Porter's 5 Forces 3.7.7 Flashcards
what are porters 5 forces
entry threat buyer power supplier power rivalry substitution threat
what is meant by entry threat and what are barriers to entry (give examples)
If new competitors enter the market, the market becomes more competitive. These competitors are usually attracted by high growth and high profits.
These new competitors can be threatened by the barriers of entry to a market, this is a legal factor, fixed cost or problem that must be incurred by a new entrant, regardless of production or sales activities e.g. high development costs, high extra costs, resistance from customers due to lack of experience, advantages competitors have already acquired (economies of scale, access to suppliers)
what is meant by buyer power and name some factors that effect it
It is the buyers power to exert pressure to drive down prices, or increase the required quality for the same price, and therefore reduce profits in an industry.
factors that effect this are: number of customers number of competitors the business has volume bought by the customer cost of switching supplier (could link to resistance to change)
what is meant by supplier power and name some factors effecting it
The pressure suppliers can exert on businesses (control over customers) by raising prices, lowering quality, or reducing availability of their products.
factors effecting supplier power:
The customer is small and unimportant
There are no or few substitute resources available
There are only a few large suppliers
The cost of switching to an alternative supplier is high
what is meant by rivalry and name some factors effecting it
How intensely the businesses compete (price wars, high advertising costs)
factors effecting rivalry: number of competitors market size and growth product differentiation exit barriers
what is meant by substitution threat and name some factors effecting it
A substitute product can be regarded as something that meets the same need
Substitute products are produced in a different industry –but crucially satisfy the same customer need. If there are many credible substitutes to a firm’s product, they will limit the price that can be charged and will reduce industry profits.
factors effecting substitution threat:
The extent to which the price and performance of the substitute can match the industry’s product
Technological change
Customer loyalty and switching costs
effects the 5 forces have on competitive strategy
The forces can be used to identify strengths and weaknesses, so can be used to as a analytical tool. using it you can find ways to get ahead of competitors in the long term by building in areas that they are weak
Can effect the pricing strategy used
