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rket Segments ? Distinct groups of customers within an industry ? Can be differentiated from each other with distinct attributes and specific demands Industry analysis begins by focusing on the overall industry – before considering market segment or sectorlevel issues 5 The Computer Sector: Industries and Market Segments Figure 6 Porter’s Five Forces Model Source: Adapted and reprinted by permission of Harvard Business Review. From “How Competitive Forces Shape Strategy,” by Michael E. Porter, Harvard Business Review, March/April 1979 169。 may be viewed as an opportunity 187。 may be viewed as a threat 187。 As industry conditions change Through its choice of strategies, a pany may alter the strength of one or more of the five forces to its advantage. ? ? ? ? ? 8 Potential Competitors are panies that are not currently peting in an industry but have the capability to do so if they choose. Barriers to new entrants include: ? Risk of Entry by Potential Competitors 1. Economies of Scale – as firms expand output unit costs fall via: ? Cost reductions – through mass production ? Discounts on bulk purchases – of raw material and standard parts ? Cost advantages – of spreading fixed and marketing costs over large volume 2. Brand Loyalty ? Achieved by creating wellestablished customer preferences ? Difficult for new entrants to take market share from established brands 3. Absolute Cost Advantages – relative to new entrants ? Accumulated experience – in production and key business processes ? Control of particular inputs required for production ? Lower financial risks – access to cheaper funds 4. Customer Switching Costs for Buyers – where significant 5. Government Regulation ? May be a barrier to enter certain industries 9 1. Industry Competitive Structure ? Number and size distribution of panies ? Consolidated versus fragmented industries 2. Demand Conditions ? Growing demand – tends to moderate petition and reduce rivalry ? Declining demand – encourages rivalry for market share and revenue 3. Cost Conditions ? High fixed costs – profitability leveraged by sales volume ? Slow demand and growth – can result in intense rivalry and lower profits 4. Height of Exit Barriers – prevents panies from leaving industry ? Writeoff of investment in assets ? Economic dependence on industry ? Maintain assets to participate effectively in an industry ? Rivalry Among Established Companies Competitive Rivalry refers to the petitive struggle between panies in the same industry to gain market share from each other. Intensity of rivalry is a function of: ? High fixed costs of exit ? Emotional attachment to industry ? Bankruptcy regulations – allowing unprofitable assets to remain 10 Industry Buyers may be the consumers or endusers who ultimately use the product or intermediaries that distribute or retail th