Exhibit 4 five forces model
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Exhibit 4: Five Forces Model. Industry Competitors. Intensity of Rivalry. Five Forces Model - Summary. Nearly all of the forces are present in most industries, but it is the intensity of the forces that will determine their impact on any industry.

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Exhibit 4: Five Forces Model

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Exhibit 4: Five Forces Model



Intensity of


Five Forces Model - Summary

  • Nearly all of the forces are present in most industries, but it is the intensity of the forces that will determine their impact on any industry.

    • As intensity of the forces increases, the industry environment becomes more hostile and overall industry profitability will decline.

Limitations of the Five Forces Model

  • Inability to suggest strategies for managers.

    • Porter states that managers have two options if they find their firms in unattractive industries:

      • Diversify their firms away from or exit completely the industry.

        • Firms often lack sufficient resources to do this.

        • Diversification can be risky for firms with little diversification experience.

Limitations of the Five Forces Model (cont.)

  • Attempt to minimize the impact of any of the forces that are acting to make the industry unattractive.

    • Make their industries more attractive by reducing the power of the five forces; or

    • Shield or protect their companies from the power of the forces.

      • Certain actions may lead to allegations of collusion or other unfair practices (Microsoft vs. Justice Department).

Limitations of the Five Forces Model (cont.)

  • Another key limitation is suggested by changes occurring in pharmaceutical industry:

    • Model provides “snapshot” of industry at that time, but fails to show how industry is changing.

      • Most managers assume that conditions will remain relatively stable.

Segmentation Analysis: The Principal Stages

  • Identify key variables

    and categories.

  • Construct a segmentation matrix

  • Analyze segment attractiveness

  • Identify KSFs in each segment

  • Analyze benefits of

    broad vs. narrow scope.

Identify segmentation variables

Reduce to 2 or 3 variables

Identify discrete categories for

each variable

Potential for economies

of scope across segments

Similarity of KSFs

Product differentiation benefits

of segment focus





The Basis for Segmentation: Customer and Product Characteristics

Industrial buyers


of the Buyers



*Purchase occasion

Household buyers







Distribution channel

Opportunities for




*Physical size

*Price level

*Product features

*Technology design

*Inputs used (e.g. raw materials)

*Performance characteristics

*Pre-sales & post-sales services


of the Product

Strategic Group Analysis

A strategic group is a group of firms in an industry following the same or similar strategy.

  • Identifying strategic groups:

    • Identify principal strategic

  • variables which distinguish

  • firms.

    • Position each firm in relation

  • to these variables.

    • Identify clusters.

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