Chapter 2

The External Environment:

Opportunities, Threats, Industry Competition, and Competitor Analysis
Aviation Marketing By: Imtiaz Hussain
Superior University
Ch2-1

The purpose of Five-Forces Analysis

The five forces are environmental forces that impact on a companys ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.
Ch2-2

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

Ch2-3

NOKIA
Threat of new entrants: low
The mobile phone industry is already a well established market high investments in R&D, technology and marketing. Nokia hold 29% of the market share in the industry, the highest market share in the industry.

Power of suppliers: moderate

Although Nokia rely on its suppliers to supply equipment for their advanced mobile phones there are actually a number of large equipment makers, which Nokia could switch to. The software suppliers for their Smartphone's are now Microsoft, who will have a very high bargaining power.

Powers of buyers: high

The power that customers have is rising because of the increasing number of choices in the mobile telecommunication industry. With a lot of the Nokia competitors all offering similar products and packages Long term contracts so switching from one handset to another will be difficult

Threats of substitutes products: low

Mobile phones are an everyday essential in peoples lives today. social networking websites, email and home telephones. Digital camera can take better photos then smart phones, notebooks can surf the web just as effectively and PDAs can plan a day the same way a smart phone can.

Competitive rivalry: high

Apple and HTC.

Ch2-4

Example

This worries him: The threat of new entry is quite high Competitive rivalry is extremely high: if someone raises prices, they'll be quickly undercut. Buyer Power is strong, again implying strong downward pressure on prices. There is some threat of substitution

Ch2-5

Porters Five Forces Model & Its Application in Aviation

Ch2-6

1. Rivalry Amongst Existing

Firms
Low competition Same type of aircrafts Same type of fares

Less fare for economy class

High fare for business class
Ch2-7

2.Substitution

Telecommunication Surface transport Air Freight industry

Ch2-8

3. New Entry
Regulatory Limitations Airport Slots Staff Resources Maintenance and Ground handling Economies of Scale Learning Curve effects High Risks Where there is muck theres brass

Ch2-9

4. Power of Customers
Number of customers True customers are decreasing Over-ride comissions Bucket Shops Why not to do the job YOURSELF? Integrated Carriers Switching Costs Golden Hello tactic

Ch2-10

5. Power of Suppliers
Monopoly Airports and ATCs Aircraft manufacturers (B747, A380) Global Distribution System (GDSs) SABRE and Galileo International Cost to be mutually share by agent and airline

Airlines continued to pay

85 to 90%
Ch2-11

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Ch2-12

Threat of New Entrants

Economies of Scale

Barriers to Entry

Product Differentiation Capital Requirements

Switching Costs
Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy

Expected Retaliation
Ch2-13

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Ch2-14

Bargaining Power of Suppliers

Suppliers are likely to be powerful if:
Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality

Supplier industry is dominated by a few firms Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers products are differentiated

Suppliers products have high switching costs Supplier poses credible threat of forward integration

Ch2-15

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Ch2-16

Bargaining Power of Buyers

Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to sellers sales Purchase accounts for a significant fraction of suppliers sales Products are undifferentiated Buyers face few switching costs Buyers industry earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality

Buyers compete with the supplying industry by:

* Bargaining down prices * Forcing higher quality * Playing firms off of each other

Buyer has full information

Ch2-17

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

Ch2-18

Threat of Substitute Products

Keys to evaluate substitute products: Products with similar function limit the prices firms can charge Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery
Ch2-19

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

Ch2-20

Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:
Jockeying for strategic position Using price competition

Staging advertising battles Increasing consumer warranties or service Making new product introductions

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors
Ch2-21

Rivalry Among Existing Competitors

Cutthroat competition is more likely to occur when: Numerous or equally balanced competitors Slow growth industry

High fixed costs High storage costs

Lack of differentiation or switching costs Capacity added in large increments Diverse competitors High strategic stakes

High exit barriers

Ch2-22

The Five Forces are Unique to Your Industry

Five-Forces Analysis is a framework for analyzing a particular industry.
Yet, the five forces affect all the other businesses in that industry.

Ch2-23

Competitor Analysis
The follow-up to Industry Analysis is effective analysis of a firms Competitors

Industry Environment Competitive Environment

Ch2-24

Competitor Analysis
Assumptions What assumptions do our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Future Objectives How do our goals compare to our competitors goals? Capabilities How do our capabilities compare to our competitors?
Ch2-25

Response
What will our competitors do in the future? Where do we have a competitive advantage?

How will this change our relationship with our competition?

Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where will emphasis be placed in the future? What is the attitude toward risk?

What Drives the competitor?

Ch2-26

Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where Current will emphasis be Strategy placed in the future? How are we currently What is the attitude competing? toward risk? Does this strategy support changes in the competitive structure?

What is the competitor doing? What can the competitor do?

Ch2-27

Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where Current will emphasis be Strategy placed in the future? How are we currently What is the attitude competing? Assumptions toward risk? Does this strategy Do we assume the future support changes in the will be volatile? competition structure? What assumptions do our competitors hold about the industry and themselves? Are we assuming stable competitive conditions?

What does the competitor believe about itself and the industry?

Ch2-28

Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where Current will emphasis be Strategy placed in the future? How are we currently What is the attitude competing? Assumptions toward risk? Does this strategy Do we assume the future supportwill changes in the be volatile? competition structure? What assumptions do our competitors hold about the Capabilities industry and themselves? What are my competitors Are we operating under strengths and weaknesses? a status quo? How do our capabilities compare to our competitors?

What are the competitors capabilities?

Ch2-29

Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where Current will emphasis be Strategy placed in the future? How are we currently What is the attitude competing? Assumptions toward risk? Does this strategy Do we assume the future supportwill changes in the be volatile? competition structure? What assumptions do our Capabilities competitors hold about the industry and themselves? What are my competitors Are we operating strengths under and weaknesses? a status quo? How do our capabilities compare to our competitors?

Response
What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?

Ch2-30