Porters 5 forces Flashcards
Outline Porter’s 5 Forces
- Bargaining power of suppliers
- Bargaining power of customers
- Threat of new entrants
- Threat of substitutes
- Rivalry amongst competitors (all contribute to this)
What paper can you refer to when discussing Porters 5 forces?
Porter, 2008
What is are the uses of Porters 5 forces (3 points)?
Provides “a framework for anticipating and influencing competition (and profitability) over time”
Important for “positioning” in STP
Crucial for defining the relevant industry(ies) in which a company competes
When is the threat of new entry high?
When the industry is profitable
When is the bargaining power of suppliers high (2 circumstances)?
When “it is more concentrated than the industry it sells to”
When switching costs are high
When is the bargaining power of customers high (3 things)?
When there are few customers buying a large volume
When there are many similar products in the market that they could easily switch to
When switching costs are low
When is the threat of substitutes high?
When the value of the substitute is better
What does the degree of rivalry depend on?
When is it high (3 things)?
Depends on the intensity and basis on which companies compete
High when…
- Competing firms are a similar size/power
- Exit barriers are high
- Rivals are committed to the business
What difficulties are faced by industry analysis?
Industry structure always changing
If an industry is defined too broadly/narrowly then the company risks choosing the wrong strategy and failing
What is a strategic group?
A group of firms that have similar strategies in a target market
Outline Porters generic competitive strategies
Cost Leadership
Cost Focus
Differentiation Leadership
Differentiation Focus
In what case would “cost leadership” and “differentiation leadership” be appropriate strategies for a company to adopt?
In a broad range of market or industry segments
In what case would “cost focus” and “differentiation focus” be appropriate strategies?
In a very narrow market
What is the aim of the “cost leadership” strategy
To be the lowest-cost producer. Typically involves mass production for economies of scale
Describe the “cost focus” strategy
Seeks low cost in jusr a few market segments
