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MBA Review Kit Prepared by: John Brooks Porter Analysis Framework

PORTER ANALYSIS FRAMEWORK


Potential Entrants
Threat of new entrants Bargaining power of suppliers

Suppliers

Industry Competition
Rivalry amongst existing firms

Bargaining power of buyers

Buyers

Threat of substitute products or services

Substitutes

COMPANY:
COMPANY

INDUSTRY: SUMMARY OF CASE FACTS AND PRIMARY ISSUES

INDUSTRY COMPETITION - RIVALRY A rivalry in an industry is considered intense [Bullet Point illustration of the applicable points to the left] when the following exist: 1. Numerous or equally balanced competitors 2. Competition is a market share game 3. High fixed or storage costs 4. Lack of differentiation 5. Switching costs exist 6. Capacity augmented in large increments 7. Diverse competitors 8. High strategic stakes 9. High exit barriers THREAT OF NEW ENTRY Major sources of barriers to entry, which serve [Bullet Point illustration of the applicable points to the left] to limit the threat of new entry are: 1. Economies of scale/vertical integration 2. Product differentiation 3. Capital requirements 4. Switching costs 5. Access to distribution channels 6. Cost disadvantages independent of scale 7. Government policy 8. Expected retaliation by existing firms 9. An entry deterring price 10. Experience curves BARGAINING POWER OF BUYERS Buyers can force down prices, bargain for [Bullet Point illustration of the applicable points to the left] better quality or service, or play competitors against one another. A buyer has power when the following exist: 1. Concentrated or purchases large volumes relative to seller sales 5 Forces Framework, Page

INFLUENCING FACTORS 2. 3. 4. 5. 6. Products purchased from the industry represent a significant fraction of the buyers costs or purchases Products purchased from the industry are standard or undifferentiated Few switching costs Earns low profits Backward integration is a threat

ANALYSIS OF THIS COMPANY/INDUSTRY

THREAT OF SUBSTITUTES Substitutes limit potential returns because it [Bullet Point illustration of the applicable points to the left] places a ceiling on prices. Substitute products that deserve the most attention are: 1. Those subject to improving the priceperformance tradeoff with the industrys product 2. Those produced by industries earning high profits BARGAINING POWER OF SUPPLIERS Buyers can exert influence on a firm by [Bullet Point illustration of the applicable points to the left] threatening to raise prices or reduce quality or service and can squeeze profit out of an industry. LABOR IS AN INPUT, supplied by employees. Suppliers have power when: 1. The buyers dominate the industry and are more concentrated than the industry it is selling to 2. It is not obligated to content with other substituted products for sale to the industry 3. Industry not an important customer 4. Suppliers product is an important part of the buyers business 5. The suppliers products are differentiated or it has built up switching costs 6. Forward integration is a threat

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