Porter`s 5 forces

Topics: Strategic management, Costs, Management Pages: 6 (1119 words) Published: December 13, 2013
Porter’s Five Forces – Competitor Analysis
Michael Porter’s five forces is a model used to explore the environment in which a product or company operates to generate competitive advantage. Porter’s Five forces analysis looks at five key areas mainly the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry (advantage). Michael Porter’s Five Forces:

New Entrants
SuppliersIndustry competitors and extent of rivalry & advantageBuyers
Substitutes
Overview of Porter’s Five Forces
The Porter’s Five Forces model is an “outside looking in” business unit strategy tool that is used to make an analysis of the attractiveness or value of an industry structure. The Competitive Forces analysis is made by the identification of 5 fundamental competitive forces: •The entry of competitors (how easy or difficult is it for new entrants to start to compete, which barriers do exist) •The threat of substitutes (how easy can our product or service be substituted, especially cheaper) •The bargaining power of buyers (how strong is the position of buyers, can they work together to order large volumes) •The bargaining power of suppliers (how strong is the position of sellers, are there many or only few potential suppliers, is there a monopoly) •The rivalry among the existing players (is there a strong competition between the existing players, is one player very dominant or all all equal in strength/size) Some academics believe that a sixth force could be included – government.

1) Threat of New Entrants -
The easier it is for new companies to enter the industry, the more cut-throat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include: •Existing loyalty to major brands

Incentives for using a particular buyer (such as frequent shopper programs) •High fixed costs
Scarcity of resources
Government restrictions or legislation
Entry protection (patents, rights, etc.)
Economies of product differences
Brand equity
Switching costs or sunk costs
Capital requirements
Access to distribution
Absolute cost advantages
Learning curve advantages
Expected retaliation by incumbents
Michael Porter’s Factor 2) Power of Suppliers
This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company’s margins and volumes, then they hold substantial power. Here are a few reasons that suppliers might have power: •There are very few suppliers of a particular product

There are no substitutes
The product is extremely important to the buyer, they cannot do without it •The supplying industry has a higher profitability than the buying industry •Supplier switching costs relative to firm switching costs •Degree of differentiation of inputs

Presence of substitute inputs
Supplier concentration to firm concentration ratio
Threat of forward integration by suppliers relative to the threat of backward integration by firms •Cost of inputs relative to selling price of the product
Michael Porter’s Factor 3) Power of Buyers/ Customers
This is how much pressure customers can place on a business. If one customer has a large enough impact to affect a company’s margins and volumes, then they hold substantial power. Here are a few reasons that customers might have power •Small number of buyers

Purchases of large volumes
Switching to another (competitive) product is simple
The product is not extremely important to the buyer, they can do without it for a period of time. •Customers are price sensitive
Buyer concentration to firm concentration ratio
Bargaining leverage
Buyer volume
Buyer switching costs relative to firm switching costs
Buyer information availability
Ability to backward integrate
Availability of existing substitute products
Buyer price sensitivity
Price of total purchase
Michael...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • porters 5 forces Essay
  • 5 Forces of Michael Porter Research Paper
  • Porters 5 Forces Essay
  • Porter S 5 Forces Essay
  • Porter s Five Forces Essay
  • Porters 5 Forces Essay
  • Porter s Five Forces Essay
  • Porter 5 Forces Essay

Become a StudyMode Member

Sign Up - It's Free