Porters 4 forces Flashcards
what is porters 5 forces model used for
allows us to assess the competitive position of a business
what are the 5 forces
threat of new entrants power of suppliers power of customers threat of substitutes rivalry among existing competitors
explanation of threat of new entrants
if barriers of entry to a market are low it is easier to enter etc
how can the barrier to entry of a market be high
high investment cost ( technology)
economies of scale that larger businesses already have
legal restrictions regarding patents etc
product differentiation
what happens if a supplier has a lot of power
they sell there products at a higher price and therefore causes businesses to have a lower profit
how does a supplier get to have a lot of power
There are only a few large suppliers
The resource they supply is scarce
The cost of switching to an alternative supplier is high
The product is easy to distinguish and loyal customers are reluctant to switch
The supplier can threaten to integrate vertically
The customer is small and unimportant
There are no or few substitute resources available
what are the factors affecting how much power a customer has in terms of bargaining
number of customers
size of their orders
number of other businesses selling similar products
the cost of switching to other businesses
what does the extent of the threat of substitute products depend on
The extent to which the price and performance of the substitute can match the industry’s product
The willingness of customers to switch
Customer loyalty and switching costs
what do businesses tend to do when there is a high level of overall competitive rivalry
price wars
intensive promotions
investment into innovation and new products
what are the factors that determines the degree of competitive rivalry
number of competitors
market size and growth prospects
product differentiation and brand loyalty
power of buyers and threat of substitutes
capacity utilisation
exit barriers
what three ways does porters 5 forces help with strategic decision making
allows the business to position itself so that its competitive advantage provides the best defence against the 5 forces
helps raise barriers to entry
allows the organisation to balance the 5 forces to improve its overall position
4 ways porter helps functional decision making
helps to inform functional areas of strengths and weaknesses
highlights where improvement can be made
highlights where the firm is falling down in relation to competition
helps with developing marketing campaigns
