Porter five forces model is a framework for industry analysis and business strategy development. It draws upon industrial organization economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market.
Porter's five forces include -three forces from horizontal competition: the threat of substitute products or service, the threat of established rivals, and the threat of new entrants, and two forces from vertical competition: the bargaining power of suppliers and the bargaining of customers.
Take an example of DBS (HK) Ltd.
Threat of new entrants – low
Banking industry is attractive segment because entry barriers are high because opening a bank requires a lot of capital.
Thereat of substitute products of service – medium
Nowadays, banking provides a series of service not only saving, but insurance and investment. Customer can easy to use these services via insurance company, brokers or independent financial advisors company for their asset enhancement.
The bargaining power of consumers – medium
Customers are easy to open account in another bank, this is why customer service is becoming so important in this industry. For increasing customer loyalty, DBS launched promotion regularly such as referral bonus or mobile device service for customer using DBS service more convenient.
The bargaining power of suppliers – high
The only supplier of each bank in Hong Kong is Hong Kong Monetary Authority (HKMA). Each bank is under controlled by HKMA as its primary objective is to ensure the stability of the Hong Kong currency and the banking system. If HKMA change a little policy will have tremendous effect on whole industry.
The rivalry among competing firms – high
Banking industry is a very intensity market. Each of the banks in Hong Kong is offering different incentives for opening accounts. Besides of saving, credit card promotion and new join offer is very competitive because it is a very...