INDUSTRY SHAMPO

TEMPLATE FOR DOING A FIVE-FORCES ANALYSIS

INDUSTRY SHAMPO

FACTORS AFFECTING RIVALRY AMONG EXISTING COMPETITORS

To what extent does pricing rivalry or nonprice competition (e.g., advertising) erode the profitability of a typical firm in this industry?

	Characterization (Current)	Future trend
Degree of seller concentration?	Medium	High
Rate of industry growth?	High	High
Significant cost differences among firms?	High	High
Excess capacity?	Medium	High
Cost structure of firms: sensitivity of costs to  capacity utilization?	Medium to High	High
Degree of product differentiation among sellers? Brand loyalty to existing sellers? Cross-price elasticities  of demand among competitors in industry?	Medium	High
Buyers' costs of switching from one competitor to another?	Low	Medium
Are prices and terms of sales transactions observable?	Medium	High
Can firms adjust prices quickly?	High	High
Large and/or infrequent sales orders?	High	High
Use of "facilitation practices" (price leadership, advance announcement of price changes)?	High	High
History of "cooperative" pricing?	Medium	Medium
Strength of exit barriers?	Medium	High

FACTORS AFFECTING THE THREAT OF ENTRY

To what extent does the threat or incidence of entry work to erode the profitability of a typical firm in this industry?

	Characterization (Current)	Future trend
Significant economies of scale?	Medium to High	High
Importance of reputation or established brand loyalties in purchase decision?	High	High
Entrants' access to distribution channels?	Medium	Medium
Entrants' access to raw materials?	Medium	Medium
Entrants' access to technology/know-how?	Low	Medium
Entrants' access to favorable locations?	Low
Experience-based advantages of incumbents?	Low	Medium
"Network externalities": demand-side advantages to incumbents from large installed base?	Medium	Medium
Government protection of incumbents?	Medium	Medium
Perceptions of entrants about expected retaliation of incumbents/reputations of incumbents  for "toughness"?	Low	Medium

FACTORS AFFECTING OR REFLECTING PRESSURE FROM SUBSTITUTE PRODUCTS AND SUPPORT FROM COMPLEMENTS

To what extent does competition from substitute products outside the industry erode the profitability of a typical firm in the industry?

	Characterization (Current)	Future trend
Availability of close substitutes?	Low	Low
Price-value characteristics of substitutes?	Low	Low
Price elasticity of industry demand?	Low	Low
Availability of close complements	Medium	High
Price-value characteristics of complements?	Medium	High

FACTORS AFFECTING OR REFLECTING POWER OF INPUT SUPPLIERS

To what extent do individual suppliers have the ability to negotiate high input prices with typical firms in this industry? To what extent do input prices deviate from those that would prevail in a perfectly competitive input market in which input suppliers act as price takers?

	Characterization (Current)	Future  trend
Is supplier industry more concentrated than industry it sells to?	High	High
Do firms in industry purchase relatively small volumes relative to other customers of supplier? Is typical firm's purchase volume small relative to sales of typical supplier?	Medium	High
Few substitutes for suppliers' input?	Low	Low
Do firms in industry make relationship-specific investments to support transactions with specific suppliers?	Medium	High
Do suppliers pose credible threat of forward integration into the product market?	Low to Medium	Medium to High
Are suppliers able to price discriminate among prospective customers according to ability/willingness to pay for input?	Low	Medium

FACTORS AFFECTING OR REFLECTING POWER OF BUYERS

 To what extent do individual buyers have the ability to negotiate low purchase prices with typical firms in this industry? To what extent do purchase prices differ from those that would prevail in a market with a large number of fragmented buyers in which buyers act as price takers?

	Characterization (Current)	Future  trend
Is buyers' industry more concentrated than industry it purchases from?	Low	Low
Do buyers purchase in large volumes? Does a buyer's purchase volume represent large fraction of typical seller's sales revenue?	Low	Low
Can buyers can find substitutes for industry's product?	Low	Low to Medium
Do firms in industry make relationship-specific investments to support transactions with specific buyers?	Low	Medium
Is price elasticity of demand of buyer's product high or low?	Low	Low
Do buyers pose credible threat of backward integration?	Low	Low
Does product represent significant fraction of cost in buyer's business?	Low	Low
Are prices in the market negotiated between  buyers and sellers on each individual transaction or do sellers "post" a "take-it- or-leave it price" that applies to all transactions?	Low to Medium	Medium

CONCLUSION

FORCE	CHARACTERIZATION (CURRENT)	FUTURE TREND
FACTORS AFFECTING RIVALRY AMONG EXISTING COMPETITORS	MEDIUM TO HIGH	HIGH
FACTORS AFFECTING THE THREAT OF ENTRY	LOW	MEDIUM
FACTORS AFFECTING OR REFLECTING PRESSURE FROM SUBSTITUTE PRODUCTS AND SUPPORT FROM COMPLEMENTS	LOW	LOW
FACTORS AFFECTING OR REFLECTING POWER OF INPUT SUPPLIERS	MEDIUM	HIGH
FACTORS AFFECTING OR REFLECTING POWER OF BUYERS	LOW	LOW