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Ch2-1 Chapter 2 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis The External Environment: Opportunities,

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Presentation on theme: "Ch2-1 Chapter 2 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis The External Environment: Opportunities,"— Presentation transcript:

1 Ch2-1 Chapter 2 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis Aviation Marketing By: Imtiaz Hussain Aviation Marketing By: Imtiaz Hussain Superior University

2 Ch2-2 The purpose of Five-Forces Analysis The five forces are environmental forces that impact on a company’s ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

3 Ch2-3 Threat of Substitute Products Threat of New Entrants Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

4 Ch2-4 NOKIA Threat of new entrants: low The mobile phone industry is already a well established market high investments in R&D, technology and marketing. Nokia hold 29% of the market share in the industry, the highest market share in the industry. Power of suppliers: moderate Although Nokia rely on its suppliers to supply equipment for their advanced mobile phones there are actually a number of large equipment makers, which Nokia could switch to. The software suppliers for their Smartphone's are now Microsoft, who will have a very high bargaining power. Powers of buyers: high The power that customers have is rising because of the increasing number of choices in the mobile telecommunication industry. With a lot of the Nokia competitors all offering similar products and packages Long term contracts so switching from one handset to another will be difficult Threats of substitute’s products: low Mobile phones are an everyday essential in people’s lives today. social networking websites, and home telephones. Digital camera can take better photos then smart phones, notebooks can surf the web just as effectively and PDAs can plan a day the same way a smart phone can. Competitive rivalry: high Apple and HTC.

5 Ch2-5 Example This worries him: The threat of new entry is quite high Competitive rivalry is extremely high: if someone raises prices, they'll be quickly undercut. Buyer Power is strong, again implying strong downward pressure on prices. There is some threat of substitution

6 Ch2-6 Porter’s Five Forces Model & Its Application in Aviation

7 Ch Rivalry Amongst Existing Firms Low competitionSame type of aircraftsSame type of faresLess fare for economy classHigh fare for business class

8 Ch2-8 2.Substitution TelecommunicationSurface transportAir Freight industry

9 Ch New Entry Regulatory LimitationsAirport SlotsStaff ResourcesMaintenance and Ground handlingEconomies of ScaleLearning Curve effectsHigh Risks“Where there is muck there’s brass”

10 Ch Power of Customers Number of customers“True customers” are decreasingOver-ride comissionsBucket ShopsWhy not to do the job YOURSELF?Integrated CarriersSwitching Costs“Golden Hello” tactic

11 Ch Power of Suppliers MonopolyAirports and ATCsAircraft manufacturers (B747, A380)Global Distribution System (GDSs)SABRE and Galileo InternationalCost to be mutually share by agent and airlineAirlines continued to pay85 to 90%

12 Ch2-12 Threat of New Entrants Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

13 Ch2-13 Threat of New Entrants Barriers to Entry Expected Retaliation Government Policy Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale

14 Ch2-14 Bargaining Power of Suppliers Threat of New Entrants Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

15 Ch2-15 Bargaining Power of Suppliers Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases Suppliers are likely to be powerful if: Supplier industry is dominated by a few firms Suppliers’ products have few substitutes Buyer is not an important customer to supplier Suppliers’ product is an important input to buyers’ product Suppliers’ products are differentiated Suppliers’ products have high switching costs Supplier poses credible threat of forward integration

16 Ch2-16 Bargaining Power of Buyers Threat of New Entrants Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

17 Ch2-17 Bargaining Power of Buyers Buyers compete with the supplying industry by: * Bargaining down prices * Forcing higher quality * Playing firms off of each other Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to seller’s sales Purchase accounts for a significant fraction of supplier’s sales Products are undifferentiated Buyers face few switching costs Buyers’ industry earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information

18 Ch2-18 Threat of Substitute Products Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

19 Ch2-19 Threat of Substitute Products Products with similar function limit the prices firms can charge Keys to evaluate substitute products: Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery

20 Ch2-20 Threat of Substitute Products Threat of New Entrants Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

21 Ch2-21 Rivalry Among Existing Competitors Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Making new product introductions Increasing consumer warranties or service Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors

22 Ch2-22 Cutthroat competition is more likely to occur when: Rivalry Among Existing Competitors Numerous or equally balanced competitors Slow growth industry High fixed costs Lack of differentiation or switching costs High storage costs Capacity added in large increments High strategic stakes High exit barriers Diverse competitors

23 Ch2-23 The Five Forces are Unique to Your Industry Five-Forces Analysis is a framework for analyzing a particular industry. –Yet, the five forces affect all the other businesses in that industry.

24 Ch2-24 Competitor Analysis The follow-up to Industry Analysis is effective analysis of a firm’s Competitors CompetitiveEnvironment Industry Environment

25 Ch2-25 Competitor Analysis Assumptions What assumptions do our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Future Objectives How do our goals compare to our competitors’ goals? Capabilities How do our capabilities compare to our competitors? Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?

26 Ch2-26 Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? What Drives the competitor? Competitor Analysis

27 Ch2-27 What is the competitor doing? What can the competitor do? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competitive structure? Competitor Analysis

28 Ch2-28 What does the competitor believe about itself and the industry? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? Do we assume the future will be volatile? Are we assuming stable competitive conditions? What assumptions do our competitors hold about the industry and themselves? Assumptions Competitor Analysis

29 Ch2-29 What are the competitor’s capabilities? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? Do we assume the future will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves? Assumptions What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors? Capabilities Competitor Analysis

30 Ch2-30 Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? Do we assume the future will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves? Assumptions Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition? Capabilities What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors? Competitor Analysis


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