What is Five Forces Analysis? Describe each in detail and use your own small example to illustrate.
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 accounts for a significant fraction of supplier’s sales, and products are undifferentiated and have other products that are similar. Also, the buyer presents a credible threat of backward integration and they have full information on costs. Bargaining power of buyers allows consumers to pick and choose what they want to buy. Location and the type of product can influence bargaining power. For example; the Apple store is a great location because it is in the mall and there is a lot of traffic in the mall so it draws consumers into the store to buy their products.
Threat of Substitute Products is the second to last part of the Five Forces Analysis. The main key to evaluate substitute products is to have products with improvement of price or performance. Products with similar function limit the prices that firms can charge.
Finally, the last section of Porter’s Model of the Five Forces is the Rivalry Among Existing Competitors. Competitive rivalry could become very intense because there is price competition, advertising battles, increasing consumer warranties or service, making new product introductions, and a firm is pressured to take opportunities. But their are some issues that need to be considered against your existing competitors. Price competition could hurt the industry competition and advertising battles may increase total industry demand, but may be costly to smaller competitors.
2. What is SWOT analysis? Describe each in detail.
SWOT Analysis helps a company identify its strengths, weaknesses, opportunities, and threats. Strengths and weaknesses create or destroy a company’s assets, skills, or resources a company has close to their competitors.Some examples of strengths could be marketing expertise, new, innovative products or services, business destination, quality of processes and procedures, and any other aspects that adds value to your business. Examples of weaknesses are; lacking marketing expertise, undifferentiated products or...
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