The Application of Porter's 5 Forcess

Only available on StudyMode
  • Download(s) : 108
  • Published : December 4, 2012
Open Document
Text Preview
The Application of Porter’s Five Forces to IKEA

Name:
Submission date: 8th June 2012

Table of Contents

Introduction…………………………………………………………………..……..1 Overview of Porter’s five forces…………………………………..…………..……2 Overview of the company (IKEA)…………………………………...…………......3 Overview of what qualitative and quantitative research is…..………………….….4 Description of how the research was carried out………….……...…………….…..5 The application of Porter’s five forces to IKEA…….………………...……………6 Conclusion…………………………………………………………………………..8 Bibliography……………………………………………………....………..…….…9

Introduction

The main objective of this research is to apply Porter’s five forces model to IKEA, which is an international home furnishings retailer. Firstly, a description of Porter’s five forces will be given. Micheal Porter is a Harvard university professor .His five forces are: threat of new entrants, threat of substitute products of services, bargaining power of buyers, bargaining power of suppliers and rivalry among existing competitions. Then, a brief history about IKEA is going to be provided as will as some interested facts. After that, each qualitative and quantitative research will be introduced, the definition of each one, when they can be used and the methods of collection data by adapting them. Next, the research will give description how the research was carried out. The steps in conducting the research project will be examined such as adapting secondary research. After that, the findings will be outlined and analysed with reference to five forces. Finally, The research will draw a conclusion for the future of IKEA and some main recommendations are going to be made in order for IKEA to be improved.

Overview of Porter’s five forces

According to Porter (1980), There are five forces that shape competition in the industry, which are: threat of new entrants, rivalry among existing competitors, threat of substitute products or services, bargaining power of buyers and finally bargaining power of suppliers. They vary from one industry to another. In order for firms to keep making profits, they must show strong competitive forces (Porter, 2008: 6).

Porter’s five forces:
Source: (Porter, 2008, p.4)

1) Threat of new entrants.
Threat of new entrants refers to the threat new competitors pose to existing competitors in an industry. A profitable industry will attract more competitors looking to achieve profits. If it is easy for these new entrants to enter the market – if entry barriers are low – this poses a threat to the firms already competing in that market. Porter (2008) states seven main sources of barriers to entry: 1. Scale economies.

2. Differentiation of products, which forces new enterprises to spend a lot of money to overcome present customer loyalties. 3. Capital requirements.
4. Costs of switching that customers face when changing to another supplier. 5. Unequal access to distribution channels.
6. Cost disadvantages independent of size.
7. Restrictive government policy.

2) Rivalry among existing competitors.
The intensity of rivalry among competitors in an industry refers to the extent to which firms within an industry put pressure on one another and limit each other’s profit potential. If rivalry is fierce, competitors are trying to steal profit and market share from one another. This reduces profit potential for all firms within the industry. According to Porter’s 5 forces framework, the intensity of rivalry among firms is one of the main forces that shape the competitive structure of an industry.

3) Threat of substitute products or services.
When there are alternative products that can do the same job with lower prices, then a substitute threat exists. For instance, the substitute of express mail is E-mail. Profitability of industry is more likely to suffer if the substitutes threat is at a high level. The threat is high in some cases: 1. If the price, which is offered by the substitute, is...
tracking img