Threat of new entrants impact on profitability:
Easier it is for new companies to enter, the harder existing firms need to defend their market share, leading to reduced profitability through increased competition, price wars, and higher investment in customer retention.
What are the factors of Threat of new entrants?
○ Economies of scale - larger firms benefit from lower costs per unit which makes it
harder for new entrants to compete on price.
○ Capital requirements - High startup costs deter new entrants.
○ Brand loyalty and differentiation - strong brand identity or customer loyalty
discourages new entrants.
○ Access to distribution channels - difficulty in accessing key suppliers or retailers
limit new entrants.
○ Regulatory barriers - legal requirements (patents, licences) increase barriers to
entry.
What is the Threat of new entrants connection to the diamond-E?
Resources - firm needs financial capital and technological know-hows to create
entry barriers.
What are some methods to reduce the impact of new entrants?
○ Strengthen brand loyalty and customer loyalty
○ Increasing economies of scale through expansion
○ Creating partnerships with key suppliers
○ Lobbying for regulations that keep barriers high (Bell and Rogers)
Supplier power impact on profitability:
If suppliers have significant power, they can drive up input
costs or limit supply availability, squeezing margins for industry participants.
What are the supplier power factors?
Number of suppliers - if there are fewer suppliers of key inputs, their power
increases.
○ Switching costs - if it’s costly for firms to switch suppliers, their power increases.
○ Availability of substitutes - when fewer alternatives exist, suppliers can command
higher prices.
○ Importance of industry to supplier - if the industry represents a large portion of
the supplier’s revenue, they have less bargaining power.
What are methods to reduce supplier power impact?
○ Diversifying the supplier base to reduce reliance on any single supplier.
○ Developing alternative sources or in-house capabilities.
○ Building long term partnerships with suppliers for better terms.
What is the supplier power’s connection to diamond-E?
○ Resources and Organization - a firm’s ability to manage its supply chain
effectively depends on resource allocation and organizational strategy.
Buyer power impact on profitability:
Powerful buyers can demand low prices, higher quality, or additional services, which can erode profit margins.
What are the factors of buyer power?
○ Buyer concentration - if a few large buyers dominate the market, they have
leverage.
○ Price sensitivity - buyers who are highly price-sensitive can force firms to
compete on cost rather than quality.
○ Switching cost - If a buyer can easily switch suppliers with little cost, they have
more negotiating power.
○ Product differentiation - if products are standardized, buyers have more leverage
to choose between suppliers.
What are the methods to reduce buyer power?
○ Creating product differentiation to make switching less attractive.
○ Building strong relationships with customers through loyalty programs or
contracts.
○ Offering value-added services that increase switching costs.
What is the buyer power connection to the Diamond-E?
Strategy and Resource - companies must leverage strategic relationships and
resources to counter buyer power
What is the Threat of new substitutes impact of profitability?
The presence of substitutes limits the price that a company can charge.
What are the factors of Threat of new substitutes?
○ Availability of substitutes - if many exist, the threat increases (ride-sharing apps
vs taxis)
○ Switching costs - if it’s easy for customers to switch, firms are vulnerable.
○ Quality/performance of substitutes - if they offer better performance, customers
are likely to switch.
What are the factors of Threat of new substitutes?
○ Availability of substitutes - if many exist, the threat increases (ride-sharing apps
vs taxis)
○ Switching costs - if it’s easy for customers to switch, firms are vulnerable.
○ Quality/performance of substitutes - if they offer better performance, customers
are likely to switch.
What are the methods to reduce the impact of new substitutes?
○ Innovating to improve product quality or performance.
○ Increasing customer loyalty through brand strength or unique features.
○ Increase switching costs by offering bundled services or long term contracts
What is the threat of new substitutes connection to the Diamond-E?
○ Environment and Resources - firms need to understand external threats and use
resources to innovate.
What is competitive rivalry’s impact of profitability?
High competition forces companies to reduce prices, increase
investment into marketing, and spend on innovation
What are the factors of competitive rivalry?
○ Number of competitors - more competitors increase rivalry.
○ Industry growth rate - slow growth intensified rivalry as firms fight for market
share.
○ Product differentiation - if products aren’t unique, companies focus on price.
○ Fixed costs - high fixed costs drive firms to produce more and compete on prices
to cover costs.
What are some methods to reduce the impact of rivalry?
○ Creating strong brand loyalty or unique products to reduce the need to compete on
price.
○ Merging or acquiring competitors to reduce industry fragmentation.
○ Focusing on customer services or niche markets to differentiate.
What is the rivalry connection to the Diamond-E?
○ Strategy and Management Preferences - companies need to strategically manage
competitive pressures and maintain differentiation.
