porters 5 forces Flashcards
What is an industry?
a group of firms that market products which are close substitutes for each other… ex car industry
why are some industries more profitable than others?
The answer lies in the deep understanding that one will have of the dynamics of the competitive structure in an industry
how can the feasibility of an industry be assessed
thinking through how each force can effect you
measure the strength of each force
assess the strength of your position
profitability
can you influence each force to benefit you?
Michaels Porters Five Forces?
The most influential model for assessing the nature of completion in an industry
Explanation of Porters 5 forces?
there are 5 forces that determines industry attractiveness and in the long run profitability , it is also very useful for assessing the balance of power in more general situations
how does porters 5 forces work?
By looking at the 5 important forces that affect competition…….
what are the 5 forces that affect competition
supplier power-power of suppliers to drive up the prices of your inputs
buyer power-the power of your customers to drive down your prices
competitive rivalry- the strength of other competition in the industry
the threat of substitution-the extent to which different products can be used in place of your own
the threat of new entry- the ease with which new competitors can enter the market if they see you are making good profits( and drive your process down)
how can you asses the strength of your position and ability to make a sustained profit in the industry?
by thinking about how each force affects you and identifying the strength and direction of each force
threat of new entrants?
new entrants can raise the competition in an industry and therefore reduce your companies attractiveness…
what does the threat of new entrants largely depend on?
the barriers there are to enter the industry
what are key barriers to entry?
Economies of scale (demand and supply)
capita; / investment requirements
access to industry distribution channels
the likelihood of retaliation from existing industry players..(take overs or acquisitions)
threat of substitutes?
the presence of substitute products can lower industry attractiveness and profitability, because they limit price levels
threat of substitution depends on…
buyers willingness to substitute
the relative price and performance of substitutes
the costs of switching to substitutes
bargaining power of suppliers?
the cost of items bought from suppliers can have significant impact on the companies profitability…. if suppliers have high bargaining power over a company then in theory the companies industry is less attractive
what are suppliers?
they are businesses that supply materials and other products into the industry
when will the bargaining power of suppliers be high?
many buyers and a few dominant suppliers (monopolies)
there are undifferentiated highly valued products
buyers do not threaten to integrate backwards into supply
the industry is not a key customer group to the suppliers
bargaining power of buyers?
power of your consumers to drive down prices
who are buyers
they are the people/organisations that create demand in an industry
barging power of buyers is greater when?
there are few dominant buyers and many sellers in the industry
products are standardised
buyers threaten to integrate backwards into the industry
suppliers do not threaten to integrate forwards into the industry
the industry is not a key supplying group for buyers
The intensity of rivalry between competitors in an industry will depend on….
the structure of the competition degree of differentiation switching costs strategic objectives exit barriers
the structure of competition?
rivalry is more intense when there are many small or equally sized competitors and it will be less when an industry has a clear market leader
degree of differentation
industries where products are commodities(steal or Coal) have bigger rivalry and industries where competitors can differentiate their products have less rivalry
switching costs
rivalry is reduced where buyers have high switching costs .. eh.. there is a significant cost associated with with the decision to buy the product from an alternative supplier
strategic objectives
when competitors are perusing aggressive growth strategies, rivalry is more intense… where competitors are milking profits in mature industry the degree of rivalry is less
exit barriers?
when barriers to leaving an industry are high(the cost of shutting down is to much) the competitors tend to exhibit greater rivalry
