3.1.4 porters five Forces

Question 1

What is the purpose of the five forces

Answer 1

They are there to present a framework for analysing competitive environment

Question 2

What are the five forces

Answer 2

• competitive rivalry
• bargaining power of suppliers
• bargaining power of buyers
• threat of substitutes
• threat of new entrants

Question 3

What are some benefits of porters 5 forces

Answer 3

They can be used alongside other models like PESTLE and SWOT

Question 4

What is competitive rivalry

Answer 4

This is the level of competition and aggressive rivalry between businesses within the market

Question 5

What makes competition fierce within a a market

Answer 5

• if the market has low barriers to enter
• easy for customers to switch
• little differentiation of products
• little growth or decline in the market

Question 6

What are some options for businesses to stay competitive

Answer 6

• USP
• competing on cost competition
• takeover and merger or strategic alliance

Question 7

What is bargaining power of suppliers

Answer 7

This is the power of suppliers have to negotiate terms and prices
- bargaining power of supplier may change the supply of a commodity

Question 8

When are suppliers bargaining power at its highest and what is a key problem with that

Answer 8

• few suppliers
• suppliers product is essential for production
• the supplier is able to integrate vertically forwards and sell directly to customers
  A key proble. With this is that it causes high production costs and unfavourable terms of supply

Question 9

What are some options a business can consider to conbage the supplier power

Answer 9

They can build a strong relationship with suppliers

• agree a long term contract if supplier with favourable conditions
• backward vertical integration

Question 10

What is bargaining power of buyers

Answer 10

This is the power buyers have to negotiate terms and prices, potential to change if they have greater access to choice

Question 11

when is buyer power at its highest and what is a key problem which occurs with this

Answer 11

• little Difference between products offered by competitors
• products are price sensitive
• easy to switch to a substitute
  Key problem is that prices forced low and credit terms demanded so there is pressure on cash flow

Question 12

What are some options for a business to consider when combating high buyer power

Answer 12

• develop a usp
• build switching costs into agreements
• lower prices to attract customers
• forward vertical integration

Question 13

What is meant by threat of substitutes

Answer 13

An alternative product that may deliver the same benefits to customers

Question 14

When are threat of substitutes high

Answer 14

They are high when

• alternative producers exist
• alternative prices fall
• a customer can easily switch to a substitute

Question 15

What are some options businesses could consider in order to combat threat of substitutes

Answer 15

• Develop a usp
• build switching costs into agreements
• lower prices to attract customers
• promote benefits in comparison to substitute products

Question 16

What are barriers to entry

Answer 16

A physical, technological and intellectual factor that makes it difficult for a rival business to enter the market
- as well as I existence of large companies

Question 17

When do barriers to entry exist

Answer 17

• capital investment to enter the market is high
• customers are brand loyal to existing businesses
• levels of specialist knowledge and expertise in the industry are high

Question 18

What is a key problem which arises when there are low barriers to entry

Answer 18

It’s the. Easy for competitors to enter the market and increase competitive rivalry

Question 19

What are some options a business can take to combat Barriers to entry

Answer 19

• differentiation
• build strong relationship with buyers
• growth like economies of scale

Question 20

What is pestle stand for

Answer 20

Political
Environmental 
Social
Technological 
Legal
Economic