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Porter’s Intensity of Rivalry DefinitionThe intensity of rivalry among
competitors in an industry refers to the extent to which firms within an industry put pressure on one another and limit each other’s profit potential. If rivalry is fierce, then competitors are trying to steal profit and
market share from one another. As a result, this reduces profit potential for all firms within the industry. According to Porter’s 5 forces framework, the intensity of rivalry among firms is one of the main
forces that shape the competitive structure of an industry. Conducting a competitor analysis can be overwhelming and confusing, but it doesn’t have to be. Download the External Analysis whitepaper to gain an advantage over competitors by overcoming obstacles and preparing to react to external forces. [button link=”https://strategiccfo.com/external-analysis?utm_source=wiki&utm_medium=button%20cta” bg_color=”#eb6500″]Download The External Analysis Whitepaper[/button] Porter’s Intensity of Rivalry Determining FactorsSeveral factors determine the intensity of competitive rivalry in an industry, whether it increases or decrease it. Porter’s Rivalry Intensity IncreasedIf the industry consists of numerous competitors, then Porter rivalry will be more intense. Whereas if the competitors are of equal size or market share, then the intensity of rivalry will increase. The intensity of rivalry will be high if industry growth is slow. If the industry’s fixed costs are high, then competitive rivalry will be intense. Additionally, rivalry will be intense if the industry’s products are undifferentiated or are commodities. If brand loyalty is insignificant and consumer switching costs are low, then this will intensify industry rivalry. Industry rivalry will be intense if competitors are strategically diverse – which means that they position themselves differently from other competitors. Then an industry with excess production capacity will have greater rivalry among competitors. And finally, high exit barriers – costs or losses incurred as a result of ceasing operations – will cause intensity of rivalry among industry firms to increase. Porter’s Rivalry Intensity DecreasedAnd of course, if the opposite is true for any of these factors, the intensity of Porter rivalry among competitors will be low. For example, the following indicates that the Porter intensity of rivalry among existing firms is low:
Porter’s Intensity of Rivalry AnalysisWhen analyzing a given industry, all of the aforementioned factors regarding the intensity of competitive rivalry Porter placed among existing competitors may not apply. But some, if not many, then certainly will. And of the factors that do apply, some may indicate high intensity of rivalry and some may indicate low intensity of rivalry; however, the results will not always be straightforward. As a result, consider the nuances of the analysis and the particular circumstances of the given firm and industry when using the data to evaluate the competitive structure and profit potential of a market. Intensity of Rivalry is High if…If any of the following occurs, then intensity of rivalry is high.
Intensity of Rivalry is Low if…If any of the following occurs, then it may indicate that the intensity of rivalry is low.
Porter’s Intensity of Rivalry InterpretationWhen conducting Porter’s 5 forces industry analysis, low intensity of rivalry makes an industry more attractive and increases
profit potential for the firms already competing within that industry. In comparison, high intensity of rivalry makes an industry less attractive and decreases profit potential for the firms already competing within that industry. The intensity of rivalry among existing firms is one of the
factors to consider when analyzing the structural environment of an industry using Porter’s 5 forces framework. [box]Strategic CFO Lab Member Extra Access your Exit Strategy Checklist Execution Plan in SCFO Lab. The step-by-step plan to maximize the value of your company. Click here to access your Execution Plan. Not a Lab Member? Click here to learn more about SCFO Labs[/box] Sources on Porter’s Intensity of Rivalry Harrison, Jeffrey S., Michael A. Hitt, Robert E. Hoskisson, R. Duane Ireland. (2008) “Competing for Advantage”, Thomson South-Western, United States, 2008. Porter, M.E. (1979) “How competitive forces shape strategy”, Harvard Business Review, March/April 1979. Porter, M.E. (1980) “Competitive Strategy”, The Free Press, New York, 1980. Porter, M.E. (1985) “Competitive Advantage”, The Free Press, New York, 1985. What increases rivalry among competing sellers?These factors can influence the existence and intensity of a competitive rivalry:. Market saturation. ... . Slow market growth. ... . High overhead. ... . Lack of differentiation. ... . Low switching costs. ... . Supply and demand. ... . Business diversity. ... . Strategic planning.. What factors determine the intensity of rivalry in any industry?The intensity of rivalry among established companies within an industry is largely a function of four factors: industry competitive structure, demand conditions, cost conditions, and the height of exit barriers in the industry (Hill and Jones, 2012).
Which of the following are factors that tend to result in weak rivalry among competing sellers?Factors that tend to result in weak rivalry among competing sellers include: B) rapid growth in buyer demand, high buyer costs to switch brands, and more strongly differentiated products.
In which one of the following instances is rivalry among competing sellers not more intense?D) Low barriers to entry.
The rivalry among competing sellers tends to be less intense when: C) industry rivals are not particularly aggressive or active in making fresh moves to improve their market standing and business performance.
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