Quotes from Joan Magretta

If you have powerful buyers (that is, customers), they will use their clout to force prices down. They may also demand that you put more value into the product or service. In either case, industry profitability will be lower because customers will capture more of the value for themselves.

When you assess buyer power, the channels through which products are delivered can be as important as the end users. This is especially true when the channel influences the purchase decisions of the end-user customers. Investment advisors, for example, have enormous power, and the high margins that accompany that power. The emergence of powerful retailers like Home Depot and Lowe's has put enormous pressure on the makers of home improvement products.

Powerful buyers will force prices down or demand more value in the product, thus capturing more of the value for themselves.

When you analyze the power of suppliers, be sure to include all of the purchased inputs that go into a product or service, including labor (i.e., your employees).

Precisely because substitutes are not direct rivals, they often come from unexpected places. This makes substitutes difficult to anticipate or even to see once they appear. The threat of substitution is especially tricky when it comes at one remove.

disruptive technology will invalidate the assets of the current generation of industry leaders. Digital

The sweet spot isn't always the lower-priced alternative. The Madrid–Barcelona high-speed train is a higher-value, higher-price substitute for flying. Energy drinks are a higher-price substitute for coffee. Both drinks are caffeine delivery systems, but some consumers will pay more for the substitute's bigger jolt.

According to company legend, here's how Southwest Airlines was born. Back in the late 1960s, "a couple of guys said, 'Here's an idea. Why don't we start an airline that charges just a few bucks and has lots of flights every day instead of what the other guys are doing—charging a lot of bucks and having just a few flights each day?

Entry barriers protect an industry from newcomers who would add new capacity.

Its low fares made flying an attractive alternative for price-sensitive travelers accustomed to driving or taking a bus. In the early years, a shareholder asked CEO Herb Kelleher if Southwest couldn't raise its prices by just a few dollars since its $15 price on the Dallas–San Antonio route was so much lower than Braniff's $62 fare. Kelleher said no, our real competition is ground transportation, not other airlines.

Blue Ocean Strategy

If rivalry is intense, companies compete away the value they create, passing it on

the second test of strategy is often overlooked because it is not intuitive at all. A distinctive value proposition, Porter explains, will not translate into a meaningful strategy unless the best set of activities to deliver it is different from the activities performed by rivals. His logic is simple and compelling: "If that were not the case, every competitor could meet those same needs, and there would be nothing unique or valuable about the positioning.

Competing to be the best feeds on imitation. Competing to be unique thrives on innovation.

A common mistake in strategy is to choose the same core competences as everyone else in your industry.

The first test of a strategy is whether your value proposition is different from your rivals. If you are trying to serve the same customers and meet the same needs and sell at the same relative price, then by Porter's definition, you don't have a strategy.

Insight into customers' needs is important, but it's not enough. The essence of strategy and competitive advantage lies in the activities, in choosing to perform activities differently or to perform different activities from those of rivals. Each of the companies we've just described has done just that, tailoring their value chains to their value propositions.

Porter defines the value proposition as the answer to three fundamental questions (see figure 4-1): Which customers are you going to serve? Which needs are you going to meet? What relative price will provide acceptable value for customers and acceptable profitability for the company?

Instead of competing to be the best, companies can—and should—compete to be unique. This concept is all about value.

The key to competitive success—for businesses and nonprofits alike—lies in an organization's ability to create unique value. Porter's prescription: aim to be unique, not best. Creating value, not beating rivals, is at the heart of competition.

As manufactured products have become increasingly commoditylike, and therefore less valuable to customers, GE has not been alone in discovering that often more money can be made from the services related to a product

Memorizing the five forces won't make you a better business thinker; it will only help you to sound like one. It matters that you grasp the deeper point: there are a limited number of structural forces at work in every industry that systematically impact profitability in a predictable direction.

In business, multiple winners can thrive and coexist. Competition focuses more on meeting customers needs than on demolishing rivals. Just look around. Because there are so many needs to serve, there are many ways to win.

Price competition, Porter warns, is the most damaging form of rivalry. The more rivalry is based on price, the more you are engaged in competing to be the best.