Porters five force strategy for Banking Industry

1. … The Porter’s Five Force Model for Banking Industry -analysis…
*** Flow of Presentation ***
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Introduction
Threats of New Entrants
Power of Suppliers
Power of Buyers/Customers
Availability of Substitutes
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Competitive Rivalry
Presentation By:
Rachita Ramjiyani (Roll No 67)
Athira Nair (Roll No 79)
Conclusion
Sanjay Kumbhar (Roll No 107)
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2. … The Porter’s Five Force Model for Banking Industry -analysis…
*** Introduction ***
Banking Industry:
Overview
Introduction on Porter’s 5 Force Model
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3. … The Porter’s Five Force Model for Banking Industry -analysis…
*** Threats of New Entrants ***
Threat of new Entrants in Banking industry (Low):
Despite of the biggest entry barrier like regulatory and capital requirements, between 1977 and
2002 an average of 215 new banks opened each year according to the FDIC.
But in present scenario the threat of new entrants is low due to stringent norms, RBI Regulations, High
initial investment & entry barriers .
Factors affecting The threat of new entry barriers:
• Government Licensing and RBI regulations
• Skills manpower
• High Initial investment
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• Protected intellectual property
• The entry of foreign banks
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4. … The Porter’s Five Force Model for Banking Industry -analysis…
*** Power of Suppliers ***
The bargaining power of Suppliers (High):
1. Customer deposits.
2. Mortgages loans.
3. Mortgage securities.
4. Loans from other financial institutions.
The Factors affecting bargaining power:
•
Rise in investment avenues
•
Providers of funds
•
Interest rates
•
Valuations
•
The economic out look
•
Role of RBI
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Offshore operation
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5. … The Porter’s Five Force Model for Banking Industry -analysis…
*** Power of Buyers/Customers ***
Bargaining power of customers (High):
• The individual Customers.
• High switching costs.
• The customers Loyalty.
The Technology
Factors affecting The Bargaining power of customers:
•
Long-term finance.
•
Margins and volumes.
•
Multiple Options
•
Banks Competitors
•
Retail lending
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6. … The Porter’s Five Force Model for Banking Industry -analysis…
*** Competitive Rivalry ***
Competitive Rivalry (High):
• The banking industry is considered highly/intense competitive,
• Acquisition & Mergers- Avoids marketing and advertising.
Factors affecting The Competitive Rivalry:
• Too many players of same size
• Players have similar strategies
• Less product differentiation, price competition
• Low market growth rates
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• Barriers for exit are high
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7. … The Porter’s Five Force Model for Banking Industry -analysis…
*** Availability of Substitutes ***
Availability of Substitutes (Medium):
• Largest threats of substitution are not from rival banks but from non-financial competitors,
investors, NBFCs (attract a significant proportion of market share) and small co-operative banks
and borrowing avenues
• No real threat of substitutes as far as deposits or withdrawals, however insurances, mutual funds,
and fixed income securities -offered by non-banking companies.
• Alternative banking services/NBFC- Big Ticket Items-Electronics, Jewelry, Cars
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The Factors affecting threats of substitutes:
• Close customer relationships,
• Conservative Customers
•
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Risk taking customers attitude.
• Switching costs
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8. … The Porter’s Five Force Model for Banking Industry -analysis…
*** Conclusion ***
Porter’s Five Force Model determine long-term profitability & is a reality check to see if a industry
is attractive enough to enter or not. If all of those forces are high then the industry is less favorable
to enter. Before entering a industry, one firm should check whether those forces is low, so its
favorable for the firm to enter.
• Force 1: Threats from new entrants or potential competitors
: Low
• Force 2: The power of the suppliers
: High
(Requires High Initial Investments)
(Limited equity suppliers)
• Force 3: The power of the Buyers/customers
: High
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(High Competition, CRM, Personal Banking )
• Force 4: The intensity of competition among existing firms
: High
(Zero balance, Life Insurance, Free ATM, Free credit Card, Door step Delivery, opening new acct in 24hrs)
• Force 5: The easiness of changing to substitute products
: Medium
Conclusion:
As per Porter's 5 Forces Model most of the forces scored high, Hence is unfavorable.
SMBA
30-B
Group
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9. … The Porter’s Five Force Model for Banking Industry -analysis…
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