3.1 Impact of external factors Flashcards
Porter’s five forces
Framework for analysing the nature of competition in industry.
What are porter’s five forces?
Threat of new entrants
Bargaining power of suppliers
Power of customers
Threat of substitutes
Determinants of intensity of rivalry
Threat of new entrants
If new entrants move into an industry they will gain market share and rivalry will intensify.
What do barriers of entry need to be for threat to be high?
Low
Barriers of entry which will discourage new entrants
High economies of scale
Brand loyalty
Expertise and reputation
Bargaining power of suppliers What will happen
Suppliers will sell products at higher prices
When do suppliers tend to have power?
Only few large suppliers
Resources they supply are scarce
Cost of switching to an alternative is higher
How do businesses overcome bargaining power of suppliers?
Merge with suppliers
Seek new suppliers
Economies of scale
Power of customers what will happen
Able to exert power and reduce prices
When do customers tend to have power?
Complete big orders
Easily go to rivals
Business has Small quantity of customers
How can businesses overcome the power of customers?
Look for new customers.
Differentiate products so customers loyal
Drive rivals out.
Threat of substitutes
If there are substitutes to product limit price that businesses can charge and reduce profits.
How can businesses overcome the threat of substitutes?
Promotions
Low cost producer.
Customer loyalty.
Determinants of intensity of rivalry
Number of competitors in a market.
Market size and growth prospects
Brand loyalty in current businesses.
How can businesses overcome intensity of rivalry?
Low cost producer
Differentiate
