Table of Contents
Porter’s five forces analysis was designed to assess the forces that influence the level of competition within a particular industry. According to porter, a firm’s competitiveness in an industry is determined by five forces, which include the following. First, an industry is influenced by the power of the suppliers. Porter’s model assesses the power of suppliers by analyzing the concentration of suppliers, differentiation of products in supplier’s industry, substitutes to suppliers’ products, and possibility of foreword integration. Second, the industry is influenced by threat of new entrants. The factors considered in assessing this threat include access to inputs, existence of economies of scale, propriety knowledge, government polices, and capital requirements for joining the industry.
Third, the power of buyers also has an influence on the industry. To assess this force, the model analyzes the level of product differentiation, sensitivity to price, brand identity, volume of purchases, the number of buyers, availability of substitutes, and possibility of backward integration. Fourth, the industry is influenced by the threat attributed to substitutes. This threat is assessed by analyzing the buyers’ switching costs, consumers’ inclination to substitutes, and the prices of substitutes. Finally, the industry is influenced by the scale of competitive rivalry. In order to assess the level of rivalry, the model analyzes the exit barriers associated with the industry, the industry’s growth rate, level of strategic stakes, firms’ switching costs, concentration of the industry, and brand identity.Porter’s model ranks the aforementioned forces as low, moderate or high in the industry. Thus, Porter’s model helps managers to choose the best strategy for competing in the market.
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Ansoff’s Product Matrix
Ansoff’s matrix is an assessment tool used by managers to identify the best strategy for ensuring growth. According to Ansoff’s matrix, a firms’ ability to grow depends whether it is marketing new products or existing ones. Growth also depends on whether the firm’s products are being marketed in new markets or existing ones. Ansoff’s matrix suggests four growth strategies which are described as follows. First, a firm can adopt a market penetration strategy. [4] A firm using this strategy sells its existing products in its existing markets. The aim of the penetration strategy is to help the firm to maintain or expand its existing product’s market share.
Second, a business can focus on a market development strategy. In this case, the firm tries to sell its current products in new markets. Market development can be achieved though identifying new geographical markets, identifying new channels of distribution, and developing new packaging for products. An example of the application of this strategy includes exporting goods to overseas markets. Third, a firm can focus on product development as a growth strategy.[5] Product development involves selling new products in existing markets. Finally, a business can focus on diversification in order to grow. Diversification involves marketing new products in newly identified markets. For example, an airline can introduce a new product such as car rental services in a new market in order to boost its revenue.
Product Life-Cycle
Product life-cycle refers to the various stages that a product goes through from the time of its introduction in the market till the end of its ‘life span’ in the market. Every product has a finite life span in the market. As the sales of a product go through each stage, it presents new challenges, opportunities, as well as, problems to the marketer. Consequently, different strategies are needed to manufacture and market the product at each stage. A typical product has the following stages or phases. Market introduction is the first stage in a product’s life-cycle. [6] This stage is characterized by low profits, high costs of producing and selling the product, low sales/demand, and little competition. Apple’s iphone 4S, which was launched in the market on 14th October 2011, is an example of a product at its market introduction stage.
Growth phase is the second stage in a product’s life-cycle. This stage is characterized by substantial rise in sales, profits, public awareness, and competition.The third phase is referred to as the maturity stage. At this stage, costs reduce, sales reach their highest level, and prices reduce as competition increase. Most firms usually focus on brand, as well as, feature differentiation at this stage. Smart phones are examples of products at their maturity stage. The decline stage is the last phase of a product’s life-cycle. This stage is characterized by a significant decline in sales and profits. Landline phones are examples of products at their decline stage. In some countries, such phones are no longer in use as mobile phones become dominant.