Differentiation yields higher margins with which to deal with supplier power, and it clearly mitigates buyer power, since buyers lack comparable alternatives and are thereby less price sensitive.

Competition in an industry continually works to drive down the rate of return on invested capital toward the competitive floor rate of return, or the return that would be earned by the economist’s “perfectly competitive” industry. This competitive floor, or “free market” return, is approximated by the yield on long-term government securities adjust

Differentiation provides insulation against competitive rivalry because of brand loyalty by customers and resulting lower sensitivity to price.

Achieving differentiation may sometimes preclude gaining a high market share. It often requires a perception of exclusivity, which is incompatible with high market share.

1. How likely is retaliation? 2. How soon will retaliation come? 3. How effective will retaliation potentially be? 4. How tough will retaliation be, where toughness refers to the willingness of the competitor to retaliate strongly even at its own expense? 5. Can retaliation be influenced?

Slow industry growth turns competition into a market share game for firms seeking expansion. Market share competition is a great deal more volatile than is the situation in which rapid industry growth insures that firms can improve results just by keeping up with the industry, and where all their financial and managerial resources may be consumed b

Moves that do not threaten competitors’ goals are a place to begin in searching for ways to improve position.

Achieving a low overall cost position often requires a high relative market share or other advantages, such as favorable access to raw materials.

The five competitive forces—entry, threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among current competitors—reflect the fact that competition in an industry goes well beyond the established players.