Analysis Tools Flashcards
How do you deal with threat of new entrants when using Porter’s five forces
Having barriers to entry such as government policies,economies of scale,patents,capital requirements,access to input etc
Define buyer power
This is the ability that buyers have to drive prices lower or to their level of power.
What does a smaller and more powerful client base mean?
It means that each buyer has more power to negotiate for lower prices and better deals.
Discuss supplier power
Addresses how suppliers can drive up the cost of inputs.
The fewer the suppliers to an industry the more a company would depend on a supplier.
Describe threat of substitutes
Refers to the possible alternatives that customers can use to replicate your services.
Examines how easy it is for consumers to switch from from your business products or service to that of a competitor.
When are substitutes high?
When:
•consumer switching costs are low.
•substitute product is cheaper than industry product.
•substitute product quality is equal or superior to industry product quality.
•substitute performance is equal or superior to industry product performance.
Define industry rivalry
Describes the intensity of competition between existing companies in an industry.
What is the consequence when industry rivalry is low?
A company has greater power to charge higher prices and set the terms of deals to achieve higher sales and profits.
When is industry rivalry high?
•when players are of about the same size
•players have similar strategies
•there is not much differentiation between players and their products
•customers are price sensitive or have low switching costs.
•when the industry is growing
Limitations of Porter’s Five Forces
•best applicable for the analysis of simple market structures and not complex ones.
•model cannot be used to analyze an individual company.
•assesses all five forces equally when some industries are not as heavily impacted by all five
When is PESTEL used?
Used by companies to track the environment they are operating in or are planning to launch a new project,product or service.
List the political factors
Trade barriers,tax policies, political stability,international relations.
Define political factors
Involve the ways and extent to which a government intervenes in industries.
What are the limitations of PESTEL?
•analysis may consume a lot of time and resources especially when done more frequently or in depth.
•analysis may oversimplify the complex interactions and interdependences of the factors.
What is an effect of buyer power on level of competition?
High buyer power can lead to price wars,lower profit margins or increased innovation.
