Chapter 1: Porter's Five Forces Flashcards
What is the purpose of the Five Forces Model?
Evaluates industry attractiveness
1) Buyer Power
The ability of buyers to affect the price they must pay for an item.
The power of customers to drive down prices.
Look at number of customers, their sensitivity to price, size of orders, differences between competitors, and availability of substitute products.
Switching Costs
Costs that make customers reluctant to switch to another product or service.
2) Supplier Power
The suppliers’ ability to influence the prices they charge for supplies.
The power of suppliers to drive up prices of materials.
Include number of suppliers, size of suppliers, uniqueness of services, availability of substitute products.
3) Threat of Substitute Products or Services
The power of customers to purchase alternatives.
High when there are many alternatives to a product or service.
4) Threat of New Entrants
The power of competitors to enter a market.
High when it is easy for new competitors to enter a market.
5) Rivalry Among Existing Competitors
The power of competitors.
High when competition is fierce in a market.
Entry Barrier
A feature of a product or service that customers have come to expect and entering competitors must offer the same for survival.
Product Differentiation
Occurs when a company develops unique differences in its product or services with the intent to influence demand.
What are the Five Forces?
1) Buyer Power
2) Supplier Power
3) Threat of Substitute Products or Services
4) Threat of New Entrants
5) Rivalry Among Existing Competitors
