OUR LADY OF FATIMA UNIVERSITY
COLLEGE OF HOSPITALITY AND INSTITUTIONAL MANAGEMENT
Analyzing Business Competition in the
Tourism and Hospitality Industry:
Applying Porter's Five Forces
DEVELOPED BY: ARMANDO G. ENALAN JR
LEARNING OUTCOMES
IN THE OF THE MODULE, THE STUDENTS WILL BE ABLE TO:
LO 1 LO 2 LO 3
Analyze the various types Critically assess the Explain the application of
of business competition advantages of business Porter’s Five Forces
within the hospitality competition and how they framework to assess
industry and evaluate can drive innovation, competitive pressures and
efficiency, and customer develop strategic
their implications for
satisfaction in the responses in THI
strategic positioning.
hospitality sector.
STQM 411
BUSINESS
COMPETITION
Refers to the rivalry between companies
or organizations operating within the
same industry or market, aiming to attract
customers, increase sales, and improve
their market position.
GOALS: It encourages innovation, efficiency, and better
services or products, ultimately benefiting consumers.
Competition can take various forms, including price wars,
marketing campaigns, product differentiation, and
technological advancements.
STQM 411
BUSINESS
COMPETITION
AS GUIDED BY
PRINCIPLES
Fair and ethical practices, including
transparency and legal compliance,
to ensure honest competition.
Focus on innovation, quality, and
respectful rivalry to promote
continuous improvement and
market growth.
STQM 411
25
Different Types
of Business 20
Competition 15
Three types of competition and three
types of competitors, which are as
follows: 10
1. Direct Competition
2 .Indirect Competition 5
3 .Replacement Competition
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Item 1 Item 2 Item 3 Item 4 Item 5
STQM 411
Direct
Competition
Direct competition, as the name Think head-to-head battles: These are
suggests, refers to rivals who operate in the businesses offering the same or
the same industry and provide very similar products or services to the
comparable goods and services. same target audience.
Example: Jollibee and McDonalds. Jollibee and McDonalds are
direct competitors, particularly in the Philippines where both
giants hold significant market share.
STQM 411
Pizza Hut,
Shakey's, and
Yellow Cab.
Direct competitors in the Philippine pizza market.
Core product: Pizza
Target audience: Similar audiences seeking a casual
dining experience with friends and family.
Each brand differentiates itself through:
Distinct offerings
Unique brand personalities
View More
STQM 411
Indirect Competition
Substitutes defined: Indirect competition in the restaurant industry:
Occur when businesses offer different products or Businesses fulfill the same customer need
services but compete for the same market to satisfy with different products or services.
the same customer need. While not competing for the exact meal
These products are in different categories but are order, they compete for the customer's
alternative purchase choices. dining budget and attention.
Example: Fast Casual vs. Fine Dining
Both satisfy the need for dining but through distinct dining
experiences.
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Example is Fast Casual vs. Fine Dining
Fast Casual: Examples include Chipotle, Panera
Bread, and Saladworks.
Offer quick, convenient meals with a focus
on customization and fresh ingredients.
Often at a lower price point than traditional
sit-down restaurants.
Both cater to the desire for a satisfying meal
but target different preferences for speed, price,
and formality.
Customers may choose Chipotle for a quick
lunch break and fine dining for special
occasions.
STQM 411
Replacement
Competition
Occurs when a product or Viewed as two options
service not identical to leading to the same
yours is perceived as an outcome; clients choose
option to fulfill the same based on needs and
demand. preferences.
Important for businesses Prioritize meeting
to understand customer demands before focusing
needs and anticipate on new, attractive
competitor targets. products to gain market
share.
View More
STQM 411
Example of Replacement Competition in the
Restaurant Industry:
First Example: Food Trucks and Pop-
Up Restaurants
Offer unique culinary
experiences with mobility and
flexibility.
Typically provide lower prices
and shorter wait times
compared to traditional
restaurants.
Can draw customer attention
away from established
restaurants, especially for casual
dining occasions.
STQM 411
Porter’s
Five Forces
Porter’s Five Forces is a framework
developed by Michael E. Porter to
analyze the competitive environment
of an industry. It identifies five key
forces that shape every market,
influencing profitability and strategic
positioning
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PORTER’S FIVE
FORCES
Threat of New Entrants
The risk posed by potential new competitors entering the industry,
which can increase rivalry and pressure existing firms to reduce
Threat of Substitute Products or
prices or improve services. Services
The presence of alternative products or services that
can replace industry offerings. High substitute
availability puts pressure on prices and reduces profit
Bargaining Power of Suppliers potential.
The ability of suppliers to influence the prices and
terms of supply. Powerful suppliers can squeeze profit
margins by raising prices or reducing quality.
Industry Rivalry (Competitive
Rivalry)
The degree of competition among existing competitors
Bargaining Power of Buyers in the industry, which influences pricing, marketing
(Customers) strategies, product differentiation, and overall
profitability.
The capacity of customers to affect pricing and
quality. When buyers have significant power, they can
demand lower prices or higher quality, impacting
industry profitability.
STQM 411
OUR LADY OF FATIMA UNIVERSITY
COLLEGE OF HOSPITALITY AND INSTITUTIONAL MANAGEMENT
Applying Porter's Five Forces:
Coffee Shop Context
Threat of New Entrants in
Coffee Shops
Low Capital and Skill Barriers: Anyone with a small investment can
open a coffee shop, especially in densely populated urban
neighborhoods or university campuses.
Brand Loyalty and Differentiation: Established brands like Starbucks
or local favorites have cultivated loyal customer bases and brand
identity, raising entry barriers.
Location and Real Estate: Securing prime locations with high foot
traffic is challenging and costly; new entrants often struggle with
visibility and accessibility.
Operational Complexity: Accent on quality, customer experience,
and speed can deter smaller or inexperienced entrants who lack
operational sophistication.
Strategic Insight:
Success for new entrants depends on niche differentiation (e.g., organic, vegan,
artisanal) and innovative service models (mobile ordering or delivery)
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Bargaining Power of Suppliers in
Coffee Shops
Coffee Bean Suppliers: Worldwide suppliers of Arabica or
Robusta beans can impact the market because their crop
harvests are affected by climate change, pests, or trade laws.
Premium and Ethical Sourcing: More people want Fair Trade,
organic, and ethically sourced beans. This increases the power
of these specific suppliers, and they often charge higher
prices.
Other Inputs: Items like milk, sugar, cups, and coffee
machines are usually standard products. However, costs can
go up if there are few suppliers or if specialty items are
needed.
Strategic Insight:
Coffee shops can reduce their dependence on suppliers by
working with multiple suppliers, establishing direct trade
relationships, or owning their own coffee farms.
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Bargaining Power of Customers
in Coffee Shops
High Competition and Multiple Alternatives: Customers can
switch easily between local cafés, chains, or even
homemade options, increasing their influence.
Preference for Experience and Quality: Customers today
demand high-quality brews, personalized service, and a
comfortable environment—shops that fail to deliver risk
losing patronage.
Price Sensitivity: Many customers seek affordable options,
especially students or morning commuters, pressuring
shops to optimize pricing strategies.
Strategic Insight:
Building customer loyalty through rewards programs, unique
offerings, or exceptional ambiance can reduce price sensitivity
and bargaining power.
STQM 411
Threat of
Substitutes in
Coffee Shops
Alternative Beverages: Tea, energy drinks, smoothies,
or herbal infusions can replace coffee, especially if
they align with health trends or dietary preferences.
Home Coffee Machines: Advances in brewing
technology and affordability make premium coffee at
home increasingly attractive, impeding foot traffic.
Remote Work & Digital Entertainment: People
working from home or engaging with digital
entertainment less frequently visit physical coffee
shops.
Strategic Insight:
Coffee shops that innovate with new beverages,
healthier options, or upgraded in-store experiences can
mitigate substitution threats.
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Rivalry Among Existing Competitors in
Coffee Shops
High Market Saturation: Urban areas often have multiple
cafés, including international chains and local
independent shops, competing fiercely on price, quality,
and ambiance.
Differentiation Strategies: Unique themes, artisanal
brewing techniques, local community engagement, or
sustainability initiatives help cafes stand out.
Promotions & Loyalty: Frequent promotions, seasonal
products, and loyalty programs intensify competition for
repeat business.
Strategic Insight:
Innovation in customer experience, strong branding, and
operational excellence are crucial to outperform rivals.
STQM 411
Using Porter’s 5 Forces to Gain Competitive and
Strategic Advantage
STEP-BY-STEP PROCESS:
Conduct Industry Analysis:
Evaluate the intensity of each of the five forces.
Identify Opportunities & Threats:
Focus on areas with low competition or high threat tightness.
Develop Strategic Responses:
Reduce threat of new entrants: Build a strong brand and customer loyalty.
Manage supplier power: Diversify suppliers or negotiate long-term contracts.
Counter buyer power: Differentiate offerings and improve customer experience.
Mitigate substitutes: Innovate product offerings and diversify.
Address competitive rivalry: Focus on unique value propositions.
Leverage Strengths & Address Weaknesses:
Use insights to build sustainable competitive advantages.
Create Strategic Advantages:
Niche focus, cost leadership, innovation, customer intimacy, or branding.
Continuous Monitoring:
Regularly reassess industry forces to adapt strategies effectively.
STQM 411
OUR LADY OF FATIMA UNIVERSITY
COLLEGE OF HOSPITALITY AND INSTITUTIONAL MANAGEMENT
THANK YOU!
DEVELOPED BY: ARMANDO G. ENALAN JR