Five Forces Analysis

Five forces analysis help to analyze the characteristics that affect competition within an industry. The analysis is also a framework best suited to determine how strong or weak an industry’s competitive forces are but it can also help companies establish a business strategy. The five forces affecting industry attractiveness are classified into the two following categories. Internal forces: Competitive pressures from buyer bargaining power, competitive pressures stemming from supplier bargaining power. External forces include: competitive pressures from companies in other industries to win buyers over to substitute products, competitive pressures associated with that threat of new competitors into the market and competitive pressures associated with rivalry among competing sellers in an industry to attract customers. These combine forces determine the level of competition that will affect the company. The bargaining power of costumers determines how much pressure customers can impose on volumes and margins. The more pressure customers exert on a company, the more bargaining power they have over it. Bargaining power can be high regarding the toy industry because there is a concentration of buyers especially around certain time periods and the chance of substituting an undifferentiated product is high because the industry is steadily producing different items. An example that affects bargaining power to costumers would be a large number of customers and limited buyer choices. Generally, bargaining power increases profitability for the party that influences it. Bargaining power of suppliers can vary high and low in the toy industry. Suppliers will have less bargaining power if there will be a large number of substitute toys. The more pressure suppliers can exert on a company, the more bargaining power they have over that company. Bargaining power to suppliers can be affect by diverse distribution channels because volume is critical to suppliers. Competitive