Porter's 5 Forces Theory Flashcards
What does Porter’s 5 forces model show?
Shows an industry being influenced by 5 competitive forces.
What does the model analyse?
The market conditions to determine how a business might cope with the environment.
What are the 5 forces?
Barriers to entry
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitutes
Rivalry among existing competitors
What does barriers to entry mean?
How easy it is for new firms to enter the market - a threat
What may put businesses off entering the market?
High start-up costs
Why are new entrants a threat to existing businesses?
Competition
What are 2 strategies to raise barriers of entry?
Trademarks
Forward vertical integration
Why do trademarks raise barriers of entry?
Make it harder for new entrants to sell similar products
What is forward vertical integration?
When a business combines with another business that is further on in the production process.
How does forward vertical integration raise entrants of entry?
Makes the channel unavailable to new entrants and makes the Market less attractive.
What is bargaining power of buyers?
The concept that customers can apply pressure to businesses
List 2 situations when buyers have more power
Few buyers and many sellers
When products are standardised
What is a strategy to influence buyer power?
Similar businesses may form a buying group - buying bigger volumes to demand better deals.
What is bargaining power of suppliers?
The concept that suppliers can apply pressure to companies
What is a strategy to influence supplier power?
Suppliers can use forward vertical integration
