Five Forces & Competitive Analysis

Competitive Forces Shape Strategy. The 5 forces analysis drawn below; According to Porter statements, that awareness of these forces can help a company stake out a position in its industry that is less vulnerable to attack.
Bargaining Power of Customer

Threat of New Entry

Bargaining Power of Supplier

Competitive Rivalry within an Industry

New entrants to an industry bring new capacity, the desire to gain market share and substantial resources. There are 6 major threats or barriers to entry; 1. Economies of scale (hurdles in distribution, utilization of sales force, financing, etc) 2. Product differentiation 3. Capital requirements 4. Cost disadvantages independent of size

Threat of Substitution

5. Access to distribution channel 6. Government policy Powerful suppliers if; 1. 2. 3. 4. 5. It is dominated by a few companies The products is unique or at least differentiated It is not obliged to contend with other products for sale to the industry A credible threat of integrating forward into the industry’s business The industry is not an important customer of the supplier group.

Powerful buyers if; 1. It is concentrated or purchases in large volumes 2. The products it purchases from the industry are standard or undifferentiated 3. The products it purchases from the industry form a component of its product and represent a significant fraction of its cost. 4. It earns low profit, which create great incentive to lower its purchasing costs. 5. The industry’s product is unimportant to the quality of buyer’s product or service. 6. The industry’s product doesn’t save the buyer money. 7. The buyers pose a credible threat of integrating backward to make the industry’s product. Threats of substitute product occur, if; 1. The price performance trade off is more attractive within in industry 2. A limit profit in normal times, it drive to gain more profit by developing substitute products Intense rivalry is related by factors; 1. Competitors are numerous or are... [continues]

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