The Five Forces Analysis is Porter’s model and is used in a business situation. The purpose of this analysis is to diagnose the competitive pressures in a market and assess how strong and important each one is to the firm. This analysis consists of; Threat of New Entrants,Bargaining Power of Suppliers, Bargaining Power of Buyers, Threat of Substitute Products, Threat of Potential New Entry, and Competitive Rivalry.
Threat of New Entrants is the first part of the Five Forces Analysis. New Entrants have a barrier of entry and could be extremely difficult at times. Some difficulties are; the economies of scale of existing firms, product differentiation and design, capital requirements is high, access to distribution channels, protection for key technologies, and threats can be high if the previously stated difficulties.
Bargaining Power of Supplier is the second part of the Five Forces Analysis. Supplier power is very important to an industry because they are a threat to raising prices but reducing the quality. There are various situations in which suppliers are powerful. They are; suppliers are dominated by a few firms as an only source, they have few substitutions, the buyer isn’t an important customer to the supplier, the product is important to the input to buyers’ products, and suppliers pose a credible threat of forward integration. The company Apple is a good example of this because their products are on such high demand the suppliers need to make sure they are constantly producing the products.
Bargaining Power of Buyers is the third part of the Five Forces Analysis. There are a few different ways that buyers compete in a supplying industry. They are; bargaining down prices, forcing higher quality, and playing firms off of each other. Buyer groups are powerful when they are concentrated or purchases are large relative to seller’s sales, purchasing... [continues]
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