Learning Center
Plans & pricing Sign in
Sign Out



									The McIntire Investment Institute Fundamental
           Presented by Shilpee Raina


        A guide to industry analysis
 What are Porter’s Five Forces?
 Developed by HBS professor, Michael Porter:
  Competitive Advantage: Creating and
  Sustaining superior Performance
 Extensive framework utilized to assess an industry’s
  competitive environment
 Incredibly useful in determining a company’s
  positioning and evaluating its strategy
    The Five Critical Factors
   Threat of Potential Entrants
   Bargaining Power of Buyers
   Bargaining Power of Suppliers
   Threat of Substitutes
   Rivalry Among Competitors
     Threat of Potential Entrants
• Ability of new firms to successfully enter the market due
  to level of BARRIERS TO ENTRY
   – Economies of scale, capital requirements, cost & distribution
     advantages: International Food Chains
   – Product or service differentiation: Happy Meals
   – Psychological factors: Burger King brand name
• Fast Food Industry: HIGH barriers to entry,
  LOW threat of entrants
     Bargaining Power of Buyers
 The buyers ability to drive down prices, demand
  higher quality goods, and play competitors
  against each other
 Power GAINED by:
   High concentration of Buyers relative to companies: several
    fast eating options for mainstream consumer
   Products/services are undifferentiated: burgers are burgers
   Purchases represent significant fraction of buyer’s cost: fast
    food is inexpensive, lower buying anxiety
  Bargaining Power of Buyers
 Power REDUCED by:
   Differentiate Product or Services by raising
    SWITCHING COSTS: chalupas, happy meals,
   Avoid dependence on one buyer: kids, teens, and
 Fast food industry: HIGH Bargaining
  Power of Buyers
 Bargaining Power of Suppliers
 The suppliers ability to raise prices, or reduce
  quantity and quality of inputs
 Power GAINED by:
    Supplier’s industry is concentrated: input foods are
     common goods
    Buyer is not important to supplier: several food chains
    No substitutes: numerous food wholesalers
 Power REDUCED by:
    Supply flexibility: relationships with many wholesalers
    Backward integration: develop own farms
 Fast Food Industry: LOW
          Threat of Substitutes
 These are products/services that perform the same
  function, but are in different industries: grocery
  stores, fast casual
 Availability of substitutes limits industry profitability
 To REDUCE threat:
    Product/service differentiation: dollar menus, brands
    Collective industry response: healthier foods, low prices
 Fast Food Industry: HIGH
  Rivalry Among Competitors
 Competition is intensified when:
   Competitors are numerous and equally balanced
   Slow industry growth: fast food is saturated
   High fixed costs: need to sell high volumes to
   Standardized products/services: intense price
    competition, $1 menus
 Fast Food Industry: HIGH level of rivalry
         In Summation
Fast Food Industry is highly competitive
due to: high barriers to entry, high
bargaining power of suppliers, significant
substitutes, and intense rivalry.


To top