Industry and competitive strategy - explained as to a friend
Key concepts (12)
Module 2 in plain language
Why the industry matters
Some industries simply make money more easily than others. That is not only because of good managers. Porter says: the structure of the industry determines to a large extent how profitable all players are together. The Five Forces model shows why.
First an agreement. An industry is a group of firms that in essence supply the same product or service. All firms in an industry are by definition competitors. But not all competitors are rivals: Dacia does not worry about customers going to Bentley.
The five forces
Every force presses on profit, because prices fall or costs rise. If a force is strong, that is bad for the firms in the industry. The five forces work independently of each other: each has its own, direct effect on profitability.
- Rivalry (rivalry between existing players). High when: players are of equal size, there is little differentiation, low growth, high fixed costs and high exit barriers. Example: petrol or sugar, where nobody stands out.
- Threat of entry (threat of new entrants). Low if the barriers to entry are high: economies of scale, experience, customer switching costs, capital requirements, access to distribution. Mind your perspective: high barriers are good for firms already in the industry.
- Threat of substitutes (threat of substitutes). A substitute comes from outside the industry and offers a comparable solution, for example a bicycle instead of public transport. What counts is the price/performance ratio.
- Buyer power (power of buyers). High with concentrated buyers, low switching costs and the threat that the buyer does it itself (backward integration). Netflix makes its own series: that strengthens the power of streaming platforms.
- Supplier power (power of suppliers). The reverse: few suppliers, high switching costs, differentiated products, and the threat of forward integration. Labour can also be a supplier.
Steps of an industry analysis
- Define the industry (vertical, product/service, geographic). This is often the hardest.
- Determine the players per force.
- Determine the drivers and the strength per force.
- Assess the attractiveness. The little score does not matter; understanding does.
- Look at changes in the future.
- Determine how you position yourself against the forces.
The analysis is about the average profitability of the industry, not of one firm.
Industry life cycle
Industries go through stages: development, growth, shake-out, maturity, decline. The forces change along. In the growth stage rivalry is low because there are enough new customers. In maturity competition becomes more intense and scale and experience advantages play a part. In decline rivalry is often fierce, especially with high exit barriers.
Strategic groups and market segments
Within an industry, firms are not all the same. Strategic groups are firms with similar strategies, like supermarkets versus neighbourhood shops. Between groups there are mobility barriers. A market segment is a group of customers with the same needs. A small segment is called a niche.
Generic strategies: the answer to the Five Forces
Porter sees two ways to do better than the average player:
- Cost leadership: systematically the lowest costs. Sources: input costs, economies of scale, experience curve and product/process design. A cost leader does not necessarily charge the lowest price: it makes a comparable product at lower costs and keeps more profit.
- Differentiation: being unique on a dimension for which customers are willing to pay extra. Think of product features, customer relationships and complements.
- Focus: you target a narrow segment, with a cost advantage or differentiation.
A well-executed generic strategy protects you relative to the average competitor. The forces do not disappear.
Ecosystems and complementors
Porter sees everything as competition. In reality firms also cooperate. In a business ecosystem firms complement each other, like Nespresso with machine manufacturers. A complementor makes your product more valuable (an app for a smartphone). This often raises the switching costs for customers. Network effects also belong here: Facebook only becomes valuable when enough people are on it.
Business models
A business model describes how an organisation creates value, delivers it and keeps part of it for itself, in other words how you make money. A strategy is the long-term direction; a business model is more of a recipe. You can copy a business model (Airbnb), but not the strategy of Airbnb.
The Business Model Canvas (Osterwalder and Pigneur) has nine building blocks: customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partners and cost structure. Use it as a diagnosis: do all blocks fit together logically?
Well-known patterns: razor and blade, freemium, peer-to-peer and the multi-sided platform (YouTube with creators, viewers and advertisers).
What does the exam ask?
For a supermarket article, the sample exam asked which force changes for a supplier (buyer power), whether it becomes stronger or weaker (stronger through concentration and joint purchasing) and to name the remaining four forces. Learn the names precisely, and the drivers behind them.
Industry and competitive strategy - exam level
Key concepts (13)
Module 2 at exam level
This level is written for open questions: what you must be able to define, explain, apply, advise on and assess. Use the English technical terms exactly as they appear here. On the sample exam, consistent terminology was explicitly marked for Five Forces.
Five Forces
Purpose. The model explains and helps to understand how profitable an industry is on average. So it is about the industry and not necessarily about one firm in it. An industry is a group of firms that in essence supply the same product or service. All firms in it are competitors, but not all competitors are rivals.
The five forces and their drivers.
- Threat of entry. High barriers to entry keep entrants away. Sources: economies of scale and experience, customer switching costs, capital requirements, access to supply and distribution channels and other incumbency advantages of established players (patents, brand). Perspective: high barriers make the industry more attractive for the firms already in it (“the perspective of the guard”).
- Threat of substitutes. The substitute comes from outside the industry. Stronger with a favourable price/performance ratio and low switching costs for the customer.
- Buyer power. Strong with concentrated buyers or large purchasing volumes, low switching costs and a credible threat of backward integration. Addition by the lecturer: also price sensitivity of the buyer.
- Supplier power. Strong with few suppliers, high switching costs, differentiated inputs and the threat of forward integration. Decide which suppliers matter: labour and financiers can also be suppliers.
- Rivalry. Stronger with low concentration or equal size, little differentiation, low growth, high fixed costs and high exit barriers.
Common thinking error. The five forces are mutually independent. The arrow figure in the book suggests that they press on rivalry, but each force works directly on profit. Never use “competition” as a synonym for rivalry: it is confusing, because the other four forces are also competition in Porter’s eyes.
Six steps. (1) Define the industry: vertical, product/service, geographic. (2) Identify the players per force. (3) Determine the underlying factors and the strength per force. (4) Determine the overall attractiveness. (5) Analyse changes (trends). (6) Determine your position: exploit, neutralise or influence. The lecturer says steps 5 and 6 are more important than the overall judgement.
Applying in a case. Always point out the force, name the driver, and say whether the effect becomes stronger or weaker. Example from the sample exam: supermarkets merge and purchase together, so the buyer power of the buyers rises (concentration, large volume). Then name the other four forces by their correct names.
Industry life cycle
Stages: development, growth, shake-out, maturity, decline.
- Development: few customers, uncertainty, high costs.
- Growth: demand grows; the lecturer calls it most important that rivalry may be low because there is room for everyone.
- Shake-out: growth levels off and weak players disappear.
- Maturity: barriers to entry rise, standardisation and cost competition increase, buyer power becomes larger and the experience curve plays a big role.
- Decline: demand shrinks; with high exit barriers rivalry becomes extreme.
Use the model to reason how the forces change (step 5 of the industry analysis).
Strategic groups and market segments
A strategic group consists of organisations with similar strategic characteristics (scope and resource commitment). Use: understand who the direct competitors are, find strategic spaces and analyse mobility barriers, the counterpart of entry barriers between groups. A market segment is a group of customers with similar needs; segmentation can be based on customer needs, buying behaviour or value. Strategic groups are about suppliers, market segments about buyers.
Generic strategies
According to Porter a firm is either a cost leader or a differentiator, or it uses a focus on a narrow segment.
Cost leadership. Systematically the lowest costs and sufficient quality. Four cost drivers: input costs, economies of scale, experience curve and product/process design. The lecturer stresses: a cost leader is not necessarily the cheapest in the market and not necessarily a price fighter. Lower costs can also be used as a higher margin.
Differentiation. Being unique on what customers value, so that you can charge a price premium. Sources: product features, customer relationships, complements. The logic runs via switching costs: the customer stays because switching costs something or loses value.
Parity and proximity (cost leadership). With parity the cost leader offers as much of what customers value as the average competitor: it charges the same price and puts the cost advantage fully into extra profit (CSN, a Brazilian steel producer). With proximity it is close to competitors on features; a small price cut compensates for the slightly lower quality and it still earns better profit than the average.
Focus. Limit yourself to a segment with deviating needs. Cost focus (Ryanair, Iceland) or differentiation focus (Ecover, ARM). Three conditions: deviating needs, deviating value chains and a viable segment.
Relation to Five Forces. A well-executed generic strategy protects against the five forces relative to the average competitor. The cost leader is protected against rivalry and buyer power because it still makes a profit when others do not; the differentiated player has no rivalry with the average player, because it offers something different or better. The lecturer notes that the umbrella of the cost leader protects all players in the industry. He also puts question marks on how “generic” these strategies are. From the formative quiz: high barriers to entry do not lower profitability.
Calculating with costs. A calculate question is usually about the experience curve or economies of scale. With the experience curve, cost per unit falls by a fixed percentage with each doubling of cumulative volume. With economies of scale, fixed costs are spread over more units. Always write down the intermediate steps: the partial points are in the calculation, not only in the answer.
Pitfall: costs are not price. The cost leader does not have to pass on its lower costs. It can charge the same price as the rest and make more margin, or lower the price to force rivals out. In a case, always assess which of the two happens.
Business ecosystems and complementors
Porter mainly sees competition. A business ecosystem shows that firms also create value together. A complementor increases the value of your product (apps for a phone). Cooperation between competitors is called coopetition. Important are non-generic unique complementarities: additions that specifically belong together and are not easily replaced. An ecosystem leader (Nespresso, Apple App Store) coordinates the partners. Network effects reinforce this: the more users, the more value, which raises customers’ switching costs.
Comparative industry structure analysis (Figure 3.4). With an ecosystem you analyse complementors next to suppliers, distributors and substitutes: customers value your product more when they also have the complementor’s product (Krups at Nespresso). This extends the industry structure.
Business models
A business model describes how an organisation creates value (value creation), delivers it (configuration) and keeps part of it (value capture) (Teece). It is not a synonym for strategy: strategy is about choices and position relative to competitors, the business model about the logic of value creation.
Business Model Canvas (nine blocks): customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partners, cost structure. Requirement: the elements must fit together logically. The lecturer: use the canvas as a diagnostic tool.
Patterns. Razor and blade (cheap device, expensive refill); freemium (free basic, paid extra); peer-to-peer (platform connects users); multi-sided platform (several groups, such as creators, viewers and advertisers at YouTube).
How you use models in a case
- Read the question: which model is asked, and which form (define, explain, apply, advise, assess)?
- Name the term in English and give a one-sentence definition.
- Link to a fact from the case; never write theory alone.
- Finish with the conclusion (stronger or weaker, advice, judgement).
Common mistakes
- Writing “competition” where rivalry is meant.
- Assuming that a cost leader always charges the lowest price.
- Judging the forces from the perspective of the wrong party.
- Confusing industry with one firm or with a market segment.
- Mistaking a business model for a strategy.
Industry and competitive strategy - what the lecturer emphasises
Key concepts (8)
Module 2: what Jurriaan Nijholt emphasises
This overview follows what the lecturer himself says in the lectures and videos. The quotes are literal and in the original language (Dutch); under each is an explanation in English. College 2 does not mention the word “tentamen” (exam); which topics are likely to be tested is therefore an inference from emphasis and from the sample exam, not a statement by the lecturer.
1. What is an industry, and who is then your rival?
The lecturer lays the basis for the five forces with a precise definition. Note the difference between competitor and rival: that difference returns with the force rivalry. Never use “competition” as a synonym for rivalry in an answer.
Gezegd door Jurriaan Nijholt in Video 2.1, minuut 00:15:
Een industrie is een groep bedrijven die in essentie allemaal hetzelfde product of dienst leveren. En bedrijven die in dezelfde industrie actief zijn noemen we per definitie concurrenten.
In essence: an industry is a group of firms supplying the same product or service, and firms in the same industry are by definition competitors.
Gezegd door Jurriaan Nijholt in Video 2.1, minuut 03:35:
Maar dat betekent niet dat al die spelers rivaliteit met elkaar hebben.
Not all players in an industry are rivals of each other.
Gezegd door Jurriaan Nijholt in Video 2.1, minuut 04:39:
Maar in allebei de gevallen verlaagt rivaliteit de winstgevendheid.
Whatever form it takes, rivalry lowers profitability.
2. The use of the analysis: the industry, not the firm
The analysis explains the profitability of the industry as a whole. It is not about the position of one firm.
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 03:10:
Het nut van de industrie analyse waar die echt gewoon voor gemaakt is, is dat het je een model biedt waarmee je kan verklaren en begrijpen hoe winstgevend een industrie is.
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 92:33:
de analyse gaat over de industrie en niet per se over één bedrijf in de industrie.
3. The perspective of the guard
Barriers to entry are only bad for the one who wants to enter. The lecturer wants you to choose the perspective of the players in the industry.
Gezegd door Jurriaan Nijholt in Video 2.1, minuut 08:06:
Want hoge toetredingsbarrières maken een industrie aantrekkelijker.
High barriers to entry make an industry more attractive (for those already in it).
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 04:11:
Maar eigenlijk, als je die industrie analyse doet, voor de bedrijven, voor de concurrenten die actief zijn in de industrie, wil je eigenlijk zien dat er hoge toetredingsbarrières zijn.
4. Substitutes, buyers and suppliers
Substitutes always come from outside the industry. For buyer power the lecturer adds something to the book, and for suppliers he asks you to decide which suppliers matter.
Gezegd door Jurriaan Nijholt in Video 2.1, minuut 11:12:
Substitutes. Die komen dus van buiten de industrie.
Gezegd door Jurriaan Nijholt in Video 2.1, minuut 14:05:
Dit is een toevoeging op het boek.
This marks the addition of price sensitivity as a driver of buyer power.
Gezegd door Jurriaan Nijholt in Video 2.1, minuut 15:09:
Maar merk op dat je in zo’n vijf krachten analyse wel moet besluiten.
In a Five Forces analysis you must decide, for example which suppliers matter.
5. The six steps: step 1 and steps 5 and 6
The lecturer names step 1 and indicates which steps he finds most important. Filling in a list of forces is not enough; it is about changes and your own position.
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 27:21:
Stap 1 is define the industry clearly.
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 28:22:
En dus punt vijf en zes zijn wat mij betreft veel belangrijker.
6. Industry life cycle: the growth stage
For the growth stage, the lecturer asks you to remember one thing.
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 13:31:
Wat is het belangrijkste aan de growth fase? Dat je mag verwachten dat rivaliteit laag is.
7. Generic strategies: cost leader or differentiated
The generic strategies are the answer to the five forces. They protect a firm against those forces, relative to the average player.
Gezegd door Jurriaan Nijholt in Video 2.2, minuut 00:10:
Je bent kostenleider of je bent gedifferentieerd.
Gezegd door Jurriaan Nijholt in Video 2.2, minuut 02:06:
Het is belangrijk om in te zien dat een kostenleider niet per se de laagste prijs hoeft te stellen.
A cost leader has the lowest costs, not necessarily the lowest price.
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 94:39:
Kostenleider is dus niet noodzakelijkerwijs een prijsvechter.
8. Protection relative to the average player
This is the core idea with which the lecturer links generic strategies to Five Forces. Note the umbrella: with high barriers to entry, everyone in the industry profits.
Gezegd door Jurriaan Nijholt in Video 2.2, minuut 04:17:
Maar gek genoeg zijn het dus wel alle spelers in de industrie die bescherming krijgen achter de paraplu van die kostenleider.
Gezegd door Jurriaan Nijholt in Video 2.2, minuut 05:04:
Je hebt dus eigenlijk geen rivaliteit met de gemiddelde speler in de industrie, omdat jij iets heel anders doet of iets beters biedt.
9. Competition in the eyes of Porter, and switching costs
The lecturer explains why Porter hardly speaks about cooperation. He also shows that switching costs are the answer to the question why differentiation works.
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 100:03:
Alles is concurrentie in de ogen van Michael Porter.
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 103:08:
Het antwoord is switching costs.
Gezegd door Jurriaan Nijholt in College 2 (11-09-2026), minuut 134:26:
Dus je kan vraagtekens zetten bij… hoe generiek die strategieën dan… zijn.
He questions how “generic” the strategies really are, given the Oatly case.
10. Business models
A business model is not the same as a strategy. The lecturer explains what it is and how to use the canvas.
Gezegd door Jurriaan Nijholt in Video 2.3, minuut 00:13:
Maar een business model beschrijft hoe een organisatie waarde creëert en levert, maar ook welk deel van die waarde ze voor zichzelf houden.
Gezegd door Jurriaan Nijholt in Video 2.3, minuut 01:15:
Dus ze zijn zeker niet synoniem
Business model and strategy are not synonyms.
Gezegd door Jurriaan Nijholt in Video 2.3, minuut 04:50:
Er moet dus een logische link zitten tussen al die elementen van het canvas.
Gezegd door Jurriaan Nijholt in Video 2.3, minuut 11:19:
Eigenlijk wil je het canvas gebruiken als een diagnostisch hulpmiddel.
What this means for your answer
- Write rivalry and not “competition” for the first force.
- Take the perspective of the players in the industry, not of the entrant.
- Cost leader means low costs, not automatically low price.
- When analysing changes and positioning (steps 5 and 6), always give a conclusion.
- A business model is not a strategy; name the three parts: creating, delivering and keeping value.