Tools For Identifying Investment Opportunities: Porter Model Life Cycle Approach Experience Approach
Tools For Identifying Investment Opportunities: Porter Model Life Cycle Approach Experience Approach
Tools For Identifying Investment Opportunities: Porter Model Life Cycle Approach Experience Approach
Threat of new rivals Rivalry among existing firms Pressure from substitute products Bargaining power of buyers Bargaining power of sellers
The five forces are environmental forces that impact on a companys ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.
Suppliers
Buyers
Economies of Scale Product Differentiation Capital Requirements Access to Distribution Channels Government Policy
Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
Suppliers are likely to be powerful if: Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product
Buyers compete with the supplying industry by Bargaining down prices Forcing higher quality
Products with similar function limit the prices firms can charge Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery
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Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors
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Numerous or equally balanced competitors Slow growth industry High fixed costs High storage costs Lack of differentiation or switching costs
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Pioneering stage Rapid growth stage Maturity and stabilization stage Decline stage
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The experience curve is a useful tool for planning investments The experience curve shows how the cost per unit behaves with respect to the accumulated volume of production The accumulated volume of production is the total number of units produced cumulatively from the very beginning In general, the cost per unit decline with the accumulated volume of production
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Effective Advertising and Superior Marketing Exceptional Service Innovative Product Features High Quality and Dependability
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Cost Advantage
Accumulated Experience Monopolistic Access to Low Cost Materials A Favourable Location More Effective Cost Control and Cost Reduction
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