3.1.4 PORTER CONTINUED

Question 1

Where intensity of rivalry is low

Answer 1

• A few companies dominate the market
• Branding is very important to consumers
Booming market gives opportunities for all
Little spare capacity
High barriers to entry, e.g. a new Chinese
aeroplane facing consumer credibility issues
• No direct competition from abroad, e.g. bricks
retailing such as retail petrol

Question 2

Where intensity of rivalry is high

Answer 2

Many competitors of roughly equal size
Products are relatively undifferentiated
Market growth is slow
Capacity utilisation is low
Low barriers to entry, so it is cheap and easy to
enter the market
• Directly faces overseas competition, e.g.
manufactured goods and some services

Question 3

Where the intensity of rivalry is high,

Answer 3

pressure to maintain a low price and
thus keep costs low enough to still make a profit is great. Those companies which are unable to keep their costs under control are likely to disappear.

Question 4

Where rivalry among competitors is less intense,

Answer 4

non-price competition on
marketing, branding or innovation is more likely
- offering scope for some
firms to survive without necessarily going through the pain of continually
looking for the efficiency gains that bring cost reductions.

Question 5

If the threat of new entrants is low,

Answer 5

companies in the market may be able
to keep prices relatively high, enjoying strong margins, without the need
to worry about new rivals entering the market and undercutting them.

Question 6

Factors affecting

supplier power include:

Answer 6

• number of alternative suppliers available
• uniqueness of supplier’s product or service
• reliance of the business on technical support from its supplier.

Question 7

How the five forces shape strategy

Answer 7

The use of Porter’s Five Forces model may identify changes in the balance
of one or more forces against the business. In these cases, the business
can look to produce a strategy that addresses this issue before it causes the
firm major problems. For example, if a company considers that the power
of suppliers is increasing, it may be tempted to take over a supplier, to
shift that force right back into its favour.
Above all, Five Forces analysis should be seen as another model to be used
to help to analyse a business’s situation. Using the Five Forces should help to
ensure that strategic decision-making is wiser, and more effective.