In any industry your ability to maintain the profitability of your product depends on its position in the market. In this session we will discuss the importance of understanding five powerful competitive forces that can quickly erode your product's revenue and profitability. You will learn insights on how to use Porter's competitive forces model to help you determine the competitive intensity and attractiveness of a market. This is useful to help you understand both the strength of your product's current competitive position and the strength of a position you're considering moving into. About the Speaker Hector Del Castillo has over 15 years of experience transforming ideas to products, and products to wealth for technology-based companies by building and directing high performing product teams, improving core business processes and establishing strategic partnerships. He has launched several profitable technology-based products and solutions. He provides services as a consultant, contractor, coach, or trainer to companies that want to grow by strengthening their product portfolio and creating new revenue streams. Feel free to reach out to Hector if you have any questions regarding this topic: http://linkd.in/hdelcastillo. Upcoming Events Would you like to lead innovation efforts within your company? Attend upcoming product innovation courses. Visit: http://bit.ly/CILCourse Want To Certify Your Team? If you have a product team of 10 or more that you want to certify, contact AIPMM at certification@aipmm.com. About AIPMM The AIPMM is the trusted authority for product management knowledge. It is where product professionals go for answers. With members in over 75 countries, it is the worldwide certifying body of product leaders. It is the world's largest professional organization of product managers, brand managers, product marketing managers and other product team professionals who are responsible for guiding their organizations, or clients, through a constantly changing business landscape. AIPMM's certification programs are internationally recognized because they allow product professionals to demonstrate their expertise and provide corporate members an assurance that their product management and marketing teams are operating at a high competency level. Visit http://www.aipmm.com. Call For Speakers: http://bit.ly/1b006vm Subscribe: http://www.aipmm.com/subscribe Articles: http://www.aipmm.com/html/newsletter/article.ph Membership: http://www.aipmm.com/join.php

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Today’s Speaker
Presenter:
Hector Del Castillo, CPM, CPMM
Product Innovation Consultant
linkd.in/hdelcastillo
@hmdelcastillo
hmdelcastillo@aipmm.com
Moderator:
Cindy F. Solomon, CPM, CPMM @cindyfsolomon

6. © 2014 H. Del Castillo, All Rights Reserved.
Hector Del Castillo
linkd.in/hdelcastillo

7. © 2014 H. Del Castillo, All Rights Reserved.
What We Will Discuss
1. Porter’s Five Forces Model
2. How To Use It
3. Key Takeaways

8. © 2014 H. Del Castillo, All Rights Reserved.
What you want out of this webcast
• Learn new approaches for competitive
analysis
• Understanding common product killers
• Learn tips and tools for success
Today’s Topic
How To Use Porter’s Five Forces Model

9. © 2014 H. Del Castillo, All Rights Reserved.
Which of these best describes you?
• I often use Porter's competitive forces model
• I seldom use Porter's competitive forces
model
• I've heard about it, but never used it
• What's Porter's competitive forces model?

10. © 2014 H. Del Castillo, All Rights Reserved.
Gain strong understanding of the
external marketing environment
in which your company operates.

11. © 2014 H. Del Castillo, All Rights Reserved.
• What’s going on out there in
your industry?
• What matters most to remain
competitive?
• What deserves your attention?

12. © 2014 H. Del Castillo, All Rights Reserved.
A framework for analyzing an
industry in order to develop a
business strategy

13. © 2014 H. Del Castillo, All Rights Reserved.
5 Forces That Shape Competition
Source: “Competitive Strategy: Techniques for Analyzing Industries and Competitors,” June 2008, Michael E. Porter.

14. © 2014 H. Del Castillo, All Rights Reserved.
5 Competitive Forces
• The strength of competition in the industry.Competitive Rivalry
• The ease with which new competitors can enter the
market if they see that you are making good profits.Threat of New Entrants
• The extent to which different products and services
can be used in place of your own.Threat of Substitutes
• The power of your customers to drive down your
prices.Power of Buyers
• The power of suppliers to drive up the cost of your
inputs.Power of Suppliers

15. © 2014 H. Del Castillo, All Rights Reserved.
Assessing Direction and Strength
Strongly in your favor 5
In your favor 3
Somewhat in your favor 1
Neither 0
Somewhat against you -1
Against you -3
Strongly against you -5

16. © 2014 H. Del Castillo, All Rights Reserved.
Competitive Rivalry
2014
How many competitors?
What is the cost to exit the market?
What is current industry growth?
How well are products differentiated?
What is the size of current competitors?
What is current customer loyalty?
Total

17. © 2014 H. Del Castillo, All Rights Reserved.
Threat of New Entrants
2014
What is the cost to enter the market?
How can current vendors retaliate?
How well protected is current technology?
How much government regulation is there?
What are customer switching costs?
How much customer loyalty exists?
What’s needed to achieve economies of scale?
Total

18. © 2014 H. Del Castillo, All Rights Reserved.
Threat of Substitutes
2014
How many alternatives are available?
How well do alternatives perform?
What is the quality of alternatives?
What is the price for alternatives?
What is customer cost of change?
Total

19. © 2014 H. Del Castillo, All Rights Reserved.
Power of Buyers
2014
What is the number of customers?
What is the size of buyers?
What is the size of each order?
What is the buyers’ cost of switching vendors?
How many substitutes exist?
What’s the price sensitivity of buyers?
What is the threat of backward integration?
Total

20. © 2014 H. Del Castillo, All Rights Reserved.
Power of Suppliers
2014
What is the number of suppliers?
What is the size of suppliers?
What is the availability of raw materials?
Do suppliers hold scarce resources?
What is cost of changing raw materials?
What is the threat of forward integration?
Total

21. © 2014 H. Del Castillo, All Rights Reserved.
How To Perform Analysis
• Gather the information on each of the five
forces1
• Analyze the results and display them on a
diagram2
• Create actionable steps to maintain a
competitive advantage based on the
conclusions
3

22. © 2014 H. Del Castillo, All Rights Reserved.
U.S. Automotive Industry
Threat of
New
Entrants
Buyer Power
Threat of
Substitute
Products
Supplier Power
Competitive
Rivalry
Threat of New Entrants: ?
Competitive Rivalry: ?
Supplier Power: ?
Buyer Power: ?
Threat of Substitutes: ?
?
?
?
? ?

23. © 2014 H. Del Castillo, All Rights Reserved.
U.S. Automotive Industry Overview
• Light vehicle sales increased 7.5 percent over 2012,
reaching 15.532M vehicles sold in 2013 (Wards Auto,
1/3/14)
• Light trucks sales increased 10.5% in 2013, more than
twice the increase of car sales (4.9%) (IHS Automotive,
1/9/14)
• Annual sales are expected to grow at around 12% in
the next five years due to improved buyer confidence
• Average age of a light vehicle is 11.4 years
• Vendors continue to introduce fuel-efficient models
across categories
Source: Auto Alliance Trade Association, Sales Data 2013.

24. © 2014 H. Del Castillo, All Rights Reserved.
1. Competitive Rivalry
2014
How many competitors? -5
What is the cost to exit the market? -5
What is current industry growth? 3
How well are products differentiated? -5
What is the size of current competitors? -5
What is current customer loyalty? 1
Total -3

25. © 2014 H. Del Castillo, All Rights Reserved.
2. Threat of New Entrants
2014
What is the cost to enter the market? -5
How can current vendors retaliate? -5
How well protected is current technology? 0
How much government regulation is there? -3
What are customer switching costs? -3
How much customer loyalty exists? 3
What’s needed to achieve economies of scale? -5
Total -3

26. © 2014 H. Del Castillo, All Rights Reserved.
3. Threat of Substitutes
2014
How many alternatives are available? -3
How well do alternatives perform? 3
What is the quality of alternatives? 0
What is the price for alternatives? 3
What is customer cost of change? 0
Total 1

27. © 2014 H. Del Castillo, All Rights Reserved.
4. Power of Buyers
2014
What is the number of customers? 5
What is the size of buyers? -3
What is the size of each order? -3
What is the buyers’ cost of switching vendors? -3
How many substitutes exist? -5
What’s the price sensitivity of buyers? -5
What is the threat of backward integration? 0
Total -2

28. © 2014 H. Del Castillo, All Rights Reserved.
5. Power of Suppliers
2014
What is the number of suppliers? 5
What is the size of suppliers? 5
What is the availability of raw materials? 5
Do suppliers hold scarce resources? 5
What is cost of changing raw materials? -1
What is the threat of forward integration? 5
Total 4

29. © 2014 H. Del Castillo, All Rights Reserved.
U.S. Automotive Industry
Threat of
New
Entrants
Buyer Power
Threat of
Substitute
Products
Supplier Power
Competitive
Rivalry
Threat of New Entrants: -3
• Additional competitors
• Few legal barriers protect vendors
• New entrants can easily access
suppliers and materials
Competitive Rivalry: -3
• Large number of competitors
• Strong customer loyalty
• Moderate threat of M&A
Supplier Power: +4
• Large number of small
suppliers
• Raw materials are readily
available
Buyer Power: -2
• Many options to compare
within same category
Threat of Substitutes: +1
• Substitutes can rarely offer the
same convenience
• Low cost to switch
-3
-3
+1
+4 -2

30. © 2014 H. Del Castillo, All Rights Reserved.
What is the 15-year average ROIC for
U.S. automotive industry?
1. More than 15%
2. 10 to less than 15%
3. 5 to less than 10%
4. 0 to less than 5%
5. 1 to 5% loss

31. © 2014 H. Del Castillo, All Rights Reserved.
U.S. Automotive Industry
ROIC, 2013
Source: Market Watch, 2013.
Company ROIC
General Motors 9.6%
Ford 7%
Toyota 5.33%
Fiat Chrysler 2.91%
Honda 6.79%
Total 6.3%

32. © 2014 H. Del Castillo, All Rights Reserved.
U.S. Airline Industry
Threat of
New
Entrants
Buyer Power
Threat of
Substitute
Products
Supplier Power
Competitive
Rivalry
Threat of New Entrants:
Competitive Rivalry:
Supplier Power:
Buyer Power:
Threat of Substitutes:
?
?
?
? ?

33. © 2014 H. Del Castillo, All Rights Reserved.
U.S. Market
• 100 passenger airlines operate over 11 million flight
departures per year
• Carry over one‐third of the world’s total air traffic
• 745 million passengers in 2006
• $160 billion in total revenues
• 545,000 employees and over 8,000 aircraft operating
31,000 flights per day
• Commercial aviation contributes approximately 8%
of the US Gross Domestic Product
Source: Airline Industry Overview, Eric Henckels, Columbia University.

34. © 2014 H. Del Castillo, All Rights Reserved.
U.S. Airline Industry
Threat of
New
Entrants
Buyer Power
Threat of
Substitute
Products
Supplier Power
Competitive
Rivalry
Threat of New Entrants: -5
• Additional competitors from abroad
Competitive Rivalry: -5
• Large number of competitors
• Little customer loyalty
Supplier Power: -5
• Boeing, Airbus and Embraer
own majority market share
• Rising costs
Buyer Power:
• Many alternatives to buy
based on low price
Threat of Substitutes:
• Alternative modes of
transportation
• Low cost to switch
-5
-5
-5
-5 -3

35. © 2014 H. Del Castillo, All Rights Reserved.
U.S. Airline Industry
Average ROIC, 1992-2006
5.9%
Source: “The Five Competitive Forces That Shape Strategy” Michael E. Porter, Harvard Business Review Magazine, Jan 2008.

36. © 2014 H. Del Castillo, All Rights Reserved.
Global Market
• 2000 Airlines operating more than 23,000
aircraft, providing service to over 3700 airports.
• In 2006, there were 28 million scheduled flight
departures and carried over 2 billion passengers
• Growth of world air travel has averaged
approximately 5% per year over the past 30 years
• Annual growth in air travel has been about twice
the annual growth in GDP
• Expected to double over next 10 – 15 years
Source: Airline Industry Overview, Eric Henckels, Columbia University.

37. © 2014 H. Del Castillo, All Rights Reserved.
Worldwide Airline Industry
Average ROIC, 2004-2011
4.1%
Source: International Air Transport Association (IATA) Airline Profitability Report, Aug 2013.

38. © 2014 H. Del Castillo, All Rights Reserved.
Pick Your Industry
Threat of
New
Entrants
Buyer Power
Threat of
Substitute
Products
Supplier Power
Competitive
Rivalry
Threat of New Entrants:
Competitive Rivalry:
Supplier Power:
Buyer Power:
Threat of Substitutes:
?
?
?
? ?

39. © 2014 H. Del Castillo, All Rights Reserved.
How would this tool help you?
1. Identify how to position your product
2. Identify critical value chain elements
3. Identify sources of disruption
4. Compare your product’s profit with
competitors
5. Make smarter decisions about your product
portfolio

40. © 2014 H. Del Castillo, All Rights Reserved.
Practical Tips
• Use this framework to analyze established
industries
• Use it to identify macro economic trends
• Consider the dynamic/changing characteristics
of the industry
• Use it to identify the impact that government
regulation has or may have on the industry

41. © 2014 H. Del Castillo, All Rights Reserved.
Key Takeaways
• Understand the competitive landscape1
• Allows you to gauge profitability and risk2
• Can be applied to any established industry3
• Helps align business and product strategies4
• Allows you to anticipate disruption5

42. © 2014 H. Del Castillo, All Rights Reserved.
Hector Del Castillo
• Senior consultant with over 15 years of experience transforming
products to wealth for technology-based companies
• AIPMM Body of Knowledge (ProdBOK®) Contributor
• Certified instructor for AIPMM and the 280 Group
• Established companies
– Jet Propulsion Laboratory, Lucent Technologies, MEI Technologies
• Small companies and startups
– Nextone Communications, Smith Micro Software
• Launched 27+ Products for global deployment
– HW/SW, Telecom, Enterprise Mobility, Information Security Services,
Professional Development
• Certified PMP®, CPM® and CPMM®
• University of California at Santa Barbara, MS EE
• University of Texas at El Paso, MS EE, BS EE
42

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Q & A
Presenter:
Hector Del Castillo, CPM, CPMM
Product Innovation Consultant
linkd.in/hdelcastillo
@hmdelcastillo
hmdelcastillo@aipmm.com
Moderator:
Cindy F. Solomon, CPM, CPMM @cindyfsolomon

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