porters 5 forces Flashcards
what are porters 5 forces used for
- outlines factors that determine conpetitivnes and profitability of a firm/ industry
- can determine strategic decision and firms strategies are determined but not only competition with other forces…
-business managers can use them ti understand the industry better and consider external influences t
- set realistic objectives and devise appropriate strategies to profit max
Porters five forces help established companies understand their current competitive environment and identify strategies to maintain or improve their position
what are porters 5 forces
- threat of new market entrants, how easy enter market - barriers to entry
-threat of substitute products -
-bargaining power of customers- buying power
-bargaining power of suppliers- supplier power
competition
barriers to entry examples and explanation
barriers high- monopsony profits, low= normal profits
- cost advantages
-high investment requirements - brand loyalty
- economies of scale
-patents
-distribution channels e.g. struggle to gt shelf space e.g. supermarkets or access to suppliers
supplier power
higher supplier power= lower profits for business lowering profit margins
lower supplier power= customers able bargain for lower prices if buying in bulk e.g. Tescos have significant buying port exerted onto supplies higher profit margin
factors/ examples
-alternative suppliers
- power of business/ customers
-type of good selling difficult to produce, USP, hard to find elsewhere
- backwards vertical integration
-substitutes
buying power
whether customer has power over e.g. suppliers o bargain lower prices , high power, can bargain Lower prices especially if buying in bulk higher profits
factors
-buying in bulk
-USP/ exclusivity
alternative suppliers
-most of compass profits from bsuiness= have more power know they are dependant on them for the suppliers success
- brand identity/ branded= less control
PED for product if elastic will want lower price inelastic higher
- forward vertical integration
competition
monopoly/ perfect competition lower comp = higher profits
maturity of market = already established market leaders unlikely attract new entrants
collusive activity
differentiated or not
brand loyalty
horizontal integration- large market power limited comp
patents and license
substitutes
more substitutes weaker position of business e.g. TV’s
- technology can makemarkes more easily accessale and make more competition
- costs for switching
level of substitution, how close are substitutes
XED
patents and licences
- barriers
strategies - barriers to entry
keeping customers
-loyalty schemes
-bonuses to customers
discounts
buying up land and properties so competition unable access
supplier power- strategies
vertically integrate
- taking away supplier from competitors
buying power
customer loyalty
- promotions
-loyalty schemes
-price competitive strong brand image
USP
degree of competition
pricing strategies
making products more available and wasy access increasing distribution
reward loyalty
profit innovation
tak eon board trends and fashions
USP
increase advertising
threat of subs
- reduce selling prives
improve quality
increase investment in marketing
evaluation
- depends on nature of business/ industry- stable industry- supermarkets comp= LT although not so much in rapidly evolving new entrants and subssidies change quick limiting predictive power and ability to respond quicklu
large/ small- large can influence forces- model less relevant
small - reliant on external threats before making decision s
less useful in short term- tactical decisions
long term planning better- need to consider industry enviro
where is data from? avalibailiy and validiity
-takeovers and mergers- CMA
-increasing buyer power- lower profit margins, may seek new markets as strategic decision
- may need to consider retraining staff
-market constantly changing model assumes static
- doesn’t consider legislation
Does not account for internal factors like innovation, branding strength, or leadership, which are crucial for decision-making.
Example: In the fast-moving tech industry, new entrants or substitutes can appear quickly (e.g., AI tools disrupting traditional software), limiting the model’s relevance.
Useful as part of wider strategic analysis (alongside SWOT, PESTLE, financial analysis), but not sufficient alone.
Businesses need to consider quantitative data, customer behavior, and internal capabilities to make fully informed decisions.
structure for porters exam Q
- defintion
- for each force, senance explaining force
-judge degree of that force and apply to vase
impact of the level of thes force on ability of business to influence market, price and profitability
how likely each force is going to impact business and if so how will they deal with this
