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Ch2-1
STAKEHOLDERS PRESSURES, EXPECTATIONS
PORTERS FIVE FORCES MODEL
NCAER
NSSO
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Ch2-2
Stakeholders Pressures & Expectations
SHAREHOLDERS
Pressure Exerted Expectations
Delegate decision power
to board but recent
increase in activism over
remuneration and
appointments. Selling
shares is the real threat
as a falling share price
attracts takeover
predators.
Above average return on
equity improving return
on assets, share value
rising
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Ch2-3
Stakeholders Pressures & Expectations
EMPLOYEES
Pressure Exerted Expectations
Absenteeism, turnover,
low morale, media leaks,
unionization, poor
productivity
Above average
remuneration, training
and skill development,
company growth /
promotion, employment
security/job satisfaction,
improving conditions
and wages
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Ch2-4
Stakeholders Pressures & Expectations
CUSTOMERS
Pressure Exerted Expectations
Reduce purchases; buy
from competitors,
organize boycotts,
complain to other
potential customers,
press for legislation
Value for money, product
safety / quality
assurance, innovation /
improved design, better
service
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Ch2-5
Stakeholders Pressures & Expectations
CREDITORS
Pressure Exerted ExpectationsLimit credit, withdraw
credit, cut credit rating,
charge higher rates
Regular / timely
repayment, early
notification of problems
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Ch2-6
Stakeholders Pressures & Expectations
DISTRIBUTORS
Pressure Exerted Expectations
Stock and promote
competing brands/own-label, integrate
backwards, delay
payment
Reliable supplies, support
in promotion, progressiveproduct development,
good communications
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Ch2-7
Stakeholders Pressures & Expectations
SUPPLIERS
Pressure Exerted Expectations
Supply competitors,
reduce priority, limittrade credit, poor
quality service,
integrate forward
Reliable payment, regular
supply schedules,development support,
ability to interrogate
stock/production systems
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Ch2-8
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Ch2-9
The purpose of
Five-Forces Analysis
The five forces are environmental forces
that impact on a companys ability tocompete in a given market.
The purpose of five-forces analysis is to
diagnose the principal competitive
pressures in a market and assess how
strong and important each one is.
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Ch2-10
Threat of
New
Entrants
Threat of
New
Entrants
Threat of
New
Entrants
Threat of
New
Entrants
Porters Five Forces
Model of Competition
Porters Five Forces
Model of Competition
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Ch2-11
Threat of New EntrantsThreat of New Entrants
Barriers to
Entry
Barriers to
Entry
Expected RetaliationExpected Retaliation
Government PolicyGovernment Policy
Economies of ScaleEconomies of Scale
Product DifferentiationProduct Differentiation
Capital RequirementsCapital Requirements
Switching CostsSwitching Costs
Access to Distribution ChannelsAccess to Distribution Channels
Cost Disadvantages IndependentCost Disadvantages Independent
of Scaleof Scale
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Ch2-12
Bargaining
Power of
Suppliers
Bargaining
Power of
Suppliers
Threat of
New
Entrants
Threat of
New
Entrants
Threat of
New
Entrants
Porters Five Forces
Model of Competition
Porters Five Forces
Model of Competition
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Ch2-13
Bargaining Power of SuppliersBargaining Power of Suppliers
Suppliers exert power
in the industry by:
Suppliers exert power
in the industry by:
* Threatening to raise* Threatening to raise
prices or to reduce qualityprices or to reduce quality
Powerful suppliers
can squeeze industry
profitability if firms
are unable to recover
cost increases
Powerful suppliers
can squeeze industry
profitability if firms
are unable to recover
cost increases
Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:
Supplier industry is dominated by aSupplier industry is dominated by afew firmsfew firms
Suppliers products have few substitutesSuppliers products have few substitutes
Buyer is not an important customer toBuyer is not an important customer tosuppliersupplier
Suppliers product is an importantSuppliers product is an importantinput to buyers productinput to buyers product
Suppliers products are differentiatedSuppliers products are differentiated
Suppliers products have highSuppliers products have highswitching costsswitching costs
Supplier poses credible threat ofSupplier poses credible threat of
forward integrationforward integration
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Ch2-14
Bargaining
Power of
Buyers
Bargaining
Power of
Buyers
Threat of
New
Entrants
Threat of
New
Entrants
Threat of
New
Entrants
Bargaining
Power of
Suppliers
Bargaining
Power of
Suppliers
Porters Five Forces
Model of Competition
Porters Five Forces
Model of Competition
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Ch2-15
Bargaining Power of BuyersBargaining Power of Buyers
Buyers compete
with the supplying
industry by:
Buyers compete
with the supplying
industry by:
* Bargaining down prices* Bargaining down prices
* Forcinghigherquality* Forcinghigherquality
* Playing firms off of* Playing firms off of
each othereach other
Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if:
Buyers are concentrated or purchasesBuyers are concentrated or purchases
are large relative to sellers salesare large relative to sellers sales
Purchase accounts for a significantPurchase accounts for a significant
fraction of suppliers salesfraction of suppliers sales
Products are undifferentiatedProducts are undifferentiated
Buyers face few switching costsBuyers face few switching costs
Buyers industry earns low profitsBuyers industry earns low profitsBuyer presents a credible threat ofBuyer presents a credible threat of
backward integrationbackward integration
Product unimportant to qualityProduct unimportant to quality
Buyer has full informationBuyer has full information
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Ch2-16
Threat of
Substitute
Products
Threat of
Substitute
Products
Threat of
New
Entrants
Threat of
New
Entrants
Threat of
New
Entrants
Bargaining
Power of
Buyers
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Bargaining
Power of
Suppliers
Porters Five Forces
Model of Competition
Porters Five Forces
Model of Competition
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Ch2-17
Threat of Substitute ProductsThreat of Substitute Products
Products
with similar
functionlimit the
prices firms
can charge
Products
with similar
functionlimit the
prices firms
can charge
Keys to evaluate substitute products:Keys to evaluate substitute products:
Products with improvingProducts with improving
price/performance tradeoffsprice/performance tradeoffs
relative to present industryrelative to present industryproductsproducts
Example:Example:
Electronic security systems inElectronic security systems inplace of security guardsplace of security guards
Fax machines in place ofFax machines in place of
overnight mail deliveryovernight mail delivery
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Ch2-18
Threat of
Substitute
Products
Threat of
Substitute
Products
Threat of
New
Entrants
Threat of
New
Entrants
Threat of
New
Entrants
Rivalry Among
Competing Firms
in Industry
Rivalry Among
Competing Firms
in Industry
Bargaining
Power of
Buyers
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Bargaining
Power of
Suppliers
Porters Five Forces
Model of Competition
Porters Five Forces
Model of Competition
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Ch2-19
Rivalry Among Existing CompetitorsRivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:
Jockeying for strategic positionJockeying for strategic position
Using price competitionUsing price competition
Staging advertising battlesStaging advertising battles
Making new product introductionsMaking new product introductions
Increasing consumer warranties or serviceIncreasing consumer warranties or service
Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse offPrice competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, butAdvertising battles may increase total industry demand, but
may be costly to smaller competitorsmay be costly to smaller competitors
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Ch2-20
CutthroatCutthroat competitioncompetition is more likely to occur when:is more likely to occur when:
Rivalry Among Existing CompetitorsRivalry Among Existing Competitors
Numerous or equally balanced competitorsNumerous or equally balanced competitors
Slow growth industrySlow growth industry
High fixed costsHigh fixed costs
Lack of differentiation or switching costsLack of differentiation or switching costs
High storage costsHigh storage costs
Capacity added in large incrementsCapacity added in large increments
High strategic stakesHigh strategic stakes
High exit barriersHigh exit barriers
Diverse competitorsDiverse competitors
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Ch2-21
The Five Forces are Unique to
Industry
Five-Forces Analysis is a framework for
analyzing a particular industry. Yet, the five forces affect all the other
businesses in that industry.
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Ch2-22
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Ch2-23
Jordache - changed industry forces. Introduced designer jeans entry barrier
created. Upfront advt expenditure created strong consumer preference
diluted bargaining power of buyers.
Structural forces surrounding industry neutralized, Jordache getting itself
competitive advantage
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Ch2-24
NCAER(National Council for Applied Economic Reaearch)
NCAER Activities Develop policy reports for clients. To examine
domestic agricultural market structures, price policy, linkages
between agricultural price policy and poverty, and, the role of the
Panchayats in fostering sustainable development.
Track key sectors of the economy for subscribers Forecast theeconomic outlook Conduct, design, and analyse surveys that
illuminate public policy issues as well as assist private sector
decisions Disseminate research findings.
NCAER depends on contract research with the government, the
private sector and the non-government sector and institutions at the
national and international levels. Sponsors for the different studies
undertaken by the Council include the central and state
governments, public and private corporations, and international
organisations such as Ford Foundation, UNDP and the World Bank.
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Ch2-25
Useful NCAER Research findings
- helps customer relations Market Information Survey of Households
(MISH)
Tracking consumer demographics andconsumption patterns across product
categories
Firms can avail NCAER research servicescustomized to their market needs
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