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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
Exhibit 4: Five Forces Model



Intensity of


five forces model summary
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
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
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 cont1
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
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





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
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.