Professor George BurtDr Tom ForbesDr John W SandersLecture 3: Market Based View (MBV) and Competitive EnvironmentPart 2Strategy for Sustainable Success (BUAP012)Strategy and Competitive Advantage (BUSP010)International Strategy (IBUP010)Competitive Strategy: according to Porter(1980/1985) Aim: to understand the overall attractiveness of the marketor industry Do so in order to help the individual business identify andestablish a profitable and sustainable position relative torivals and based on the forces that determine industrycompetition Remember that markets are dynamic: the competitiveforces (the rules of the game) change over timePorters Five ForcesFrameworkPotential entrantsSuppliersCompetitiveRivalry BuyersSubstitutesThreats ofentrantsBargainingpowerThreats ofsubstitutesBargainingpowerPower of buyers is likely to be high when: Buyers concentrated High volume/value purchases Alternative sources of supply Threat of backward integrationPower of suppliers is likely to be high when: Suppliers concentrated Switching costs high Powerful brands Threat of forward integration Suppliers customers unimportantThreat of entry dependent on barriers to entry: Size and sunkness of capital requirements Economies of scale Experience curve effects Product differentiation Brand performance/customer loyalty Access to distribution channels Expected retaliation Legislation/government action Threat of substitution is high when potential substitutes: Satisfy same need for buyer Have high perceived or actual performance Switching costs to the buyer are low Propensity of buyer to swit
ch is high The market is in an early phase of its life cycleIntensity of of competitive rivalry is likely to be high when: Competitors equal in size and capability Slow market growth Price is primary basis for competition High fixed (and sunk) costs High exit barriers Undifferentiated productsExample of a Five Force Analysis for DiageoCompetitiverivalryHIGH Supplierpower LOW Threat oLOW new entrantBuyer powerLOW Threat ofsubstitution HIGH Main competitors Heineken,Fortune brands, BrownForman, Bacardi, PernodRicard Supermarket own brands Diageos quality reputation ishigh unique history Not easy to get intomarket Availability of resources High costs involved Production time forwhisky Battle against Diageosbrand reputation Government policies High number of buyers e.g.clubs, bars, restaurants,supermarkets, wholesalers Buyers from over 180 countries Leading spirits company inevery region in world Product differentiation due tobrand, history, quality topranking brands Alternative vodkas, beers,whisky etc on the market Non-alcoholic drinks posea threat Over 200 brands = highnumber of suppliers Mainly farmers Suppliers in over 100countries No raw material differentiation Suppliers value a majorcustomer like Diageo Long term contracts Which are the dominant forces in the industry? What are the underlying forces which are driving thesefive forces? How may the five forces change? What is the impact on you; and on your keycompetitors? What can be done to influence the impact of thefive forces on your business?Five Forces analysis: Key questions