McGraw-Hill/Irwin Copyright © 2011 The McGraw-Hill Companies, All Rights Reserved. Chapters 3 & 5 Driving Forces, Porter’s 5 Forces, Generic Competitive Strategy, and Market Positioning Maps

3-2 External Environmental Factors Shaping A Company’s Choice of Strategy

3-3 The Concept of Driving Forces Driving Forces are powerful external influences acting to reshape the industry landscape and alter competitive conditions.

3-4 Common Driving Forces  Changes in long-term industry growth rate  Increasing globalization of the industry  Changes in who buys the product and how they use it  Product innovation  Technological change  Entry or exit of major firms

3-5 Analyzing Driving Forces 1.Identify forces likely to reshape industry competitive conditions Changes likely to take place within next 1 – 3 years Usually no more than factors qualify as real drivers of change

3-6 Analyzing Driving Forces 2.Assess impact of driving forces on industry attractiveness Are the driving forces causing demand for product to increase or decrease? Are the driving forces acting to make competition more or less intense? Will the driving forces lead to higher or lower industry profitability? 3.Determine what strategy changes are needed to prepare for impact of driving forces

3-7 Driving Forces – Case Analysis Tool ForceComments

3-8 Porter’s Five Forces One of the most common frameworks for assessing the structure of an industry.

3-9 The Five Forces  Buyer Power  Supplier Power  Threat of New Entrants  Threat of Substitutes  Rivalry

3-10 Porter’s Five Forces Model of Competition

3-11 Porter’s Five Forces – Case Analysis Tool ForceHigh/ Moderate/ Low Comments Buyer Power Supplier Power Threat of New Entrants Threat of Substitutes Rivalry

3-12 Generic Competitive Strategy – Low Cost  Option 1: Use lower-cost edge to under-price competitors and increase market share  Option 2: Maintain present price, be content with present market share, and use lower-cost edge to earn a higher profit margin on each unit sold

3-13 Generic Competitive Strategy – Differentiation  Powerful competitive approach whenever buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product or service

3-14 Generic Competitive Strategy – Differentiation  Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals  Not spending more to achieve differentiation than the price premium that customers are willing to pay for all the differentiating extras

3-15 The Five Generic Competitive Strategies

3-16 Generic Competitive Strategy – Case Analysis Tool CompetitorGeneric Competitive Strategy Comments

3-17 Market Positioning Maps One of the most common ways of comparing competitors in an industry. Important to have DIFFERENTIABLE X & Y Axes.

3-18 Common X/Y Axis Criteria  Price  Product selection / product features  Distribution network  Resource bases  Business model

3-19 Market Positioning Maps – Case Analysis Example