Ice-Fili Case Summary
Porter’s five forces is a tool to analyze industry structure and assess industry profitability. It also helps a company create an effective positioning strategy. An industry has similar products, the same buyers and the same suppliers. The five forces include: 1. New entries: new comers to the existing industry. Typically, a higher threat of entry or lower barrier to entry drives down an industry’s profitability. A high industry barrier often comes from: 1) High economies of scale that gives new entrants a cost disadvantage; 2) High benefits of scale that limits new comers’ customer network; 3) High switching costs for customers; 4) High Capital requirements; 5) Other advantages for incumbents like proprietary technology, preemption of the best locations, preferential access to sources, etc. 6) Incumbents’ preemption of distribution channels; 7) Government restriction on new entries. 2. Suppliers: people whom an industry pays to. When facing a high bargaining power of suppliers, an industry is likely to be unfavorable. Suppliers’ power generates from: 1) High concentration; 2) Serving many companies; 3) High switching costs; 4) Differentiated products; 5) No substitutes 6) Potential forward integration. 3. Buyers: people who are customers of an industry. An industry is more likely to be unattractive with high bargaining power from buyers. Buyer’s power comes from: 1) High concentration; 2) Standardized product; 3) Few switching costs; 4) Potential backward integration; 5) High price sensitivity. 4. Substitutes: alternatives to the industry product. The higher the threat of substitutes, the less profitable the industry is. If a substitute has a higher price-performance ratio or buyers’ cost of switching is low, the industry’s profit is likely to decline. 5. Rivals: other companies in an industry. If the intensity of rivalry is high, the industry profitability will decrease. The factors for high intensity of rivalry can be: 1) Too many competitors (similar size)