2. Exhibit 4: Five Forces Model
Industry
Competitors
Intensity of
Rivalry

3. 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.

4. 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.

5. 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).

6. 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.

7. 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

8. 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

9. 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