Topic Gateway Series Strategic Analysis Tools
If a business has just a few powerful buyers, they are often able to dictate terms.
3. Competitive rivalry. The key driver is the number and capability of
competitors in the market. Many competitors, offering undifferentiated
products and services, will reduce market attractiveness.
4. Threat of substitution. Where close substitute products exist in a market, it
increases the likelihood of customers switching to alternatives in response to
price increases. This reduces both the power of suppliers and the
attractiveness of the market.
5. Threat of new entry. Profitable markets attract new entrants, which erodes
profitability. Unless incumbents have strong and durable barriers to entry, for
example, patents, economies of scale, capital requirements or government
policies, then profitability will decline to a competitive rate.
Porter's five forces diagram
Threats of substitution
e.g.
• Buyer switching cost
• Buyer propensity to
substitute
• Product differentiation
Buyer power e.g. Rivaltry e.g. Supplier power e.g.
• Buyer information • Number of competitors • Supplier concentration
• Buyer volume • Size of competitors • Importance of volume
• Buyer price sensitivity • Industry growth rate to supplier
• Buyer switching costs • Differentiation • Cost relative to selling
• Bargaining leverage • Exit barriers price
Threat of new entry
e.g.
• Switching costs
• Economies of scale
• Learning curve
• Capital requirements
• Patents
Based on Michael Porter's five forces of competitive position model
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[Accessed 12 February 2008]
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Topic Gateway Series Strategic Analysis Tools
Four corner’s analysis
Developed by Michael Porter, the four corner’s analysis is a useful tool for
analysing competitors. It emphasises that the objective of competitive analysis
should always be on generating insights into the future.
The model can be used to:
• develop a profile of the likely strategy changes a competitor might make and
how successful they may be
• determine each competitor’s probable response to the range of feasible
strategic moves other competitors might make
• determine each competitor’s probable reaction to the range of industry shifts
and environmental changes that may occur.
The ‘four corners’ refers to four diagnostic components that are essential to
competitor analysis: future goals; current strategy; assumptions; and capabilities.
A summary of Porter's four corner's analysis
MOTIVATION ACTIONS
Drivers Current strategy
• Financial goals • How the business creates value
• Corporate culture • Where the business is choosing to
• Organisational structure invest
• Leadership team backgrounds • Relationships and networks the
• External constraints business has developed
• Business philosophy
COMPETITOR’S FUTURE STRATEGY
Management assumptions Capabilities
• Company’s perceptions of its • Marketing skills
strengths and weaknesses • Ability to service channels
• Cultural traits • Skills and training to work force
• Organisational value • Patents and copyrights
• Perceived industry forces • Financial strength
• Belief about competitor’s goals • Leadership qualities of CEO