Competitive Advantage(Michael Porter)
Being competitive, a book written by Michael Porter, which explains the 5
competitive forces that shape the strategy of companies. Competition is a
powerful force in society. Every organization requires a strategy to offer
value, ability to satisfy needs. Many strategy mistakes come from a wrong
idea about how the competition works
Profitability implies higher prices or lower costs, and what boost it, is not
characteristics is the underlying structure of the industry, manifested in the
competitive forces, which allow it to achieve an effective positioning if it is
shaped for its own benefit.
The first force is "the threat of new applicants."
Those who want to enter an industry exert pressure, especially if they come
from other industries, and are sought to stop them by lowering prices or
raising the initial investment. The entrance depends on barriers to entry and
relationships with established members, and the challenge is to overcome
them without destroying profitability.
The 7 main barriers are:
Economies of scale for supply;
The benefits of scale for the demand;
the costs of the change;
The capital requirements;
the specific benefits;
Access to distribution channels;
The second force is "seller influence."
The most influential hoard value with high prices, or limiting quality and
services. Powerful suppliers can get more profitability from an industry that
cannot pass a cost increase to the final price.
Businesses depend on many suppliers, who will be influential if:
They are more concentrated than the industry they sell to;
Is not overly dependent on industry for profit;
There are fluctuations in costs and unstable suppliers;
If there is no alternative to your products and services.
The third force is "buyer influence." Influential customers can hoard value by forcing prices down, demanding
quality or features, and pitting participants against each other.
Bargaining influence is exercised if:
There are few buyers or relatively large volumes are bought;
If the products are standardized or very similar;
If buyers can get to self-supply.
Intermediaries have a lot of bargaining power when they can influence the
decisions of consumer final decision. Many producers have exclusive
arrangements with distributors or sell direct to them. The fourth force is "the threat of substitutes." This means being able to do without a product or service, and limits
performance by placing a ceiling on prices. If an industry does not distance
itself from substitutes, profitability and growth will suffer.
This threat is elevated if:
Price and benefits are matched;
If the cost of changing is low.
In addition, technological changes or discontinuities in seemingly unrelated
businesses can have a great impact on the profitability of an industry and on
the emergence of substitutes. The fifth force is "rivalry between competitors." What you see in price discounts, product enhancements, and ad campaigns,
it depends on the intensity and basis on which you compete. The intensity is higher if:
there are many competitors or their influence is similar;
If the industry growth is slow;
If an actor is very committed to the business.
Rivalry affects profitability if it only attacks price, removing the focus from
Price competition occurs if:
The products are similar,
If fixed costs are high and marginal costs are low,
If the product is perishable.
Rivalry can be positive and increase profitability when different segments
are covered and the industry expands.