PORTER'S FIVE FORCES MODEL

Definition: Porter’s five forces model, refers to a framework based on the competitive analysis, introduced by Harvard Business School Prof. Michael E. Porter. The model determines the intensity of competition in any industry is a mix of five competitive factors operating in different areas of the whole market.

The framework is an outside-in strategy tool for the business unit that evaluates the attractiveness (profitability) of an industry. Thus, helps the business-persons to identify existing and potential lines of business.

It is a useful tool for accurately diagnosing important competitive elements in the market, as well as determining the strength and significance of each five forces.

Threat Of New Entrants: Potential entrant is the major source of competition in the industry. The product range, quality, capacity, etc. brought by them, increases competition. The size of the new entrant plays a major role here, i.e. the bigger the entrant, the more intense is the competition. Moreover, the prices are slashed, and the overall profitability of existing players is also affected, by the new entry.

It analyses the ease of entry to the new market, i.e. if the entry is easy, then the level of competition in the industry is severe.

Bargaining Power Of Suppliers: Suppliers, also exert substantial bargaining power over the firms, by threatening to increase prices or degrade quality. They are likely to exercise power if:

§        The number of suppliers in the industry is limited in number.

§       They offer the specialized product.

§       The supplier’s product is an important input, to the buyer’s product.

§       The product has a few substitutes.

Thus, the factor analyses bargaining power of industry suppliers, which directly affects the profitability, i.e. the higher the cost, the lesser is the profitability.

Bargaining Power Of Customers: The market of outputs, i.e. the customers have the ability to compete with the supplying industry and put the companies under pressure, by forming groups or cartels. This force not only affects the prices but also influences the producer’s cost and investments in certain circumstances, as the powerful buyers influence producers to offer better quality which involves cost and investment.

Buyer groups are likely to exercise power if, they are concentrated, products are homogeneous, the switching cost is low, and full information is available.

Threat From Substitutes: It is the quiescent source of competition, present in the industry. They are the key cause of competition in many industries. Substitute products are offered at reasonable prices along with high quality, to the customers can radically change the competitive scenario of industry, especially, when the introduction is sudden.

Rivalry among current players: Last but not the least, is the rivalry among current players, which is all that is known as competition. It can be shown in a number of ways such as:

§       Price competition

§      Advertising battles

§      New introductions

§      Improving quality

§      Increasing consumer warranties.

So, this factor analyses, how ruthless the competition is, by identifying the existing player and marketing down their moves and activities. The competition is said to be acute when, there are a few sellers, offering similar products to the customers because it is easy for buyers to switch to the one offering product at low prices.

Therefore, the model is all about taking offensive and defensive actions, to create and maintain a competitive position in the market and to cope with the challenges (five forces) successfully.

ACQUISITIONS-MERGERS IN 2016

1. Softbank (Japan) acquired ARM Holdings (Britain)

 CEO of Softbank is Simon Segars

 (ARM Holdings plc is a multinational semiconductor and software design company)

SoftBank Group Corp. is a Japanese multinational telecommunications and Internet corporation established on September 3, 1981, and headquartered in Tokyo, Japan.

CEO: Masayoshi Son (Feb 1986)

Founder: Masayoshi Son

Former CEO: Nikesh Arora resigned from this post in june 2016

2. Microsoft acquired LinkedIn

3. Marriott International acquired Starwood

Starwood Hotels and Resorts Worldwide, Inc. is an American hotel and leisure company headquartered in Stamford, Connecticut.

Headquarters: Stamford, Connecticut, United States

CEO: Thomas B. Mangas (Dec 2015–)

Owner: Marriott International

Founder: Barry Sternlicht

Founded: 1980

4. Blackstone acquired 60% Emphasis

The Blackstone Group L.P. is an American multinational private equity, alternative asset management and financial services corporation based in New York City.

5. Myntra acquired Jabong (owned by Global fashion Group)

Flipkart-owned Myntra on Tuesday said it has acquired Jabong from Global Fashion Group, a move that will mark further consolidation in India’s booming e-commerce industry. Myntra, which itself was acquired by Flipkart in 2014 in an estimated Rs 2,000 crore deal, will have access to a combined base of 15 million monthly active users.

6. Bayer Corp merged with Monsanto (Agri sector)

7. Max life merged with HDFC life

8. Aircel Merged with Reliance communication

MONEY MARKET/CAPITAL MARKET

Money Market: The market where monetary assets such as commercial paper, certificate of deposits, treasury bills, etc. which mature within a year, are traded is called money market. It is the market for short-term funds. No such market exist physically; the transactions are performed over a virtual network, i.e. fax, internet or phone.

Capital Market: The market where medium and long term financial assets are traded is a capital market. It is divided into two types:

   Primary Market: A financial market, wherein the company listed on an exchange, for the first time, issues new security or already listed company brings the fresh issue.

 Secondary Market: Alternately known as Stock market, a secondary market is an organised marketplace, wherein already issued securities are traded between investors, such as individuals, merchant bankers, stock brokers and mutual funds

PRICE ELASTICITY OF DEMAND

Price elasticity of demand (PED) measures the responsiveness of demand after a change in price.

Price elasticity of demand (PED): % change in quantity demand

                                                     % change in price

Price Elastic Demand

Definition: Demand is price elastic if a change in price leads to a bigger % change in demand; therefore the PED will therefore be greater than 1.

Goods which are elastic, tend to have some or all of the following characteristics.

1.      They are luxury goods, e.g. sports cars

2.      They are expensive and a big % of income e.g. sports cars and holidays

3.      Goods with many substitutes and a very competitive market. E.g. if Sainsbury’s put up the price of its bread there are many alternatives, so people would be price sensitive.

4.      Bought frequently

Price Inelastic Demand

These are goods where a change in price leads to a smaller % change in demand; therefore PED <1 e.g. – 0.5

·         Inelastic demand PED <1 – Perfectly inelastic PED =0

Goods which are inelastic tend to have some or all of the following features:

1.      They have few or no close substitutes, e.g. petrol, cigarettes.

2.      They are necessities, e.g. if you have a car, you need to keep buying petrol, even if price of petrol increases

3.      They are addictive, e.g. cigarettes.

4.      They cost a small % of income or are bought infrequently.

·         In the short term demand is usually more inelastic because it takes time to find alternatives

·         If the price of chocolate increased demand would be inelastic because there are no alternatives, however if the price of Mars increased there are close substitutes in the form of other chocolate therefore demand will be more elastic.

Unitary Elastic Demand

Where PED is =1, i.e the change in quantity demanded is in the same proportion as the change in price.

Using Knowledge of Elasticity

1. If demand is inelastic then increasing the price can lead to an increase in revenue. This is why OPEC try to increase the price of oil.

2. If demand is elastic, firms would be unlikely to increase revenue as this could lead to a fall in revenue. Instead they could try advertising to increase brand loyalty and make demand more inelastic

3. Price Discrimination. Some people pay higher prices for tickets for trains because there demand is more inelastic.

4. Tax incidence. If demand is price inelastic, then a higher tax will lead to higher prices for consumers (e.g. tobacco tax). The tax incidence will mainly be borne by consumers. If demand is price elastic, firms will face a bigger burden, and consumers will have a lower tax burden.

BRAND LOYALTY- PATTERNS BY PHILIP KOTLER

Brand loyalty is defined as positive feelings towards a brand and dedication to purchase the same product or service repeatedly now and in the future from the same brand, regardless of a competitor’s actions or changes in the environment.

Benefits:

Brand loyalty has shown to profit firms by saving them a lot of money. Benefits associated with loyal consumers include:

·         Acceptance of product extensions.

·         Defense from competitors cutting of prices.

·         Creating barriers to entry for firms looking to enter the market.

·         Customers willing to pay high prices.

·         Existing customers cost much less to serve.

·         Potential new customers.

Generally speaking, brand loyalty will increase profit over time as firms do not have to spend as much time and money on maintaining relationships or marketing to existing consumers. Loyal long-term customers spend more money with a firm.

 Philip Kotler, again, defines four patterns of behavior regarding brand loyalty

1.     Hard-core Loyals - who buy the brand all the time.

2.     Split Loyals - loyal to two or three brands.

3.     Shifting Loyals - moving from one brand to another.

4.     Switchers - with no loyalty

BLUE OCEAN STRATEGY

Rather than competing within the confines the existing industry or trying to steal customers from rivals in the HBR of October 2004 W.Chan Kim and Renee Mauborgne suggest Blue Ocean Strategy: Developing uncontested market space that makes the competition irrelevant.

According to Kim and Mauborgne, competing in overcrowded industries is no way to sustain high performance. The Opportunity is to create blue oceans of uncontested market space. Ofcourse competition matters. But by focusing on competition and competitive advantage, according to Kim and Mauborgne, schloars, companies and consultant have ignored two very important and far more lucrative – aspects of strategy:

One is to find and develop blue oceans, and the other is to exploit and protect blue oceans. These 

challenges are very different from those to which strategists have devoted most of their attention.

In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.

There are two ways to create blue oceans:

One is to launch completely new industries, as eBay did with online auctions. It is more common for a blue ocean to be created from within and a red ocean when a company expands the boundaries of an existing industry. Certainly Kim and Mauborge deserve credits for having made the point of the over focus on competitive advantage and also for their beautiful metaphor of the two types of oceans. Hopefully, the authors will provide more specific tools to find, create, develop, exploit and protect blue oceans in their forthcoming book.

Red Ocean Strategy	Blue Ocean Strategy
Compete in existing market space.	Create uncontested market space.
Beat the competition	Makes competition irrelevant
Exploit existing demand	Create and capture new demand
Make the value/cost trade-off	Break the value/cost trade-off
Align the whole system of a company’s activities with its strategic choice of differentiation or low cost.	Align the whole system of a company’s activities in pursuit of differentiation and low cost

SERVQUAL OR GAP MODEL

The SERVQUAL Model is an empiric model by Zeithaml, Parasuraman and Berry to compare service quality performance with customer service quality needs. It is used to do a gap analysis of an organization’s service quality performance against the service quality needs of its customers. That’s why it’s also called the GAP model.

It takes into account the perceptions of customers of the relative importance of service attributes. This allows an organization to prioritize.

There are five core components of service quality:

1. Tangibles – physical facilities, equipment, staff appearance, etc.

2. Reliability – ability to perform service dependably and accurately.

3. Responsiveness – willingness to help and respond to customer need.

4. Assurance – ability of staff to inspire confidence and trust.

5. Empathy – the extent to which caring individualized service is given

SERVQUAL OR GAPS MODEL

The four themes that were identified by the SERVQUAL developers were numbered and labelled as:

1. Consumer expectation – management perception gap (Gap 1): Management may have inaccurate perceptions of what consumers (actually) expect. The reason for this gap is lack of proper market/customer focus. The presence of a marketing department does not automatically guarantee market focus. It requires the appropriate management processes, market analysis tools and attitude.

2. Service quality specification gap (Gap 2): There may be an inability on the part of the management to translate customer expectations into service quality specifications. This gap relates to aspects of service design.

3. Service delivery gap (Gap 3): Guidelines for service delivery do not guarantee high-quality service delivery or performance. There are several reasons for this. These include: lack of sufficient support for the frontline staff, process problems, or frontline/contact staff performance variability.

4. External communication gap (Gap 4): Consumer expectations are fashioned by the external communications of an organization. A realistic expectation will normally promote a more positive perception of service quality. A service organization must ensure that its marketing and promotion material accurately describes the service offering and the way it is delivered

5. These four gaps cause a fifth gap (Gap 5), which is the difference between customer expectations and perceptions of the service actually received Perceived quality of service depends on the size and direction of Gap 5, which in turn depends on the nature of the gaps associated with marketing, design and delivery of services.So,Gap 5 is the product of gaps 1, 2, 3 and 4. If these four gaps, all of which are located below the line that separates the customer from the company, are closed then gap 5 will close.

IBPS SPECIALIST (Marketing officer)-2012 QUESTION PAPER

1.    The stages of the product life cycle in chronological order is:

1.    Introduction, growth, maturity, decline

2.    Introduction, growth. maturity, stagnation, decline

3.    Introduction, maturity, decline

4.    Introduction, maturity. stagnation, decline

5.    None of these

2.    The key to competitive advantage is_differentiation.

1.    Position

2.    Product

3.    Conformance

4.    Customer Consulting

5.    None of these

3.    The functions of the distribution (marketing) channel are

1.    To gather market information/to promote and spread persuasive communications/physical proximity to consumer/matching the buyers’ needs/negotiate and settle the final price.

2.    To provide the consumers with the required technical information about the products /physical distribution to consumers /acquire and use funds for financing the channel/intermediaries provide the deposit or buy the goods on cash basis./Assume the risk of carrying out the channel tasks.

3.    To bring the product ownership to the final buyer.

4.    both 1 and 2

5.    None of these

4.    Which of the following is not a “market follower” strategy?

1.    Counterfeiter

2.    Adapter

3.    Initiator

4.    Cloner

5.    None of these

5.    ___is registering, trafficking in, or using a domain name with bad faith intent to profit from the goodwill of a trademark belonging to someone else.

1.    Email marketing

2.    Cyber squatting

3.    Web scraping

4.    Web spidering

5.    None of these

6.    Features of channels of banking are

1.    Intangibility/inseparability from the seller/variability in customer expenses

2.    Perishability and non-storability/personal contacts with clients

3.    Banking services have no physical and personal channels of distribution.

4.    Combination of (1)  and (2)

5.    None of these

7.    The client of advertising agent is called:

1.    Customer

2.    Major

3.    Corporate

4.    Account

5.    None of these

8.    The components of Promotion mix are-

1.    Advertising; a paid form of non-personal promotion/personal selling; personal presentation to prospective clients.

2.    Sales campaign to encourage sales/public relations; for building good relations with clients/direct marketing; is making direct connect with individual customers.

3.    Sampling and coupons

4.    Both 1 and 2.

5.    None of these.

9.    What are the main features of Marketing System (MIS)?

1.    Creation of master plan for information flow,coordination between functional departments and specialist executives,future orientation for anticipating and preventing marketing problems and solving them.

2.    Facilitation for developing decisions in planning, organizing ,controlling and initiating.

3.    Decision making,organising and controlling the major activities of the business and initiating action.

4.    All of the above.

5.    None of these.

10. ____ include medical specialist and legal advisors.

1.    Speciality services

2.    Speciality products

3.    Primary services

4.    Secondary services

5.    None of these

11. The _____ represents our expectations of the general need for the Item during the lead time.

1.    Reorder point

2.    Safety stock quantity

3.    Reordering policy

4.    Reordering cycle

5.    None of these

12. _____ is the principle of organization of a region around several political, social or financial centres.

1.    Ethnocentrism

2.    Polycentrism

3.    Marketing expansion

4.    Gobal marketing

5.    None of these

13. Material culture is divided into two parts :

1.    Language, Aesthetics

2.    Technology, Economics

3.    Education Religion

4.    Attitudes, Values

5.    None of these

14. Identify the group name, whose mission statement is : “To become a major player in the global chemical business and simultaneously growth in other growth industries like infrastructure”

1.    Reliance

2.    Tata

3.    Bharti enterprises

4.    Kotak Mahindra

5.    None of these

15. Distinction between marketing and selling is

1.    Marketing relates to producing or creating goods or services needed by the customers while in selling the objective is to sell whatever is available.

2.    Marketing is operational activity whereas the selling is a total management concept.

3.    Marketing is product focused while selling is customer focused.

4.    Marketing is oriented to the needs of the seller whereas selling is oriented to the needs of the buyer.

5.    None of these

16. Which one is true in respect of bank marketing?

1.    Bank marketing deals with providing services to satisfy customers’ financial needs and wants.

2.    Bank marketing has to discover/ascertain/anticipate the financial needs of the corporates.

3.    Bank marketing may be required to satisfy the corporates, and institutions, other related needs and wants.

4.    Bank marketing means competitive element, efficiency and effectiveness in the process.

5.    None of these

17. CRM Is a short form of:

1.    Customer Relationship Management

2.    Company Resource Marketing

3.    Consumer Reaching Marketing

4.    Customer Relationship Marketing

5.    None of these

18. What are the objectives of pricing?

1.    Profit optimisation, adjustment of prices due to competition, increasing the market share, improved cash flows to avoid cash crunch, stabilisation of demand and sales, improvement in product quality, communicates an image of the value.

2.    Understanding with price cartels, bargaining power of suppliers, government controls and regulations. buyers’ behaviour, customer demand and competition.

3.    Price elasticity of the demand of the product, cost of manufacturing the product, characteristics of the product.

4.    Combination of  (2) and  (3)

5.    None of these

19. Segmentation of consumer markets is based on

1.    Consumer characteristics

2.    Consumer responses

3.    Consumer challenges

4.    Both  (1) and (2)

5.    None of these

20. Is the latest-buzzword in corporate boardrooms.

1.    Service quality

2.    Service sector

3.    Service industry

4.    All of the above

5.    None of these

21. Relatively large. low-cost, low-margin high-volume, self service operations etc.

1.    Super market

2.    Discount store

3.    Department store

4.    Convenience store

5.    None of these

22. Distribution mix refers to:

1.    Selection of different distribution channels like Dis., tribution – Wholesaler Retailers Consumer etc.

2.    Selection of sales promotion techniques, Advertis- 2 ing, Sales – promotion, personal selling etc.

3.    Selection of pre-sales during sales after sales service etc.

4.    All of the above

5.    None of these

23. Market Research is useful for

1.    deciding proper marketing strategies

2.    deciding the selling price

3.    choosing the right products

4.    choosing the sales persons

5.    All of these

6.    None of these

24. N = S/P ( 1 + T) indicates the:

1.    Work load method

2.    Sales potential method

3.    Incremental method

4.    Sales budget

5.    None of these

25. A ‘call’ means

1.    shout out to somebody

2.    a profession or business

3.    visit friends

4.    visiting prospective customers

5.    after- sales reserve

26. A bank expects fall in price of a security if it sells it in the market. What is the risk that the bank is facing?

1.    Market risk

2.    Operational risk

3.    Asset Liquidation risk

4.    Market liquidity risk

5.    None of these

27. When a company acquires a supplier through an acquisition strategy. this is referred to as

1.    Vertical marketing system

2.    Forward integration

3.    Horizontal integration

4.    Backward integration

5.    None of these

28. Charles Revson of Revlon observed: “In the factory, we make cosmetics; in the store.

1.    we make profits

2.    we challenge competitors

3.    we implement ads

4.    we sell hope

5.    None of these

29. Mohan Sawhney has proposed the concept of ____ to describe a cluster of complementary products and services that are closely related in the minds of consumers but are spread across a diverse set of industries.

1.    Metamarket

2.    vertical integration

3.    horizontal integration

4.    Betamarket

5.    None of these

30. What is the meaning of “Conversion”?

1.    meeting a prospective client

2.    interacting with a prospective client

3.    converting an employer into an employee

4.    converting a seller to a buyer

5.    converting a prospective client into a buyer

31. What is the meaning of “Customization”?

1.    acquiring more customers

2.    regulating customers

3.    special products to suit each customer

4.    more products per customer

5.    All of these

32. What is a logo?

1.    Pictoral representation of what the company stands for

2.    Graphic or emblem used by a company to trigger in- stant recall

3.    The short form of the name of the company

4.    All kinds of advertisements used by the company

5.    None of these

33. Diffusion of Innovations is a theory that seeks to explain how, why, and at what rate new ideas and technology spread through cultures. The adopters of these innovations are categorised in five categories. Which of the following is incorrect?

1.    Early adopters

2.    Early majority

3.    Late adopters

4.    Late majority

5.    None of these

34. Modern styles of marketing include(s)

1.    digital marketing

2.    tele-marketing

3.    e-commerce

4.    e-mails solicitation

5.    All of these

35. e-Marketing is same as:

1.    virtual marketing

2.    digital marketing

3.    real time marketing

4.    All of these

5.    None of these

36. What is the meaning of Value added services?

1.    costlier products

2.    larger number of products

3.    additional services

4.    at par services

5.    None of these

37. The irst Hypermarket was started by ___.

1.    Walmart

2.    Carrefour

3.    Casino

4.    The dolla store

5.    None of these

38. What is the first step of sales process?

1.    Lead generation

2.    Convincing the buyer

3.    Selling the product

4.    Showing a product

5.    None of these

39. Core competence of a company helps it to:

1.    Maintain an edge over its competitors

2.    Position its product better

3.    Price its product better

4.    All of these

5.    None of these

40. Aggressive Marketing is necessitated because of ____.

1.    globalisation

2.    increased competition

3.    increased production

4.    increased job opportunities

5.    All of these

41. Consumer research takes place at ____ stage.

1.    Before purchase

2.    After purchase

3.    During the purchase

4.    All of these

5.    None of these

42. SWOT analysis does not contain _____.

1.    Strength

2.    Weakness

3.    Opportunity

4.    Talent

5.    None of these

43. Efficient marketing style requires

1.    proper planning

2.    good communication skills

3.    team work

4.    knowledge of products

5.    All of these

44. The performance of a sales person depends on

1.    salary paid

2.    sales incentives paid

3.    size of the sales team

4.    ability and willingness of the sales person

5.    team leader’s aggressiveness

45. What is the sole aim of marketing?

1.    Increase sales

2.    Increase the number of employees

3.    Increase profits

4.    Increase production

5.    All of these

46. Which among the following is not part of the “4Ps”?

1.    Product

2.    Price

3.    Profit

4.    Promotion

5.    None of these

47. Porter’s Five Force Models includes:

1.    Bargaining power of customer

2.    Advertising

3.    Threat of substitute product

4.    Bargaining power of suppliers

5.    None of these

48. The Letter “T” in PEST stands for :

1.    Treats

2.    Technological

3.    Teacher

4.    Table

5.    None of these

49. Brad Loyalty is defined by Kotler in for behaviour pattern. Which of the following is not part of them.

1.    Hard Core Loyals

2.    Shifters

3.    Semi Loyals

4.    Shifting Loyals

5.    None of these

50. What is meant by “Lead generation”?

1.    Tips for selling tactics

2.    Tips for better production

3.    Generate leaders

4.    Likely sources for prospective clients

5.    All of these