IST 349 Chapter 3 Concepts Describe Porter’s Competitive Forces Model (Figure 3.1) The most widely used model for understanding competitive forces. In this model, five competitive forces shape the fate of the firm: Traditional competitors are the competitors you share the market space with. They – are continuously striving for new products and more efficiency, and are attempting to attract t new customers to switch to their brand. New market entrants new companies have several possible advantages. They are not – locked into old plants and equipment. They can hire younger workers who may be less expensive and more innovative. Substitute products and services there are substitutes that your customers might use if – your prices get too high. The more substitute products in your industry, the lower your profit margin will be. Customers a company must be able to attract and retain customers. The power of the – customer grows if they can easily switch to a competitor or if they know the price of all competitor’s product instantly. Suppliers the more suppliers a firm has, the greater control it can exercise over price, – quality, and delivery schedules. Describe each of the four following generic strategies for dealing with competitive forces: Low-cost leadership obtain the lowest operational costs and the lowest prices. WalMart – Product differentiation customize and personalize products and services to fit individual – customers. Nike Focus on market niche a narrow target market better than competitors. Hilton –Serve Hotel Strengthen customer and supplier intimacy Tighten contacts with suppliers and develop – intimacy with customers. Amazon
IST 349 Chapter 3 Concepts Describe Porter’s Competitive Forces Model (Figure 3.1) The most widely used model for understanding competitive forces. In this model, five competitive forces shape the fate of the firm: Traditional competitors – are the competitors you share the market space with. They are continuously striving for new products and more efficiency, and are attempting to attract t new customers to switch to their brand. New market entrants – new companies have several possible advantages. They are not locked into old plants and equipment. They can hire younger workers who may be less expensive and more innovative. Substitute products and services – there are substitutes that your customers might use if your prices get too high. The more substitute products in your industry, the lower your profit margin will be. Customers – a company must be able to attract and retain customers. The power of the customer grows if they can easily switch to a competitor or if they know the price of all competitor’s product instantly. Suppliers – the more suppliers a firm has, the greater control it can exercise over price, quality, and delivery schedules. Describe each of the four following generic strategies for dealing with competitive forces: Low-cost leadership – obtain the lowest operational costs and the lowest prices. WalMart Product differentiation – customize and personalize products and services to fit individual customers. Nike Focus on market niche –Serve a narrow target market better than competitors. Hilton Hotel Strengthen customer and supplier intimacy – Tighten contacts with suppliers and develop intimacy with customers. Amazon
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