Strategic Elements of
Competitive Advantage
Chapter 10
Global Marketing
Industry Analysis
• Industry – group of firms that produce
products that are close substitutes for each
other
• Five forces influence competition in an
industry
Keegan and
Green, Chapter 10
2
Porter’s Five Forces Model
Threat of
New Entrants
Threat of
Substitutes
Industry
Competitiveness
Bargaining
Power
of Buyers
Keegan and
Green, Chapter 10
Current
Rivalry
Bargaining
Power
of Suppliers
3
Threat of New Entrants
• New entrants mean downward pressure on
prices and reduced profitability
• Barriers to entry determines the extent of
threat of new industry entrants
Keegan and
Green, Chapter 10
4
Barriers to Entry
• Economies of Scale • Distribution
channels
• Product
differentiation
• Government policy
• Capital
• Cost advantages
requirements
independent of
scale economies
• Switching costs
• Competitor
response
Keegan and
Green, Chapter 10
5
Threat of Substitute Products
• Availability of substitute products places
limits on the prices market leaders can
charge
• High prices induce buyers to switch to the
substitute
Keegan and
Green, Chapter 10
6
Bargaining Power of Buyers
• Buyers seek to pay the lowest possible price
• Buyers have leverage over suppliers when
– They purchase in large quantities (enhances
supplier dependence on buyer)
– Suppliers’ products are commodities
– Product represents significant portion of
buyer’s costs
– Buyer is willing and able to achieve backward
integration
Keegan and
Green, Chapter 10
7
Bargaining Power of Suppliers
• When suppliers have leverage, they can
raise prices high enough to affect the
profitability of their customers
• Leverage accrues when
– Suppliers are large and few in number
– Supplier’s products are critical inputs, are
highly differentiated, or carry switching costs
– Few substitutes exist
– Suppliers are willing and able to sell product
themselves
Keegan and
Green, Chapter 10
8
Rivalry among Competitors
• Refers to all actions taken by firms in the
industry to improve their positions and gain
advantage over each other
–
–
–
–
Price competition
Advertising battles
Product positioning
Differentiation
Keegan and
Green, Chapter 10
9
Competitive Advantage
• Achieved when there is a match between a
firm’s distinctive competencies and the
factors critical for success within its
industry
Low Cost
Differentiation
Keegan and
Green, Chapter 10
10
Figure 10-2: Generic Strategies
TARGET MARKET
Product
Mix
Width
Keegan and
Green, Chapter 10
Narrow
Wide
Narrow
Broad
Focused
Differentiation
Product
Differentiation
Cost
Focus
Cost
Leadership
11
Figure 10-3: The Flagship Model
Keegan and
Green, Chapter 10
12
Approaches to Competitive
Innovation
•
•
•
•
Building layers of advantage
Searching for loose bricks
Changing the rules of engagement
Collaborating
Keegan and
Green, Chapter 10
13
Global Competition
• Occurs when a firm takes a global view of
competition and sets about maximizing
profits worldwide, rather than on a countryby-country basis
Keegan and
Green, Chapter 10
14
Figure 10-4: National Diamond
Keegan and
Green, Chapter 10
15
Role of Chance and Government
• Chance events are occurrences that are
beyond control
– They create major discontinuities
• Government is also an influence on
determinants through roles
– Buyer of products
– Maker of policies
– Regulator of commerce
Keegan and
Green, Chapter 10
16
Figure 10-7: The Complete System
Keegan and
Green, Chapter 10
17