Competitive Analysis Most widely used technique for analysing competitors was developed by Michael Porter He believed that when formulating strategy the organisation had to consider competitive rivals Porter argued that five factors shape the degree of competition

Fig. 3.2 (class handout)

1. The degree of rivalry among existing competitors Competition is most intense when there is slow growth and many direct competitors (e.g. supermarkets, soft drinks etc) When ad industry matures there is a slow down in growth, profits fall and there is an industry shakeout

Rivalry dependant on: Number and relative size of competition Rate of industry growth Cost conditions Degree of product differentiation Exit barriers

2. The threat of substitutes If there are many easily substitutable alternatives then the situation is serious (e.g. sugar and sweeteners, air travel and sea travel, butter and soft dairy spreads)

3. The threat of new entrants If there are few barriers to entry then the threat is serious Barriers: Government policy Capital Brand identification Cost savings Distribution channels

4. The bargaining power of suppliers Suppliers are powerful if the organisation relies on a small number of suppliers and if switching costs are high Switching costs incurred when changing supplier Organisations are strong if they are the dominant customer

5. The bargaining power of customers The organisation is at a disadvantage if it relies too heavily on few customers who buy large amounts, which can be bought elsewhere When there are many customers who buy small amounts the organisation has strong bargaining power

Fig 3.3 (class handout)