Porter's Five Forces Model

Topics: Barriers to entry, Competitor analysis, Competition Pages: 5 (1547 words) Published: January 29, 2011
The word “Strategy” is common now a days in business world or even in daily life you may heard lots of time people discussing about strategies to achieve something. You must be thinking that strategies are developed in dreams or common sense by higher management of the company but this is not the case, best strategies always comes after proper evaluation of internal and external environment of the company. The strategies are made by strategist to achieve objective or goals to allow the business to compete in industry. Porter five forces model of competitive analysis is widely used approach for developing strategies in many industries. The intensity of competition varies across industry. The intensity of competition is higher in low return industry as compared to high return industry due to less requirements of capital and common products that requires minimum R & D and efforts for production. According to porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces. 1.Rivalry among competitive firms

2.Potential entry of new competitors
3.Potential Development of Substitute Products
4.Bargaining power of suppliers
5.Bargaining power of consumers

Rivalry Among Competitive Firms
Rivalry among competing firms is the most powerful of the five competitive forces.The ongoing war between firms competing in the same industry for gaining customer share to increase revenues and profits. The competition is more intense if firm pursue strategies that gives competitive advantage over the strategies pursued by rivals. Developing new strategies is more easier than retaining the uniqueness of the strategies to gain competitive edge over rivals in the industry. Changes in strategy by one firm may be met with retaliatory countermoves, such as lowering the prices, enhancing quality,adding features,providing services, extending warranties and increasing advertising. Examples,

- In telecommunication industry firms are lowering their prices to increase consumer call ratio by minimize per minute profit margin but increasing overall company revenues. - In the past few years number of new features were added in the mobiles now it not only give the functionality of cell phone but able to take pictures, make videos, watch streaming and use Internet. The firms like Nokia, Siemens, Samsung and other are following each other strategies to minimize the differentiation in the product so customer can easily switch brands. - In the past television companies offer maximum one year warranty but now competition is tough other market player Samsung, LG, Haier, Philips and others enter in the market with their high quality products to compete Sony, that’s the reason customer is getting more services in the form of extended warranty periods. - Pepsi Vs Coca Cola are competing by increasing advertising and offering new beverages in the market.

We discuss about offline business when it comes to online business on Internet the competition is more fierce, consumer get more control over its purchasing by sitting at home on computer and comparing the similar and substitute products on bases of features and prices. Amazon.com is the best selling online book store offering huge library containing millions of books on variety of subjects. People come to amazon because they enjoy user friendly design, products, books and search capability of the site but when it come to purchase the product customer move to other site such as buy.com for purchase on discounts. Buy.com CEO says, ” The Internet is going to shrink retailers margins to the point where they will not survive.” Examples,

- Dell.com offer computers and laptops of high quality at low prices as compared to the competitors. - EBay.com is a place where people like to go to purchase products online at low price. The rivalry among competing firm increase as the number of competitors increases, as competitors more equal in size and capability, as...
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