1. from Competitive Advantage: Creating and Sustaining
Porter’s Competitive Forces Model (to determine how attractive is the industry)
Threat of
New Entrants
Bargaining
Power
Of Suppliers
Bargaining
Power of
Buyers
The
Firm
Existing
Competitors
Rivalry
The Industry
Five Competitive Forces – Threats and Opportunities; the forces interact
Rivalry among existing competitors – Slow/High Growth industry; Many/Few competitors; Exit barriers (e.g., high switching costs); How vicious
are the competitors; threat of retaliation;
Threat of New Entrants – Less attractive if easy to enter; raise the barriers; low price leader; established economies of scale; proprietary technology; capital requirements; R&D costs; step learning curve; high up front costs; access to distribution channels; access to raw materials; government policies;
Bargaining Power of Buyers – Less attractive if power increases (group buying); consortia; Large buyers such as GM, Nissan, etc. demand JIT, EDI; linkages; lock-in’s?; demand more information and self-serve;
Threat of Substitute Products or Services – Less attractive if substitute products or services are easy to find and obtain; commoditization of products and services; UPS/FedEx/USPS/DHL; Intel/AMD; Global competition; low cost differentiation possible; focused differentiation possible; establish Brand loyalty;
Bargaining Power of Suppliers – Less attractive if power increases (cartels); linkages; lock-in’s? are suppliers competitors also? Outsourcing; supply chain management; service supply chains; Cisco;
Sample industry for discussion – Operating Systems (including open source products), computers, airlines (e.g., Star Alliance), parcel delivery (UPS/FedEx/USPS/DHL), ERP, etc.
Threat of
Substitute
Products or
Services
from Competitive Advantage:
Creating and Sustaining
Superior Performance
by Michael Porter,
The Free Press, 1985.

2. Porter’s Generic Strategy: Overall Cost Leadership
At a given level of quality and large market
Economy of scale possible, win on volume
Process efficiency, unique access to low cost materials and manpower, vertical integration, cost avoidance, access to capital, skill in process design, efficient outlet channels
Risks – matching services, price war, equalizing technology, market consolidation
cut cost to match industry average; price accordingly; hope to gain market share;
price war can lead to death spiral (deadly embrace); hope low cost producer can sustain longer than competition;
access to low cost materials and manpower (off-shoring) and capital are barriers to entry
beware of smaller competitors consolidating together to form a larger entity
UPS, Amazon.com
phone discount companies – slamming
lower inventory costs – hospitals
discount airlines – JetBlue
more self service (on the web?)

3. Porter’s Generic Strategy: Differentiation
Unique service valued by customer – better or different from competitors – brand loyalty
Maybe able to charge premium, pass on higher costs, cannot be easily copied, barrier to entry
Strong R&D; innovative service; strong marketing and sales to convey the message; reputation is important
Risks – imitation; change in taste/need; slow growth
Credit card example – fees, rewards, partnerships, online services, other services

4. Porter’s Generic Strategy: Focus
Concentrate on a market segment – niches, specialization to achieve cost or differentiation
Enlarge market - globalization
Need customer loyalty as barrier to entry
Usually low volume – subject to supplier power
Higher costs can be passed on – charge premium
R&D and marketing important, need to know the market well and substitution is easy
Risks – imitation; change in taste/need; large competition can enter segment easily; others might also focus on smaller segment
Home Depot vs Lowe vs Expo vs neighborhood hardware stores
ultimate – 1:1 marketing – personalization – make them feel special – c

5. Generic Strategies and Industry Forces
Cost Leadership
Differentiation
Focus
Entry Barriers
Ability to cut price in retaliation deters potential entrants.
Customer loyalty can discourage potential entrants.
Focusing develops core competencies that can act as an entry barrier.
Buyer Power
Ability to offer lower price to powerful buyers.
Large buyers have less power to negotiate because of few close alternatives.
Large buyers have less power to negotiate because of few alternatives.
Supplier Power
Better insulated from powerful suppliers.
Better able to pass on supplier price increases to customers.
Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.
Threat of Substitutes
Can use low price to defend against substitutes.
Customer's become attached to differentiating attributes, reducing threat of substitutes.
Specialized products & core competency protect against substitutes.
Rivalry
Better able to compete on price.
Brand loyalty to keep customers from rivals.
Rivals cannot meet differentiation-focused customer needs.
From QuickMBA.com