Read CASE 14: THE BOSTON BEER COMPANY: POISED FOR GROWTH C99 to C110 1. Apply Porter’s Five Forces on the general Beer Industry. The threat of new entrants: The bargaining power of buyers: The bargain

©McGraw -Hill Education. Analysis of the industry environment Porter’s 5 Forces ©McGraw -Hill Education. The Competitive Environment The competitive environment consists of factors in the task or industry environment that are particularly relevant to a firm’s strategy. • Competitors (existing or potential) • Including those considering entry into an entirely new industry • Customers (or buyers) • Suppliers • Including those considering forward integration ©McGraw -Hill Education. Porter’s Five Forces Model of Industr y Competition Exhibit 2.4 Porter’s Five Forces Model of Industry Competition Source: From Michael E. Porter, “The Five Competitive Forces That Shape Strategy,” Special Issue on HBS Centennial.. Harvard Business Review 86, No. 1 (January 2008), 78 -93. Reprinted with permission of Michael E. Porter. Jump to Appendix 1 for long description. ©McGraw -Hill Education. The Threat of New Entrants The threat of new entrants – possibility that the profits of established firms in the industry may be eroded by new competitors. Depends on existing barriers to entry: • Economies of scale • Product differentiation • Capital requirements • Switching costs • Access to distribution channels • Cost disadvantages independent of scale ©McGraw -Hill Education. Question You are considering opening a new pizza restaurant in your community. What would be the threat of new entrants ? ©McGraw -Hill Education. The Bargaining Power of Buyers Buyers have bargaining power. Buyers can force down prices, bargain for higher quality or more services, or play competitors against each other . ▪ Buyers are oftentimes not the end consumers! Buyer groups are powerful when: • Purchasing standard products in large volumes. • Profits are low & switching costs are few. • Backward integration is possible. • Buyer’s product quality is not affected by industry product. ©McGraw -Hill Education. The Bargaining Power of Suppliers Suppliers can exert bargaining power by threatening to raise prices or reduce the quality of purchased goods and services. Supplier groups are powerful when: • Only a few firms dominate the industry. • There is no competition from substitute products. • Suppliers sell to several industries. • Buyer quality is affected by industry product. • Products are differentiated & have switching costs. • Forward integration is possible. ©McGraw -Hill Education. The Threat of Substitute Products & Ser vices Substitute products & services limit the potential returns of an industry. • Substitutes come from another industry, not the same industry. • Substitutes can perform the same function as the industry’s offerings. • Substitutes place a ceiling on prices that firms in an industry can profitably charge.  The more attractive the price/performance ratio, the more the substitute erodes industry profits. ©McGraw -Hill Education. The Intensity of Rivalr y among Competitors in an Industr y Rivalry tactics include price competition, advertising battles, new product introductions, increased customer service or warranties. Interacting factors lead to intense rivalry when: • Numerous or equally balanced competitors • Slow industry growth • High fixed and/or storage costs • Lack of differentiation or switching costs • Capacity augmented in large increments • High exit barriers