The industry life cycle
This presentation is the property of its rightful owner.
Sponsored Links
1 / 11

The Industry life cycle PowerPoint PPT Presentation


  • 58 Views
  • Uploaded on
  • Presentation posted in: General

The Industry life cycle. The industry structure and competitive forces that shape the environment in which business operate change throughout the life cycle. Therefore, a business’s strategy must adapt accordingly.

Download Presentation

The Industry life cycle

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


The industry life cycle

The Industry life cycle


The industry life cycle

  • The industry structure and competitive forces that shape the environment in which business operate change throughout the life cycle. Therefore, a business’s strategy must adapt accordingly.

  • Michael Porter’s famous five forces of competitive advantage explains the whole business life cycle.


Porter s five forces driving industry competition

Porter’s Five Forces Driving Industry Competition


Potential entrants

Potential Entrants

  • The greater the importance of economic of scale, the higher the entry barrier.

  • Competing with established brands and loyalty is harder (e.g. Coca-cola).

  • High up-front (risky) capital requirements make entry difficult.

  • High switching costs for products are a great advantage for existing players.


Potential entrants1

Potential Entrants

  • Is access to distribution channels difficult or legally restricted?

  • Do existing companies have cost advantages that are independent of market scale (e.g. patents, licenses)?

  • A government-regulated industry could limit entry by requiring operating licenses.

  • Expecting a low level of retaliation by existing players makes entry easier for newcomers.

  • The concept of ‘entry deterring price’: the bigger the margin, the more new entrants there will be.


Substitutes

Substitutes

  • How easily can your product or service be substituted with a different type of product or service?

  • For example, the bus is a substitutes for the MTR.

  • A substitute is threatening if it represents a significant improvement in the price/performance trade-off.


Buyers bargaining power

Buyers’ Bargaining Power

  • When buyers buy in large volumes, they are more likely to command better prices. For example, large grocery retailers pay lower wholesale prices than small stores.

  • The larger the fraction of costs represented by the purchase price, the harder buyers will bargain.

  • Undifferentiated products make it easier to play suppliers off against each other.


Buyers bargaining power1

Buyers’ Bargaining Power

  • Low switching costs increase buyer power.

  • Low-profit buyers will be tough negotiators.

  • The potential for ‘DIY’ production or backwards integration are strong bargaining levers.

  • The less the buyer’s performance is affected by the product, the more price-sensitive the buyer will be.

  • The more information a buyer has, the better his bargaining position is.


Suppliers command of industry

Suppliers’ Command of Industry

  • A few suppliers selling to relatively more buyers will be able to have a bigger say.

  • The absence of substitutes increases supplier power, as buyers have little choice.

  • Suppliers with alternative customers, industries and channels have more power.

  • The suppliers’ product is indispensable or of great value to your company.

  • Switching suppliers will incur high expenses or rapidly depreciate your company’s assets.

  • Suppliers may integrate forwards by producing for and selling to your customers.


Existing competitors

Existing Competitors

  • Many and/or equally strong competitors.

  • Slow industry growth, leading to a focus o dividing, rather than expanding the industry;

  • High fixed-costs and asset-bases making rivals compete to turn stock and fill capacity;

  • Products are considered to be commodities and made available at low cost, which encourages buyers to switch supplier at no risk, and buy by price;

  • Diversity of competitors and their strategies, making it difficult to anticipate competitive moves;

  • High exit barriers for economic, strategic, emotional or legal reasons. Major exit barriers are specialized assets that are difficult to sell.


Final analysis

Final Analysis

  • Porter’s Five Competitive Forces model is widely used and recognized for strategic analysis. However, it has one disadvantage, it tends to emphasize on external forces and the company’s intrinsic strengths and ability to develop its competencies has not been considered.


  • Login