competitive strategy

Competitive Strategy

By Michael PorterInstructor: Wesley Shu

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Competitive Strategy

A framework for understanding the underlying forces of competition in industries

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Basic Competitive Forces

Suppliers

Substitutes

IndustryCompetitors

Buyers

Potential Entrants

Rivalry amongexisting firms

Threat of new entrants

Bargaining power ofbuyers

Threat of substituteproducts or services

Bargaining powerof suppliers

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The Five Forces

• Threat of entry• Intensity of rivalry among existing competitors• Pressure from substitute products• Bargaining power of buyers• Bargaining power of suppliersThey Are Structural Determinants of the Intensity

of Competition

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Threat of Entry• Barriers to entry

• Economies of Scale• Product differentiation• Capital requirements• Switching costsnext

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Economies of Scale

• can be also achieved by “joint costs” including brand name or know-how

• Not only manufacturing, but also Marketing, service network (Amazon) R&D, branding, marketing etc.

• Ex. McDonald share promotion among franchised stores

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Product Differentiation

• Differentiated products enjoy customer loyalty and brand identification

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Capital Requirement

• 既存廠商可以創新價格模式﹐使得資本比重相對提高﹑回收期加長﹐例如租賃影印機

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Switching Cost

• 指買方不容易另求賣方﹐尤其是下游廠商對上游的依賴度。例如﹐公司一旦採用了某種 ERP 產品﹐要更換就不容易了﹐因為 ERP 除了價格不菲之外﹐一旦更換﹐訓練成本得重新付出﹐過去的維護成本完全付之流水。如此﹐新的 ERP 就不容易打入市場。

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Other Barrier to Entry

• Access to distribution channels• Cost disadvantages independent of scale, e.g.,

proprietary product, favorable access to raw materials, favorable locations, government subsidies, learning or experience curve, government policy, etc.

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Threat of Entry• Expected retaliation• The entry deterring price• Properties of entry barriers, e.g., vertical

integration to lower cost• Network externalities

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Expected retaliation

• History of vigorous retaliation• Established firms with substantial resources to

fight back• Slow industry growthreturn

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The entry deterring price• 競爭者想要進入某個產業﹐一定是覺得

有利可圖。有利與否決定於競爭者對加入市場後的產品價格﹑自己的生產成本﹑以及為了進入該產業所需付出的努力。產業的既存者如果不想讓競爭者進入﹐可以將產品價格降低﹐低到競爭者覺得無利可圖。此時如果既存者為了爭取利潤而不降價﹐使得市場價格高於競爭者心目中的 Entry deterring price﹐ 就徒然讓他們蠢蠢欲動﹐和自己過不去了。

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The entry deterring price• 在不成熟的第三世界國家﹐金融產業是被高度

控制的。控制方法之一就是特許制度。任何特許﹑伴隨著法律上對政府的約束微弱﹐都無法避免貪污賄賂。而政府對不中意的行賄者﹐可以索取一定的回扣﹐使得該行賄者覺得無利可圖﹐就是操作 Entry deterring price 的一種方式。

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Network externalities

• Network Externalities: 指的是﹐一件商品對消費者的價值決定於消費者的總數﹐而消費者購買的決定也取決於其總數。例如電話機﹑電腦操作系統﹑ eBay 都是。

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Intensity of rivalry among existing competitors• Numerous or equally balanced competitors• Slow industry growth• High fixed or storage costs

• High fixed cost: 為了沖銷大量的固定成本﹐廠商可能會傾向多生產﹐如此導致價格降低﹑廠商之間的競爭加劇。

• High storage cost: 為了出清存貨﹐降低儲存成本﹐廠商可能降價求售﹐如此增加了產業內的競爭。

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Intensity of rivalry among existing competitors• Lack of differentiation or switching costs

Products are like commodity.• Capacity augmented in large increments

一旦如此﹐廠商會形成周期性的產量驟增。如果產品需求穩定﹐當產量驟增﹐供需就失衡﹐如此增加了產業內的競爭。

• High exit barriers: specialized assets, strategic interrelationship, emotional barriers, etc.

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Intensity of rivalry among existing competitors• Diverse competitors

如此﹐各個廠商就無法正確了解對手的行為﹐形成混亂的戰局。此外﹐廠商也比較難提出普效的策略﹐因為對某一對手有效﹐對其他對手就未必。

• High strategic stakes當廠商進入某一產業具有策略考量 ﹐ 通常表示他不太會放棄該產業﹑有意在該產業擴張﹑願意犧牲利潤以成就策略。這些再再增加了產業內的競爭。

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Pressure from substitute products• Price elasticity

指價格的變動率對需求變動率的影響。價格的彈性愈高的話﹐價格上漲﹐需求就愈減少。亦即﹐消費者就愈傾向買替代品。讓價格彈性降低的方法很多﹐如運用 CRM 的技巧﹐增加消費者對品牌的認知和忠誠度﹑產品差異化。If the price elasticity is high, rising industry prices tend to drive consumers to purchase substitutes.

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Bargaining power of buyers• The buyer purchases large volumes.• The products are standard or undifferentiated.• It faces few switching costs• Buyers pose a credible threat of backward

integration. E.g., GM or Ford’s self-manufacture as bargaining level for part suppliers

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Bargaining power of buyers• The industry’s product is unimportant to the

quality of the buyers’ products or services• The buyers have full information

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Bargaining power of suppliers• Fewer and concentrated suppliers.• Suppliers are not obliged to contend with other

substitute products如果沒有競爭者生產替代品﹐該供應商自然就有較高的 bargaining power.

• The industry is not an important customer of the suppliers

• The suppliers’ product is an important input to the buyer’s business.

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Bargaining power of suppliers• The supplier group’s products are

differentiated or it has built up switching costs• The supplier group poses a credible threat of

forward integration

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Competitive Strategy

Identify the 5forces and their

causes

Identify ourstrength and

weakness

Create adefendable

position againstthe 5 forces

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Competitive Strategy

1. Identify the five forces and their causes2. Identify a firm’s strengths and weaknesses

relative to the industry3. Create a defendable position against the five

competitive forces

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Competitive Strategy Approaches• Positioning

Position the firm in the industry where the forces are weakest, or provide the best defense against the competitive forces.

• Influencing the balanceChange the firm itself to eliminate the causes of the forces.

• Exploiting change by choosing a strategy appropriate to the new competitive balance before rivals recognize it

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Generic Competitive Strategies• Cost leadership• Differentiation• Focus

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Generic StrategiesUniqueness perceived by the customer

Low cost position

Industrywide Differentiation

Overall cost leadership

Particular segment only

Focus

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Overall Cost LeadershipCommonly required skills and

resources• Substantial capital investment

and access to capital• Process engineering skills• Intense supervision of labor• Products designed for ease in

manufacture• Low-cost distribution system

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Overall Cost LeadershipCommonly organizational

requirements• Tight cost control• Frequent, detailed control reports• Structured organization and

responsibilities• Incentives based on meeting strict

quantitative targets

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Differentiation Commonly required skills and

resources• Strong marketing abilities• Product engineering• Creative flair• Strong capbility in basic research• Corporate reputation for quality or

technological leadership• Long tradition in the industry or

unique combination of skills drawn from other business

• Strong cooperation from channels

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Differentiation Common organizational

requirements• Strong coordination among

functions in R&D, product development, and marketing

• Subjective measurement and incentives instead of quantitative measures

• Amenities to attract highly skilled labor, scientists, or creative people

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FocusCommonly required skills and

resources• Combination of the above policies

directed at the particular strategic target

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FocusCommon organizational

requirements• Combination of the above policies

directed at the particular strategic target

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Competitor Analysis - Objective

Develop a profile of the nature and success of the likely strategy changes each competitor might make

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Competitor Analysis

Identify current and potential competitors:Firms not in the industry but who could overcome entry barriers particularly cheaplyFirms for whom there is obvious synergy from being in the industryFirms for whom competing in the industry is an obvious extension of the corporate strategyCustomers or suppliers who may integrate backward or forward

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Competitor Analysis

Future Goals of the competitorsCurrent Strategy of the competitorsAssumptions of the competitorsCapabilities of the competitors

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Competitor’s response profile

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Future Goals

What drives the competitor?Knowledge of goals allows predictions about whether the competitor is satisfied with its present position.Allows to predict its reaction to our strategic changesHelps interpret the seriousness of initiatives the competitor takes

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Assumptions

Identify each competitor’s assumptions about itself and about the industry and the other companies in it