1. Chapter 2 The External Environment:
Opportunities, Threats, Industry Competition, and Competitor Analysis
Aviation Marketing
By:
Imtiaz Hussain
Superior University 1

2. The purpose of Five-Forces Analysis
The five forces are environmental forces that impact on a company’s ability to compete in a given market.
The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

3. Bargaining Power of Suppliers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products 23

4. NOKIA Threat of new entrants: low Power of suppliers: moderate
The mobile phone industry is already a well established market
high investments in R&D, technology and marketing.
Nokia hold 29% of the market share in the industry, the highest market share in the industry.
Power of suppliers: moderate
Although Nokia rely on its suppliers to supply equipment for their advanced mobile phones there are actually a number of large equipment makers, which Nokia could switch to.
The software suppliers for their Smartphone's are now Microsoft, who will have a very high bargaining power.
Powers of buyers: high
The power that customers have is rising because of the increasing number of choices in the mobile telecommunication industry.
With a lot of the Nokia competitors all offering similar products and packages
Long term contracts so switching from one handset to another will be difficult
Threats of substitute’s products: low
Mobile phones are an everyday essential in people’s lives today.
social networking websites, and home telephones.
Digital camera can take better photos then smart phones, notebooks can surf the web just as effectively and PDAs can plan a day the same way a smart phone can.
Competitive rivalry: high
Apple and HTC.

5. Example This worries him: The threat of new entry is quite high
Competitive rivalry is extremely high: if someone raises prices, they'll be quickly undercut.
Buyer Power is strong, again implying strong downward pressure on prices.
There is some threat of substitution

6. Porter’s Five Forces Model & Its Application in Aviation

7. 1. Rivalry Amongst Existing Firms
Low competition
Same type of aircrafts
Same type of fares
Less fare for economy class
High fare for business class

8. 2.Substitution Telecommunication Surface transport
Air Freight industry

9. 3. New Entry Regulatory Limitations Airport Slots Staff Resources
Maintenance and Ground handling
Economies of Scale
Learning Curve effects
High Risks
“Where there is muck there’s brass”

10. 4. Power of Customers Number of customers
“True customers” are decreasing
Over-ride comissions
Bucket Shops
Why not to do the job YOURSELF?
Integrated Carriers
Switching Costs
“Golden Hello” tactic

11. 5. Power of Suppliers Monopoly Airports and ATCs
Aircraft manufacturers (B747, A380)
Global Distribution System (GDSs)
SABRE and Galileo International
Cost to be mutually share by agent and airline
Airlines continued to pay
85 to 90%

12. Porter’s Five Forces Model of Competition
Threat of New Entrants 11

13. Threat of New Entrants Economies of Scale Product Differentiation
Government Policy
Economies of Scale
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of Scale
Barriers to Entry
Expected Retaliation 12

14. Bargaining Power of Suppliers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers 14

15. Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
Suppliers exert power in the industry by:
* Threatening to raise
prices or to reduce quality
Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
Supplier industry is dominated by a few firms
Suppliers’ products have few substitutes
Buyer is not an important customer to supplier
Suppliers’ product is an important input to buyers’ product
Suppliers’ products are differentiated
Suppliers’ products have high switching costs
Supplier poses credible threat of forward integration 15

16. Bargaining Power of Buyers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers 17

17. Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
Buyers are concentrated or purchases are large relative to seller’s sales
Purchase accounts for a significant fraction of supplier’s sales
Products are undifferentiated
Buyers face few switching costs
Buyers’ industry earns low profits
Buyer presents a credible threat of backward integration
Product unimportant to quality
Buyer has full information
Buyers compete with the supplying industry by:
* Bargaining down prices
* Forcing higher quality
* Playing firms off of
each other 18

18. Bargaining Power of Suppliers Bargaining Power of Buyers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products 20

19. Threat of Substitute Products
Keys to evaluate substitute products:
Products with similar function limit the prices firms can charge
Products with improving price/performance tradeoffs relative to present industry products
Example:
Electronic security systems in place of security guards
Fax machines in place of overnight mail delivery 21

20. Bargaining Power of Suppliers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products 23

21. Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position
Using price competition
Staging advertising battles
Making new product introductions
Increasing consumer warranties or service
Occurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but may be costly to smaller competitors 25

22. Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
Lack of differentiation or switching costs
High storage costs
Capacity added in large increments
High strategic stakes
High exit barriers
Diverse competitors 26

23. The Five Forces are Unique to Your Industry
Five-Forces Analysis is a framework for analyzing a particular industry.
Yet, the five forces affect all the other businesses in that industry.

24. Competitor Analysis
The follow-up to Industry Analysis is effective analysis of a firm’s Competitors
Competitive
Environment
Industry Environment 33

25. Competitor Analysis Response Assumptions
What assumptions do our competitors hold about the future of industry and themselves?
Response
What will our competitors do in the future?
Current Strategy
Does our current strategy support changes in the competitive environment?
Where do we have a competitive advantage?
Future Objectives
How do our goals compare to our competitors’ goals?
How will this change our relationship with our competition?
Capabilities
How do our capabilities compare to our competitors? 38

26. Competitor Analysis Future Objectives What Drives the competitor?
How do our goals compare to our competitors’ goals?
Where will emphasis be placed in the future?
What is the attitude toward risk? 34

27. Competitor Analysis Future Objectives Current Strategy
What is the competitor doing?
How do our goals compare to our competitors’ goals?
What can the competitor do?
Current Strategy
Where will emphasis be placed in the future?
How are we currently competing?
What is the attitude toward risk?
Does this strategy support changes in the competitive structure? 35

28. Competitor Analysis Future Objectives Current Strategy Assumptions
How do our goals compare to our competitors’ goals?
Where will emphasis be placed in the future?
What is the attitude toward risk?
What does the competitor believe about itself and the industry?
Current Strategy
How are we currently competing?
Does this strategy support changes in the competition structure?
Assumptions
Do we assume the future will be volatile?
What assumptions do our competitors hold about the industry and themselves?
Are we assuming stable competitive conditions? 36

29. Competitor Analysis Future Objectives Current Strategy Assumptions
How do our goals compare to our competitors’ goals?
Where will emphasis be placed in the future?
What is the attitude toward risk?
What are the competitor’s capabilities?
Current Strategy
How are we currently competing?
Does this strategy support changes in the competition structure?
Do we assume the future will be volatile?
Are we operating under a status quo?
What assumptions do our competitors hold about the industry and themselves?
Assumptions
Capabilities
What are my competitors’ strengths and weaknesses?
How do our capabilities compare to our competitors? 37

30. Competitor Analysis Future Objectives Response Current Strategy
How do our goals compare to our competitors’ goals?
Where will emphasis be placed in the future?
What is the attitude toward risk?
Response
What will our competitors do in the future?
Current Strategy
How are we currently competing?
Does this strategy support changes in the competition structure?
Where do we have a competitive advantage?
Do we assume the future will be volatile?
Are we operating under a status quo?
What assumptions do our competitors hold about the industry and themselves?
Assumptions
How will this change our relationship with our competition?
Capabilities
What are my competitors’ strengths and weaknesses?
How do our capabilities compare to our competitors? 38