Session06: Porter 5 Forces Industry Analysis Manning School of Business Session06: Porter 5 Forces Industry Analysis Dr. Mark H. Mortensen 66.490.211 and 212 Tues &Thurs 2:00 to 3:15 3:30 to 4:45

Today Attendance Discussion on Porter 5 Forces Industry Analysis Group workshop – create a 5 Forces chart for the industry that includes Starbucks, Dunkin Donuts and McDonalds For next class

Strategic Management Process: Environmental Scanning TOOLS PEST(EL) analysis Porter 5-Forces model Company positioning chart Product positioning charts BCG product matrix GE product matrix Core competency analysis Value chain analysis Bowman’s Strategy Clock Assumptions Constraints Truisms

Porter 5 Forces Analysis of an Industry Five forces analysis: Technique for understanding an industry, by examining the interactions among: Competitors in an industry Potential new entrants to the industry Substitutes for the industry’s offerings Suppliers to the industry Industry’s buyers Purpose of the analysis is to identify how much profit potential exists in an industry

Porter 5 Forces Analysis

Soft Drinks – Porter 5 Forces [1] Threat of New Entrants/Potential Competitors: Median Pressure Entry barriers are relatively low for beverage industry: there is almost 0 consumer switching cost and very low capital requirement. There are more and more new brands appearing in the market with usually lower price than Coke products However Coca-Cola is seen not only as a beverage but also as a brand. It has a very significant market share for a long time and loyal customers are not very likely to try a new brand beverage.

Soft Drinks – Porter 5 Forces [2] Threat of Substitute Products: Median to high pressure There are many kinds of energy drink and soda products in the market. Coca-cola doesn’t really have a special flavor. In a blind taste test, people couldn’t tell the difference between Coca-Cola and Pepsi

Soft Drinks – Porter 5 Forces [3] The Bargaining Power of Buyers: Low pressure The individual buyer has little to no pressure on Coca-Cola The main competitor, Pepsi is priced almost the same as Coca-Cola. Consumer could buy those new and less popular beverages with lower price but the flavor is different and the quality is not guaranteed. Large retailers, like Wal-Mart, have bargaining power because of the large order quantity, but the bargaining power is lessened because of the end consumer brand loyalty. There are many kinds of energy drink and soda products in the market. Coca-cola doesn’t really have a special flavor. In a blind taste test, people couldn’t tell the difference between Coca-Cola and Pepsi. People are getting concerns of negative effects of carbonated beverages. Increasing number of consumers begin to drink fruit juice, lemonade and tea instead of soda products.

Soft Drinks – Porter 5 Forces [4] The Bargaining Power of Suppliers: Low pressure The main ingredients for soft drink include carbonated water, phosphoric acid, sweetener, and caffeine. The suppliers are not concentrated or differentiated. No supplier would want to lose a huge customer like Coca-Cola.

Soft Drinks – Porter 5 Forces [5] Rivalry Among Existing Firms: High Pressure Currently, the main competitor is Pepsi which also has a wide range of beverage products under its brand. Both Coca-Cola and Pepsi are the predominant carbonated beverages and commit heavily to sponsoring outdoor festivals and activities. As Coca-Cola has a longer history, it is advertised in a more classical approach while Pepsi tried to attract younger generation by using pop stars as brand ambassadors. Currently Coca-Cola slightly topped Pepsi as the possessor of the most U.S market share. There are other soda brands in the market that become popular, like Dr. Pepper, because of their unique flavors.

Soft Drinks – Porter 5 Forces [6] So what do you think? Should we compete with Coca-Cola as a new entrant? As a Supplier going into their market? As a buyer going into their market? Medium High Low Med/Hi

Discussion Is there an aspect industry activity that the five forces seems to leave out? Imagine that you are the president of UMass Lowell. Which of the five forces would be most important to you? Why?

Today Attendance Discussion on Porter 5 Forces Industry Analysis Group workshop – create a 5 Forces chart for the industry that includes Starbucks, Dunkin Donuts and McDonalds For next class

Today Attendance Discussion on Porter 5 Forces Industry Analysis Group workshop – create a 5 Forces chart for the industry that includes Starbucks, Dunkin Donuts and McDonalds For next class: Read chapter 3, section 3 on Porter 5 Forces Read Chapter 4, Section 4.5 on SWOT Familiarize yourself with SWOT hand out (see Wiki) #4 Duncan Donuts Case Study (Thursday)

Assignment04 Read the assigned Dunkin’ Donuts Case Study (HBS 9-584-041 – Dunkin’ Donuts© Growth Strategy) and write a 2-5 page paper covering the following topics: How did the Dunkin’ Donuts of 1979 differ from the Dunkin’ Donuts of 2012? Compare and contrast the franchise and the company-owned store business models. The Dunkin’ Donuts management team decided to continue to follow the franchise model. Evaluate that decision, given what we know in 2012. ALSO Look up what happened in 2011-2012 involving Dunkin’ Donuts and Green Mountain Coffee. Be prepared to discuss this.

Strategic Management – Spring 2014