MGT603

MGT603 Strategic Management Assignment Solutions
The Five Forces

The threat of substitute products

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives:

* Buyer propensity to substitute

* Relative price performance of substitutes

* Buyer switching costs

* Perceived level of product differentiation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms. This results in many new entrants, which will effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level (perfect competition).* The existence of barriers to entry (patents, rights, etc.)

* Economies of product differences

* Brand equity

* Switching costs or sunk costs

* Capital requirements

* Access to distribution

* Customer loyalty to established brands

* Absolute cost advantages

* Learning curve advantages

* Expected retaliation by incumbents

* Government policies

The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

* Sustainable competitive advantage through improvisation

The bargaining power of customers

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

* Buyer concentration to firm concentration ratio

* Degree of dependency upon existing channels of distribution

* Bargaining leverage, particularly in industries with high fixed costs

* Buyer volume

* Buyer switching costs relative to firm switching costs

* Buyer information availability

* Ability to backward integrate

* Availability of existing substitute products

* Buyer price sensitivity

* Differential advantage (uniqueness) of industry products

* RFM Analysis

The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.

* Supplier switching costs relative to firm switching costs

* Degree of differentiation of inputs

* Presence of substitute inputs

* Supplier concentration to firm concentration ratio

* Employee solidarity (e.g., labor unions)