Porter's Five Forces

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Reading 32 – The Five Competitive Forces That Share Strategy -------------------------------------------------
Date: April 6, 2013

Porter’s Five Forces
Forces| Description| Notes|
Threat of New Entrants| - Likelihood of new entrants emerging to alter the competitive landscape- Depend on size of barriers to entry- Higher the barrier, weaker the threat, and greater the pricing power of existing participants| - Econ of scale- product differences an brand identify that will deter customers from switching- switching cost that product user will incur if switch- capital requirement to construct facilities and other infrastructure req. to entry industry- Access to distribution channels, if existing distributors are at or near capacity and may not be willing to take on new entrant’s product- Gov’t policy that may req. licensing- Cost/quality advantage may be enjoyed by existing firm that may take time for new entrants to achieve| Threat of Substitutes| - Do currently avail. Alternative products put a ceiling on the price buyers are willing to pay for the industry’s current products- This force concerns not only existing potential substitutes, but also those that could become avail. In the future| - Can substitute products really do the job that current products do? (is it a true substitute in every aspect?)- Likelihood of current buyers switching if given a viable alternative. - Switching cost incurred by buyer| Bargaining Power of Buyers| - Strength of the negotiating power of the buyers of the firm’s or industry’s output, and what is the impact of the distribution of the value-added by the industry?| - Bargaining Leverage: Relates closely to factors affecting the other forces. Low switching costs and readily avail. Sub. Give the buyers leverage and help to strength this force for buyers- Buyer’s Price Sensitivity: Depend on qualitative factors such as, brand, product differences, quality and performance. Also, quantitative such as price relative to...
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