porter 5 forces model Flashcards
Five factors?
Five factors
1. Michael Porter (Competitive Strategy) Identified five factors or ‘forces’ that determine the strength and nature of competition in an industry or market.
These forces are:
1 threats from potential (new) entrants
2 threats from substitute products or services
3 the bargaining power of suppliers
4 the bargaining power of customers
5 competitive rivalry within the industry or market.
how difficult it would be for new competitors to enter in the market?
Low competition (Handsome profitability)
When high barriers to entry exist
through:
1Economies of scale
2 Capital investment requirements
3 Access to distribution channels
4 Time to become established
5 Technical Know-how
6 Switching costs
7 Govemment regulation
How easy it would be for new competitors to enter in the market?
High Competition (Squeezed profitability)
When low barriers to entry exist.
Threat from substitute products
Whether customers can switch easily to buying altemative products?
High Competition (Squeezed profitability)?
High Competition (Squeezed profitability)
When substitute (alternative) products exist in market and those substitute products are more attractive than our product
Threat from substitute products
Low competition (Handsome profitability)?
Low competition (Handsome profitability)
When no or limited number of substitute products exist in market and/or available substitute products are less attractive than our product
Whether suppliers have power to charge high prices and firm is unable to pass it to its customers?
Bargaining power of suppliers
High Competition (Squeezed profitability)
1 Small Number of suppliers
2 Large size of supplies
3 No substitute products/components
4Uniqueness or differentiation of product or service
5Important component in the end product
6 Not an important customer for the suppliers
7 Easy forward integration by suppliers
8 High cost of switching to a different supplier
Whether buyers/customers are powerful to demand low pices or improved products?
Bargaining power of buyers
High Competition Squeezed profitability)
Buyers will be powerful when:
1 Large volume of purchases by
customers (buyers)
2 Undifferentiated products
3 Switching cost of customer is low
4 Cost of purchased item is the significant portion of buyer’s total cost
5 When buyer has low profits
6 Customer’s product is not significantly affected by quality of our item
7 Customer has full information about prices and other suppliers
Whether rivalry between competitors is strong or weak? Strong competition forces to sell at lower price (relative to product quality)
Competitive rivalry
High Competition (Squeezed profitability)
1 Firms have same size
2 Large number of competitors
3 Slow growth in market demand
4Undifferentiated firms
5 High fixed costs
6 Capacity can be increased at very high cost
7 High costs of withdrawal from industry
