MNG3701 :STRATEGIC PLANNING - STRATEGIC
ANALYSIS: ANALYZING THE EXTERNAL
ENVIRONMENT
Power of Suppliers
Pressures that industry suppliers can exert on an industry's profit potential
Lowers industry profit potential if:
-Suppliers demand higher prices for their inputs
-Suppliers reduce quality
Bargaining Power of Suppliers Is High When
-Concentrated (or limited) supplier industry
-Suppliers not dependent on industry for majority of revenue
-Incumbent firms face supplier switching costs
-Suppliers offer differentiated products
-There are no supplier substitutes.
-Suppliers can forward-integrate into the industry.
Bargaining Power of Buyers Is High When:
-Buyer concentration (few buyers)
-Substitutes
-Price/total purchases
-Importance of quality
- Product differentiation
-Backwards integration
-Intermediate buyers vs.
end users
-The industry's products are standardized or undifferentiated commodities.
-low or no switching costs.
Power of Buyers (Customers)
Pressure customers put on an industry by demanding:
-A lower price or
-Higher product quality
Threat of Substitutes
, Products or services outside an industry meeting the needs of current customers
Examples:
-internet shopping - 20% of shopping now done online.
-Energy drinks vs. coffee
-E-mail vs. express mail
-Wireless telephone vs. landline
-Videoconferencing vs. business travel
Threat of Substitutes is High When:
The substitute offers an attractive price-performance trade-off.
The buyer's cost of switching to the substitute is low
Rivalry Among Competitors
The intensity with which companies in the same industry jockey for market share and
profitability
Other 4 forces put pressure on this rivalry
-The stronger the forces, the higher the intensity.
Intensity determined by (covered next):
-Competitive industry structure
-Industry growth
-Strategic commitments
-Exit barriers
Competitive Industry Structure
The number and size of its competitors
The firms' degree of pricing power
The type of product or service (commodity or differentiated product)
The height of entry barriers
Monopoly
ANALYSIS: ANALYZING THE EXTERNAL
ENVIRONMENT
Power of Suppliers
Pressures that industry suppliers can exert on an industry's profit potential
Lowers industry profit potential if:
-Suppliers demand higher prices for their inputs
-Suppliers reduce quality
Bargaining Power of Suppliers Is High When
-Concentrated (or limited) supplier industry
-Suppliers not dependent on industry for majority of revenue
-Incumbent firms face supplier switching costs
-Suppliers offer differentiated products
-There are no supplier substitutes.
-Suppliers can forward-integrate into the industry.
Bargaining Power of Buyers Is High When:
-Buyer concentration (few buyers)
-Substitutes
-Price/total purchases
-Importance of quality
- Product differentiation
-Backwards integration
-Intermediate buyers vs.
end users
-The industry's products are standardized or undifferentiated commodities.
-low or no switching costs.
Power of Buyers (Customers)
Pressure customers put on an industry by demanding:
-A lower price or
-Higher product quality
Threat of Substitutes
, Products or services outside an industry meeting the needs of current customers
Examples:
-internet shopping - 20% of shopping now done online.
-Energy drinks vs. coffee
-E-mail vs. express mail
-Wireless telephone vs. landline
-Videoconferencing vs. business travel
Threat of Substitutes is High When:
The substitute offers an attractive price-performance trade-off.
The buyer's cost of switching to the substitute is low
Rivalry Among Competitors
The intensity with which companies in the same industry jockey for market share and
profitability
Other 4 forces put pressure on this rivalry
-The stronger the forces, the higher the intensity.
Intensity determined by (covered next):
-Competitive industry structure
-Industry growth
-Strategic commitments
-Exit barriers
Competitive Industry Structure
The number and size of its competitors
The firms' degree of pricing power
The type of product or service (commodity or differentiated product)
The height of entry barriers
Monopoly
