Prepared by: Hotma Rina Sitorus Julio Lauritz Silvia Puspita INDUSTRY ANALYSIS PERFORMING FIVE FORCES ANALYSIS Prepared by: Hotma Rina Sitorus Julio Lauritz Silvia Puspita

Assestment of industry and firm performance Indentification of key factors affecting performance in vertical trading relationships and horizontal competitive relationship Determination of how changes in the business environment may effect performance Indentifying opportunities and threats in the business landscape.

LIMITATIONS The Five forces framework has several limitations: It pays little attention to factors that might affect demand It focuses on a whole industry rather than on that industry’s individual firm The framework doesn’t explicitly account for the role of the government, except when the government is supplier or buyer

PERFORMING FIVE FORCES ANALYSIS ENTRY SUPPLIER POWER INTERNAL RIVALRY BUYER POWER SUBSTITUTES AND COMPLEMENTS

INTERNAL RIVALRY Degree of Seller concentration? FACTOR AFFECTING RIVALRY AMONG EXISTING COMPETITORS: Degree of Seller concentration? Rate of industry growth? Excess capacity? Cost structure of firms:sensitivity of costs to capacity utilization? Degree of product differentiation among sellers? Brand loyalty to existing sellers? Cross-price elasticities of demand competitors in industry?

INTERNAL RIVALRY Buyers’ costs of switching from one competitor to another? Are prices and terms of sales transactions observable? Can firms adjust prices quickly? Large and/or infrequent sales orders? Use of “facilitating practices” (price leadership, advance announcement of price changes?

INTERNAL RIVALRY History of “cooperative” pricing? Strength of exit barriers? High industry price elasticity of demand?

ENTRY FACTORS AFFECTING THE THREAT OF ENTRY: Significant economies of scale? Importance of reputation or established brand loyalties in purchase decision? Entrants’ access to distribution channels? Entrants’ acces to raw material? Entrants’ acces to technology/know-how? Entrants’ access to favorable locations?

ENTRY Experience-based advantages of incumbents? Network externalities: demand-side advantages to incumbents from large installed base? Government protection of incumbents? Perceptions of entrants about expected retaliation of incumbents/reputations of incumbents for “toughness”?

SUBSTITUTES FACTORS AFFECTING OR REFLECTING PRESSURE FROM SUBSTITUE PRODUCTS AND SUPPORT FROM COMPLEMENTS: Availability of close substitutes? Price-value characteristics of substitutes? Availability of close complements? Price-value characteristics of complements?

POWER OF INPUT SUPPLIERS FACTORS AFFECTING OR REFLECTING POWER OF INPUT SUPPLIERS: Is supplier industry more concentrated than industry it sells to? Do firms industry purchase relatively small volumes relative to other customers of supplier? Is typical firm’s purchase volume small relative to sales of typical supplier? Few substitutes for suppliers’ input?

POWER OF INPUT SUPPLIERS Do firms in industry make relationship-specific investments to support transactions with specific suppliers? Do suppliers pose credible threat of forward integration into the product market? Are suppliers able to price-discriminate among prospective customers according to ability/willingness to pay for input?

POWER OF BUYERS FACTORS AFFECTING OR REFLECTING POWER OF BUYERS: Is buyers industry more cincentrated than the industry it purchases from? Do buyers purchase in large volume? Does buyers’ purchase volume represent a large fraction of the typical seller’s revenue? Can buyers find substitutes for industry’s product? Do firms in industry make relationship-specific investments to support transactions with specific buyers?

POWER OF BUYERS Is price elasticity of demand of buyers’ product high or low? Do buyers pose credible threat of backward integration? Does product represent significant of cost in buyer’s business? Are prices in the market negotiated between buyers and sellers on each individual transaction, or do sellers post “take-it-or-leave-it” price that applies to all transactions?

GAME THEORY

GAME THEORY 2 Types of games: Rule-based games Freewheeling games Egocentrism vs Allocentrism Changing Game From Lose-Lose to Win-Win

GAME OF BUSINESS What is it about? Value: creating it & capturing it Value Net Cooperation and Competition CUSTOMER COMPLEMENTS COMPANY SUBSTITUTES SUPPLIER

CHANGING THE GAME Elements of the game: Players Added Values Rules Tactics Scope

CHANGING THE PLAYERS Dealing with Substitutor Pay Me to Play NutraSweet, HSC, Coke & Pepsi McCaw, Lin BroadCasting Corp, BellSouth Dealing with Complementors Cheap Complements 3DO , Panasonic, GoldStar, Sanyo & Toshiba

CHANGING THE ADDED VALUES Raise your own added value TWA Lowering others’ added value Card Games Illustration Nintendo Power Customers : Toys R Us, Wal-Mart Suppliers : Ricoh, Sharp (microchips) Marvel, Disney (game characters) Complementors : Acclaim, EA (software) Substitutors: Atari, Commodore (hardware)

CHANGING THE ADDED VALUES Pumping Up Profits Softsoap (Minnetonka) 3 things to remember No guarantee that any player will get all its added value Even if you have no added value, doesn’t prohibit you from making money Rules constrain interactions among players

CHANGING THE RULES One price to all Strategy : Judo Economics Kiwi is No Dodo Kiwi Airlines & Delta Airlines Solid Profits from Gas Producers of CO2 (Airco, Liquid Carbonic, Air Liquide) & Customers of CO2 (Coke & Pepsi) Meet the Competition Clause (MCC)

CHANGING PERCEPTIONS Reducing misperception ( lift the fog) The New York Fog New York Post vs Daily News Maintaining uncertainity (thicken the fog) Disagreeing to Agree Investment Bank, Clients & % fee

CHANGING THE SCOPE Sega’s 16-bit system video games Nintendo wait to years to respond

THE TRAPS OF STRATEGY You have to accept the game as it is Changing the game must come at expense of others Have to find something to do that others can’t Failing to see the whole game Failing to think methodically about changing the game

Case of Five Forces Analysis 21 Theater 21 THEATER

History of 21 Cinema Founder: Cineplex 21 Group Since 1988 and has 75 % market share of All of Indonesia Lobby and Cafe Concepts (see pictures below)

Five Forces Analysis Existing Competitor: Blitz Megaplex Comparison between 21 and Blitz Megaplex (see the next page)

21 vs Blitz Megaplex No. Details 21 Cineplex Blitz Megaplex 1 Existing of Brand Pioneer of Theater Follower 2 Price of ticket Easy to adjust, consumer has some choices (from cheapest price to most expensive price of ticket) according to the variant of products Price of ticket more expensive, describing the luxury, prestige, modern and convenience 3 Sound system Dolby Digital, THX 4 Facility Lobby with many queue-lines and studios, Café, waiting room/seat, games area, smoking room, rest room Large lobby with many queue-lines and studios and high tech computer of reservation, Café, waiting room/seat, games area, smoking room, rest room, merchandise shop 5 Concepts of Coziness Complete, Luxury (depends on the offering of variant of products, such as Cinema 21, Cinema XXI, The Premiere), Cozy, Family Concept interior design Complete, Modern, Cozy, "Teen, Young and Minimalist" Concept interior design", large lobby, 3D movies

21 vs Blitz Megaplex Continue… No. Details 21 Cineplex Blitz Megaplex 6 Variant of Products Cinema 21, Cinema XXI, The Premiere (different level of coziness per each) 1 theater with different facilities per each (Ordinary, 3D movie, Velvet Class) 7 Buying ticket buy directly to cinema, ticket online, membership ticket, buying ticket via sms 8 Numbers of branches exist in almost every big cities in Indonesia, except Papua exist only in Jakarta and Bandung 9 Location Mall, own building Mall only 10 Round-play films Western films and Indonesian films Western films, asian films (no indonesian films), independent films)

Concepts of Blitz Megaplex Cafe Velvet Class (Pacific Place) Ordinary Studio The performance of Film Advertisement

Threat of Entry Government Regulation Location (access and the favorableness) The rights to buy new films from outside Economic situation

Substitute Products and Support from Complements TELEVISION DVD INTERNET MOVEABLE SCREEN (LAYAR TANCAP) DVD RENTAL COMPLEMENT CAFÉ Credit Card (New Offering and Cooperation), e.g: UOB, CITIBANK, MANDIRI, HSBC. etc. FICTION OR REFERENCE BOOKS MALL/PLAZA MERCHANDISE/GIFT, e.g: MUG, DOLLS, TSHIRT, PEN, HAT, FREE TICKET, etc.

POWER OF INPUT SUPPLIERS SUPPLIER POWER: RIGHTS OF PLAYING FILM IN ADVANCE COOPERATE WITH STAKEHOLDERS (GOVERNMENT, OTHER INSTITUTION RELATED TO THE FIELD OF THEATER AND FILMS) TICKETS OFFERING PRODUCT VARIANTS (CINEMA 21, CINEMA XXI, THE PREMIERE) SOUND SYSTEM (DOLBY DIGITAL AND THX)

POWER OF BUYERS FREE TO CHOOSE OTHER THEATER (BLITZ MEGAPLEX) ACCORDING TO: TYPE OF FILM TICKET (PRICE, BUYING TRANSACTION, ETC) COZINESS (SEAT, CAFÉ, BUYING TICKET SYSTEM, TIME, ETC) FREE TO CHOOSE SUBSTITUTES (TV, DVD, BOOKS, MOVEABLE SCREEN, ETC)

Thank You… Question and Answer…