compete on price
 Milk bags
o Perishable
 After the date the product is not worth anything- closer to expiration dates there is more motivation to see it
• Airplane seat after the plane takes off
• Food after the expiration date

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9
Q

exit barriers

A

o High costs to exit the industry (capital asset cost)

o High switching costs= more competitors choosing to stay

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10
Q

effects on industry competition

A

price competition, lower volume, increased costs

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11
Q

price competition

A

o Have to keep prices within a certain range

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12
Q

lower volume

A

o More competition means less market share

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13
Q

increased costs

A

o Have to increase marketing costs to try and capture the consumers

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14
Q

solution

A

growth, acquisition of competitors, create/increase switching costs, differentiation

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15
Q

acquisition of competitors

A

buy out your competitors

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16
Q

create/increase consumer switching costs

A

when it is easy to switch it is harder to keep customers

have loyalty cards

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17
Q

differentiation

A

create something consumers cannot get somewhere else

convince consumers your product is different than others

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18
Q

substitutes

A

products that can do the same job but in different ways

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19
Q

factors

A

many good substitutes, low switching costs, higher buyer propensity to substitute, improvements in price performance trade off

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20
Q

many good subs

A

o More substitutes there are the more profits decrease
o More rivalry in the market
o Forces prices down

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21
Q

low switching costs

A

o When it is easier to switch to a substitute you work harder to keep price celling lower
o Forces you to work harder to keep customers from switching

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22
Q

higher buyer propensity to substitute

A

o Something people are willing to substitute for
• Home haircuts, barber profits decreases- for men
• Women not willing to substitute

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23
Q

effects

A

creates price ceilings, increased market costs

24
Q

price celling

A

they put a price cap on the product

if it is expensive consumers will look to other products

25
Q

solutions

A

strong marketing/differentiation

lock in customers

26
Q

strong marketing/ differentiation

A

convince customers that the sub is not as good as your product

27
Q

lock in customers

A

loyalty cards

28
Q

threat of new entrants

A

• how easy is it for new entrants to enter the market and increase the competition
• high barriers= harder to enter the market
• New competitors/ future competitors in the market
o (tesla and uber)
o Future- not in the market yet but soon

29
Q

threats of new entrants impact on profitability

A

 Crowded- increases competition  lower prices you charge
 Change the rules- force you to change
• Uber- you can use your own cars rather than having to buy taxis

30
Q

factors- barriers to entry

A

cost, customer, distribution channels, govt regulations/policy

31
Q

cost

A

o Economics of scale- have to sell at high volumes in order to make profits
o Capital requirements- how much it costs to set up facilities
o Cheap supply sources- learning specialized skills and assets

32
Q

knowledge

A

o Technology, patents, capabilities (supply chain expertise)

33
Q

customer

A

o Differentiation- different than competitors
 Switching costs/ brand loyalty- new competitors- harder to win over consumers
 if brands have low switching costs or no brand loyalty, they will be willing to switch over to a new company and try something new.

34
Q

distribution channels

A

 can be blocked by existing competition
 ex- pepsi and coke are already in grocery stores so they do not have to convince stores to allow them to use their products. They have the advantage as they are already on the shelves and proving that they generate sales.

35
Q

government regulation/policy

A

 All banks, cell services
 Hard to enter if there are strong regulations
 Government has to give you permission- meaning there is a limit on competition and prices can be higher.

36
Q

effects

A

can cause big changes

can intensify competition

37
Q

solutions

A

grow to achieve economies of scale, control distribution network, lobby governments, differentiate and create brand loyalty, lock in customers

38
Q

grow to achieve economies of scale

A

o Purse sales and be able to sell high volumes of product

39
Q

control distribution network

A

o Lock up store shelves (to convince you can send employees to stock up shelves as an incentive for companies)

40
Q

lobby governments

A

o Donate to political campaigns to try and get them to see your way

41
Q

lock in customers

A

o Contracts and reward programs

42
Q

suppliers

factors

A

few suppliers, few good subs/inputs, high switching costs, threat of forward integration

43
Q

few suppliers

A

o They have more barging power because they know what buyers need
o They can charge higher prices for their products- this impacts profitability because inputs will be higher

44
Q

few good substitue suppliers/inputs

A

o There may not be a lot of substitutes in the industry available, this results in you being a price taker, and not a price giver

45
Q

high switching costs

A

o Costing a lot to switch suppliers (can be a hassle if you have already put in time with the supplier, developed a relationship, learning)
 Can create an internet with supplier, which allows them to see when you are running low on an inventory, can cost a lot to switch over.

46
Q

threat of forward integration

A

o The suppliers now creating their own product and now they have the upper hand (become a competitor) (cost advantage in producing their materials)

47
Q

solution

A
  • Form strategic alliance (win win situation between the company and the suppliers)
  • Internal supply (backward integration)
  • Long run- redesign product or needed input
48
Q

buyers factors

A

few/concentrated buyers, discretionary purchase, standardized products, low switching costs,
financially motivated:
cost significance, profitability, threat of backward integration

49
Q

few/concentrated buyers

A

o if you don’t give me the price, I won’ buy it or I will go somewhere else
o concentrated buyers- buyers having control majority over market share (Walmart)

50
Q

discretionary purchase

A

o you must work that much harder to convince buyers that they need it  if you don’t give them a good price, they won’t buy it (take it or leave it)

51
Q

standardized products

A

o if all the products are the same, it only depends on price and buyers will go somewhere else (banking)
o milk- all milk bags are standardized  since it is easy to move through brands, they have increased bargaining power.

52
Q

cost significance

A

o bargain a house and a car, but will not bargain gum because the cost significance is low

53
Q

profitability

A

o greater impact on profitability- if you do not give consumers what they want, your profits will decrease
o pay attention to your consumers and what is in demand

54
Q

threat of backward integration

A

o buyers make products themselves, as then you have new competitors and lost customers.

55
Q

solutions

A

alliance, strong marketing, create switching costs

BU111 (5 decks)

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