7.7.1 Porters Five Forces

Question 1

Porters Five Forces

Answer 1

A model that allows you to analyse the competitiveness of a business environment. The 5 forces model presents five different forces impacting the competitiveness of a business environment.

Question 2

Bargaining Power

Answer 2

The bargaining power of suppliers relates to how much power suppliers in the market have. If suppliers have more power, the market may be less attractive, as suppliers can charge higher prices. The bargaining power of buyers relates to how much power buyers in the market have. If buyers have more power, the market may be less attractive, as buyers can demand a lower price. Often bargaining power is the relative number of people. If there is 1 supplier, they are likely to have more power than if there are 100 suppliers.

Question 3

Barriers to Entry

Answer 3

Barriers to entry relate to how easy it is for a new business to enter the market. If barriers to entry are low, the market will be more competitive as new businesses are likely to enter.

Question 4

Substitutes

Answer 4

The threat of substitutes relates to whether customers are likely to buy an alternative product. If this threat is high, the market is less attractive, as customers are more likely to shop elsewhere.

Question 5

Rivalry

Answer 5

Rivalry amongst existing competitors refers to how much competition currently exists within the market. The greater the competition, the less attractive the market may be to other businesses.