Understanding and Analyzing Competition

1. Understanding and Analyzing Competition St. Francis Xavier University “Analysis is the critical starting point of strategic thinking” Kenichi Ohmae

2. Objectives and Overview • Objectives • To introduce the topic of competition and a tool for analyzing and understanding competition • To develop your understanding of the strategy formulation process • Overview • Coverage of Porter’s Five Forces model • Sample industry • Application in test questions St. Francis Xavier University

3. Review: Market Forces • Supply • Supply is the markets ability and plan to satisfy demand. • Supply is influenced by: • Scarce resources • Competition and market segments (such as quality differentiation and price) • Price, cost of production, competitors prices, expected future prices • Volume of supply (number of domestic and foreign suppliers) • Regulations St. Francis Xavier University

4. Competition • What is competition? • “The vying among businesses in a particular market or industry to best satisfy consumer demands and earn profits” (18) • Competition is a driving factor in business • Facilitates choice for consumers (quality, cost, speed) • Promotes efficient and productive use of scarce resources • Competition and strategy • “An important part of industry and competitive analysis is to delve into the industry’s competitive process to discover the main sources of competitive pressure and how strong each competitive force is. This analytical step is essential because managers cannot devise a successful strategy without understanding the industry’s competitive character” from Industry and Competitive Analysis by Thompson and Strickland St. Francis Xavier University

5. Competition • Competition – succeeding in the market! • Firms compete by leveraging strengths and mitigating weaknesses to capitalize on opportunities and avoid threats Broader Environment Marketplace St. Francis Xavier University Organization

6. Competition • Analyzing competition is central to a manager’s job • Michael Porter’s “5 Forces” conceptual framework is an effective analytic tool St. Francis Xavier University

7. Competition • Understand your position in the supply chain St. Francis Xavier University

8. Porter’s 5 Forces Threat of Substitutes Orient your perspective to the rivalry of producers between suppliers and buyers Deconstruct competition into individual forces to understand the favourability of each St. Francis Xavier University Power of Suppliers Power of Buyers Rivalry • Industries change: • Action and reaction of rival producers • Give and take of advantage within supply chain • New entrants and substitute products Determine the overall favourability of the sum of forces Threat of New Entrants

9. Porter’s 5 Forces Low Favourable When competitive forces are not strong, the structure of an industry is attractive for earning profits Threat of Substitutes St. Francis Xavier University Low Low Low Power of Suppliers Power of Buyers Rivalry Low Threat of New Entrants

10. Porter’s 5 Forces High Unfavourable The stronger the collective impact of competitive forces, the lower the combined profitability of participant firms Threat of Substitutes St. Francis Xavier University High Intense High Power of Suppliers Power of Buyers Rivalry High Threat of New Entrants

11. Application • Atlantic Superstore offered a promotion of $20 coupon for purchases over $150. Shortly thereafter Sobeys offered a comparable promotion of $20 coupon for purchases over $100. These events represent which of Porter’s five forces in action? • Rivalry • Buyer Power • Supplier Power • Threat of New Entrants • Threat of Substitutes St. Francis Xavier University

12. Application • In 2008, during the height of crude oil and gasoline prices, Wilson’s Fuels threatened to stop delivering gasoline to retail stations in remote rural areas, because it was too expensive. This event is an example of which of Porter’s five forces, pertaining to rural retail gas stations? • Rivalry • Buyer Power • Supplier Power • Threat of New Entrants • Threat of Substitutes St. Francis Xavier University

13. Application • Due to increasing cell phone service charges Skype introduced a new WiFi phone, which allows for free calling over wireless networks. This is an example of which of Porter’s five forces pertaining to traditional cell phone companies? • Rivalry • Buyer Power • Supplier Power • Threat of New Entrants • Threat of Substitutes St. Francis Xavier University

14. Competition Other forces shaping competition Broader Environment Marketplace St. Francis Xavier University Innovation and Technical Change Government Regulation TS SP R BP Labour supply Provision of Finance TNE

15. Porter’s 5 Forces • 5 Forces works from the perspective of: • a manager in an existing firm in the industry • a manager thinking about entering an industry • Industries are typically composed of varying and changing forces • Favourability depends on composition of forces, and the strengths and weaknesses of the organization • To contend successfully against competitive forces, managers must: • Leverage strengths, mitigate weaknesses, capitalize on opportunities and avoid threats St. Francis Xavier University

16. Admin • Wednesday’s class – Scotia Aqua Farms case • Please prepare a written analysis of this company using Porter’s Five Forces. In your write-up include: • An overview of the case (Who, what, why, when) • Key issues • Porter’s Five Forces Analysis of the competition • Conclusions about the favourability • Recommendations • Submit during Wednesday’s class • Midterm Update St. Francis Xavier University