Exhibit 4: Five Forces Model Industry Competitors Intensity of Rivalry

Five Forces Model - Summary Nearly all of the forces are present in most industries, but it is the intensity of the forces that will determine their impact on any industry. As intensity of the forces increases, the industry environment becomes more hostile and overall industry profitability will decline.

Limitations of the Five Forces Model Inability to suggest strategies for managers. Porter states that managers have two options if they find their firms in unattractive industries: Diversify their firms away from or exit completely the industry. Firms often lack sufficient resources to do this. Diversification can be risky for firms with little diversification experience.

Limitations of the Five Forces Model (cont.) Attempt to minimize the impact of any of the forces that are acting to make the industry unattractive. Make their industries more attractive by reducing the power of the five forces; or Shield or protect their companies from the power of the forces. Certain actions may lead to allegations of collusion or other unfair practices (Microsoft vs. Justice Department).

Limitations of the Five Forces Model (cont.) Another key limitation is suggested by changes occurring in pharmaceutical industry: Model provides “snapshot” of industry at that time, but fails to show how industry is changing. Most managers assume that conditions will remain relatively stable.

Segmentation Analysis: The Principal Stages Identify key variables and categories. Construct a segmentation matrix Analyze segment attractiveness Identify KSFs in each segment Analyze benefits of broad vs. narrow scope. Identify segmentation variables Reduce to 2 or 3 variables Identify discrete categories for each variable Potential for economies of scope across segments Similarity of KSFs Product differentiation benefits of segment focus 31

The Basis for Segmentation: Customer and Product Characteristics *Size *Technical sophistication *OEM/replacement Industrial buyers Characteristics of the Buyers *Demographics *Lifestyle *Purchase occasion Household buyers *Size *Distributor/broker *Exclusive/ nonexclusive *General/special list Distribution channel Opportunities for Differentiation Geographical location *Physical size *Price level *Product features *Technology design *Inputs used (e.g. raw materials) *Performance characteristics *Pre-sales & post-sales services Characteristics of the Product 1

Strategic Group Analysis A strategic group is a group of firms in an industry following the same or similar strategy. Identifying strategic groups: Identify principal strategic variables which distinguish firms. Position each firm in relation to these variables. Identify clusters. 33