Competition. Direct Competitors - Firms likely to gain or lose a substantial share of customers from each other over time because they serve the same.
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Presentation on theme: "Competition. Direct Competitors - Firms likely to gain or lose a substantial share of customers from each other over time because they serve the same."— Presentation transcript:
Factors Affecting Competitive Intensity Are Competitors numerous or roughly equal in size & power? Is Industry growth slow? Are Products and services essentially undifferentiated? Is Cost to buyers of switching from one supplier to another low because sellers have not developed a way to tie their customers into long term relationships? Do Companies remain in the market in spite of low profits because of management’s loyalty to a business or because the business involves specialized assets which are difficult to sell?
Barriers to Entry (Conditions which make it difficult to become a significant competitor in a new market) Are they threat or opportunity? Economies of scale in production, delivery, advertising, selling Initial financial investment requires extensive resources Lack of access to sources of production (raw materials, technology, labor skills) Limited access to distribution channels Government regulations Customer loyalty to existing sellers
Barriers to Entry (Conditions which make it difficult to leave an existing market) No Buyers Huge financial investments to facilities, promotion Long term Commitments to labor, sources of production, vendors Limited access to distribution channels Government regulations Customer loyalty
Barriers and Profitability Low Exit BarriersHigh Exit Barriers Low Entry Barriers**Profit potential low but stable *Profit potential low but difficult to leave so industry depressed, overcapacity High Entry Barriers****Few new firms can enter; Unprofitable firms can exit. Profit potential high, stable returns. ***Profit potential is high, but riskier since low performers must fight it out. High profit potential; risky returns
In this Case are Barriers to Entry/Exit a Threat or Opportunity?
Other Threats / Opportunties: Porter Five Forces Bargaining Power of Buyers Threat of New Entrants Threat of Substitute Products Bargaining Power of Suppliers Rivalry Among Competitors
Is it threat or opportunity? E.g. Bargaining Power of Buyers Threat, If bargaining power of buyers is high. Conditions leading to high bargaining power –There are few large buyers who can band together to get concessions –Switching costs are low –Possibility of backward integration (eliminate supplier) –Low importance of product to performance of buyer’s product –If buyers earn low profits then likely to bargain harder
Is it threat or opportunity? E.g. Threat of New Entrants Threat, If threat of new entrants is high. Conditions discouraging new entrants: –Industry requires strong economies of scale i.e. it takes time to obtain volume and learning to yield necessary low cost per unit –Industry has strong capital requirements –Strong product differentiation exists –Gaining distribution is particularly difficult –If buyer incurs switching cost in moving from one supplier to another
Is it threat or opportunity? E.g. Threat of Substitute Products Threat, If threat of substitute products is high. –Profits reduced because prices are lower
Is it threat or opportunity? E.g. Bargaining Power of Suppliers Threat, If bargaining power of suppliers is high. Conditions leading to high bargaining power – Industry has limited number of suppliers –Switching costs from one supplier to another or to substitute product are high –Supplier’s product contributes large part of buyer’s value added
Is it threat or opportunity? E.g. Rivalry Among Present Competitors Threat, If Rivalry is intense. Conditions leading to greater rivalry: –Industry requires high capital investment (requires firm to operate at or near capacity; strong downward pressure on prices when demand weakens) –Industry consists of many small firms or no dominant firm –Little product differentiation