THE INDUSTRY ENVIRONMENT The forces of competition model, otherwise known as the " five forces of

competition" was popularized by Michael Porter, a prominent figure in competitive

the industry environment is the external environment layer where the trends and changes
strategy formulation.
are easily and immediately felt by the business.
The five forces competing within the industry are as follows:
Industry forces include the following:
1. potential New entrants
2. Buyers
1. GOVERNMENT - Refers to the system or institution that handles the affairs of a 3. Substitute products
4. Supplier
particular country.The different types and classification of government: Democracy, 5. Rivalry among existing firms
Autocracy, Republic, Monarchy or Dictatorship. However, in the revised model, Michael Porter has added " Other Stake Holders" as
2. SUPPLIERS - Refer to individual persons or companies that provide the required another forces.
materials parts or services to the business. The entrepreneur must define the criteria
in the process of selecting the suppliers such as: The quality of the goods or services, COMPETITIVE FORCES MATRIX
Terms of payment, stability, Ability to respond to urgent needs and proximity of the
location. After all the competitive forces have been identified, the entrepreneur can plot them
3. COSTUMERS - Are the buyers of goods or services produced or rendered by the using the Competitive forces matrix.
business.
4. COMPETITORS - Are the forces existing in the industry environment that produce sell Barriers to the Five Forces of Competition
or render products or services which are similar to those of the business.
1. POTENTIAL NEW ENTRANT
Competitors can be classified as direct or indirect. Direct competitors produce and
sell similar products or services. while Indirect competitors produce and sell New entrant refers to one competitive force in the industry. It is a threat to the
substitute products.
business.The intensity of its threat will be effected by the presence of the
5. EMPLOYEES - Are the workers of the business who are highly responsible for
the production of goods or delivery of services to the consumers. The following barrier:
employees are selected according to their educational background, 1. Strict government policy
2. Substantial capital requirement
character, experience, skills, competencies. 3. Economies fo scale
6. CREDITORS - Refer to banks, financial institutions, and financial 4. High cost of product differentiation
5. High switching cost
intermediaries engaged in the lending of money to the borrower usually for a 6. Difficulty in accessing distribution channels Buyers
fee or charge in the form of interest.
2. BUYERS
INDUSTRY ANALYSIS SCANNING TOOLS The buyer has a strong and magnified bargaining power in the industry.

The different forces in the industry environment must be properly evaluated and However the threat of its bargaining power will be less if the following factors
analyzed. In scanning the industry environment, the entrepreneur can use the exist:
following environmental scanning tools.
1. The buyer has the potential for backward integration.
1. SWOT model 2 The cost of switching the supplier cost is minimal.
2. Forces of competition model
3. Competitive forces matrix 3. The buyer purchases large portions of the sellers product or services.
FORCES OF COMPETITION MODEL 4. There are several suppliers available in the market.
5.The product represents a high percentage of the buyer's cost. Market identification is a strategic marketing approach and process that is intended
3. SUPPLIERS to define the specific customer of the product. There are three strategic marketing
approaches that will assist the entrepreneur in the defining the specific market of the
The intensity of the threat of the suppliers is strong if the following factors
product. These are:
hold true
1.market segmentation;
1. The product or service is unique.
2. The switching cost is very high. 2.market targeting; and
3. Suppliers in the industry are few, but the sales volume is high. 3. market positioning.
4. Substitute products are not readily available in the market.
Market segmentation is an entrepreneurial marketing strategy design primarily to
5. The supplier has the ability for forward integration.
divide the market into small segments.with the distinct needs, characteristics or
4. RIVALRY AMONG EXISTING FIRMS behavior (kotler & Armstrong, 2014).
The intensity of rivalry among existing firms in the industry is attributable to
The entrepreneur must divide the total market and focus his/her business
the following factors: strategy to a smaller market that is consider homogeneous or have similar interests,
1. Number of competing firms preferences needs, wants, and other related variables The identified market segment
will be the market that can be served better by the entrepreneurial venture based on
2. Rate of industry growth
its competencies. This entrepreneurial approach is sometimes called niche
3. Characteristics of the products or services entrepreneurial marketing. There are no strict rules as to how the market will be
4. Amount of fixed cost divided other than the assurance that the smaller segments must be homogeneous.
5. Increased capacity The commonly used methods for segmenting the market are:
6. Diversity of rivals
1. geographic segmentation

2. demographic segmentation

5. SUBSTITUTE PRODUCTS 3. psychological segmentation

The substitute products can pose great threats in the industry environment if 4. behavioral segmentation
the following factors are present:
GEOGRAPHIC SEGMENTATION
1. The price of the substitute product is substantially lower.
In geographic segmentation the total market is divided according to geographical
2. Preferences and tastes of customers easily change.
location in the Philippines like provincial regions, cities, provinces, municipalities, and
3. The quality of substitute products dramatically improves. even barangay units. When the entrepreneur divides the total market into a smaller
LESSON 1: MARKET SEGMENTATION segment using geographical segmentation, the following variables must be
considered.
1. climate 5. Knowledge and awareness

2. dominant ethnic group 6. Brand concept

3. culture 7. Lifestyle

4. density (either rural or urban) BEHAVIORAL SEGMENTATION

5. classification of the geographical unit. In behavioral segmentation the market is divided based on the following variables:

DEMOGRAPHIC SEGMENTATION 1. Perceptions

In demographic segmentation the market is divided based on the demographic 2. Knowledge

variables of the consumers. The common demographic variables are the following:
3. Reactions
1. Gender
4. Benifits
2. Age
5. Loyalty
3. Income
6. Responses
4. Occupation
POINTS TO CONSIDER IN SEGMENTATION
5. Education
Market segmentation is a strategy that can assist the entrepreneur in identifying the
6. Religion particular homogeneous segment to serve. After all the consumer population in its
entirety basically has different attitudes, characters,perceptions, inclinations, or
7. Ethnic group responses.
8. Family size The following important factors must be considered in segmenting the market:
PSYCHOLOGICAL SEGMENTATION 1. Accessibility of the market segment.
In psychological segmentation the market is divided in terms of what the customers 2. Size of the market segment
think and believe. It is based on the following variables:
3. Distinction of the market segment. Reporter: Mama,Jasmein D.
1. Needs and wants

2. Attitude

3. Social class

4. Personality traits