Walking out of the hospital room, a doctor let out a big sigh and you over hear

Question

Walking out of the hospital room, a doctor let out a big sigh and you over hear him telling a lady, “Mrs. Porter, I’m sorry to inform you that your husband Michael has suffered acute amnesia. He has lost a large part of his memory and it is causing him to go into a deep depression. It appears that if he could only remember his famous ‘Five forces theory of competition’ that it would bring him out of it. Unfortunately, I can’t find anyone who can explain it.” As Mrs. Porter sobs uncontrollably, you inform the doctor, “I think I may be able to help. I can explain Porter’s five forces theory by applying it to the athletic footwear industry.” How would you explain it?

Explanation / Answer

Hi Micheal ,

Hope you are doing well , do you remember our sunday evening discussion on five forces theory ? and our arguement on the forces that play into the market and what should be the best strategy to adopt it .

Hey i can see a smile on your face , means you recollect some bit of it .Ok, let me explain you more in detail , perhaps this would help

The five forces of theory basically used more often in developing strategies , it is a framework through which an organization understands its position in the industry and then plan out a strategy to go into the market accordingly

make sense ? No, ok let me give you an example ,Lets assume we both plan to set up a production house to produce athlete footwear ,and to craft a strategy we need to apply the most time tested method which is the five forces theory . Lets do it step by step , we first try to list down the five forces

1.Supplier Power : here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.In our case we need to consider the suppliers availble in the market for athlete footwear and the economies of scale available to us

2.Buyer Power :Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.In our case we need to understand the target audience we have by geographies and demographies to know which area and channel sales to target to get more and more customers for our product

3.Threat of New entrant : What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.In our case we need to think about who all could eat away from our share in the market

4.Threat of Subsitute :This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.In this we need to think about other players who could offer similar athlete footwear at more reasonable cost and comfort levels or colors most prefered by athletes

5.Competitive rivalry :Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it. Here we need to think about our competitiors within the footwear industry ,and may require us to do a deep market study of competitiors and gather competitive intelligence to address issue

after listing these down ,lets apply each to our business (athlete footwear ) we want to pursue .

Hope you could now recollect and assist me with drafting a strategy

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