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Competition Analysis Chinmay Das ABIT,Cuttack Chinmay Das, ABIT, Cuttack PEST Analysis Political Factors The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. 1. How stable is the political environment? 2. Will government policy influence laws that regulate or tax your business? 3.What is the government's position on marketing ethics? 4. What is the government's policy on the economy? 5. Does the government have a view on culture and religion? 6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others? Chinmay Das, ABIT, Cuttack PEST Analysis Economic Factors Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. 1. Interest rates. 2. The level of inflation, Employment level per capita. 3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on. Chinmay Das, ABIT, Cuttack PEST Analysis Socio-cultural Factors The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include: 1.What is the dominant religion? 2.What are attitudes to foreign products and services? 3.Does language impact upon the diffusion of products into markets? 4.How much time do consumers have for leisure? 5.What are the roles of men and women within society? 6.How long are the population living? Are the older generations wealthy? 7.Do the population have a strong/weak opinion on green issues? Chinmay Das, ABIT, Cuttack PEST Analysis Technological Factors Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points: 1. Does technology allow for products and services to be made more cheaply and to a better standard of quality? 2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? 3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc? 4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc? Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis 'Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit. Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Threat of new competition Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero (perfect competition). Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily. Economies of product differences Brand equity Switching costs or sunk costs Capital requirements Access to distribution Customer loyalty to established brands Absolute cost Industry profitability; the more profitable the industry the more attractive it will be to new competitors Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Threat of substitute products or services The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. Note that this should not be confused with competitors' similar products but entirely different ones instead. For example, Pepsi is not considered a substitute for Coke but water, tea, coffee, and milk are. Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Buyer propensity to substitute Relative price performance of substitute Buyer switching costs Perceived level of product differentiation Number of substitute products available in the market Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product. Substandard product Quality depreciation Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Bargaining power of customers (buyers) The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer volume Buyer switching costs relative to firm switching costs Buyer information availability Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources. Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost or differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition - ability to forward vertically integrate and cut out the BUYER Chinmay Das, ABIT, Cuttack Michael Porter’s Five Forces Analysis Intensity of competitive rivalry For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Sustainable competitive advantage through innovation Competition between online and offline companies Level of advertising expense Powerful competitive strategy Chinmay Das, ABIT, Cuttack