Porters Five Force on Tesco Plc

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Utilisation of Porter’s Five Forces Model in Evaluation of a New Market with Reference to Tesco

Jeewan Pudasaini
Greenwich University

BA (Hons) in Business Studies 2011

Utilisation of Porter’s Five Forces Model in Evaluation of a New Market with Reference to Tesco

Jeewan Pudasaini
Blake Hall College

Submitted To
University of Greenwich in accordance with the requirement of BA (Hons) in Business Studies

December 2011

Word count: 2905

Contents

Introduction
1. Porters’ Model:4
1.1Threats of new entrants:4
1.2Degree of rivalry:4
1.3Threats of substitute:5
1.4Suppliers’ power:5
1.5Buyers’ power:5
2. Tesco6
3. Application of Porters’ Model in Tesco with respect to new market:7
3.1Threats of new entrant:7
3.2 Degree of Rivalry:8
3.3 Threats of substitute:9
3.4 Suppliers’ power:10
3.5 Buyers’ Power11
Conclusion……………………………………………………………………………………………………………………….12 Bibliography13

Introduction
1. Porters’ Model:
In order to make an assessment of the profit potential in any type of business organisation, Michael Porter’s Competitive Forces Model is one of the frequently adopted frameworks. This competitive forces model of Porter’s comprises of collective strength of five forces which differs from one business organisation to other (Porter, 1980). The five forces as illustrated by Porters can be mentioned as: * Threats of new entrants

* Degree of rivalry
* Threats of substitute
* Suppliers ‘ power
* Buyers’ power

1. Threats of new entrants:
It is one of the important components of Porter’s model which depicts with limitation or prohibition of the new entrance. The entry of new business organisation is mainly due to high profit margin. Although certain major components such as experience, learning, volume brand image, loyalty, capital requirements for new entrants, switching cost, ease in distribution and cost disadvantages can create barrier to new entry in the competitive market(Porter,2008).

2. Degree of rivalry:
This component of Porter’s Model deals with the involvement of the competitors either in the new or current business market. Close competition between competitors is obvious until certain aggressiveness is adopted by some of the strong business organisation (Porter, 2008). Factors such as numbers of competitors, growth of the industry, high fixed costs and diversity plays an intimate role either for proliferation or deterioration of any business organisation (Porter, 1985).

3. Threats of substitute:
This force of Porter’s Model creates a revolution which can either ruin the business organisation completely if not coped with change in certain technologies. Although there may be demand of same product, but change in the technology can eventually cause the shift in the business growth and if not coped then the competitors can easily take over the market.

4. Suppliers’ power:
Any business which has monopoly in the market can exert its bargaining power where customer group is not so much important for them. Similarly, brand loyalty from the customer eventually creates suppliers’ power where branded company can play its monopoly pricing even in the presence of the competitors. This mainly focuses that if the product is really important for the customers, then suppliers have benefit to raise its pricing. Thus, brand product producing business organisations have power to retain their customer s and even customer can wait for certain duration of time to get that product.

5. Buyers’ power:
In any competitive market, there is a great ability for customers or buyers to have bargaining power. This can lead in either lowering the price or can even force the business organisation to increase their quality and better service. Some factors such as volume, differentiation or standard product, buyers’ profitability, level of knowledge can determine the...
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