Porters 5 forces - micro Flashcards
Define porters 5 forces
- Porter (2008) introduced five competitive forces that need to be understood by organisations in relation to the micro-environment and competitor analysis when considering strategy implementation and competitive advantage.
The Porter’s five forces of competition are; competition from substitutes, new entrants, established rivals, power of suppliers and the power of buyers (Grant & Jordan, 2015)
Understanding Porter’s 5 Forces and how they apply to an industry, can enable a company adjust its business strategy to better use its resources to generate higher earnings for its investors. (Investopedia, nd)
Limitations of porters 5 forces
Grundy (2006) presents limitations to the relevance of the five forces analysis. He argues that Porter fails to make the connection between the forces and possible management action. Once organisations have identified their position, how do they go about rectifying them?
Speed (1989) also supports Grundy’s perspective. Porters choice of forces have not been justified in its utilisation to organisation’s ability to analyse the environment context, no indication is given to how to operationalise any analysis, nor has any indication on how the relative power of the forces can determine potential counteractions to the firm’s market position.
The marketing audit success is down to the implementation of its recommendations, if no guidance is suggested on how to utilise the five forces analysis, its success is questionable.
What was Speed’s 1989 limitation of porters 5 forces
Speed (1989) also supports Grundy’s perspective. Porters choice of forces have not been justified in its utilisation to organisation’s ability to analyse the environment context, no indication is given to how to operationalise any analysis, nor has any indication on how the relative power of the forces can determine potential counteractions to the firm’s market position.
What was Grundy 2006 limitations porters 5 forces
Grundy (2006) presents limitations to the relevance of the five forces analysis. He argues that Porter fails to make the connection between the forces and possible management action. Once organisations have identified their position, how do they go about rectifying them?
what is the implementation limitation of porters 5 forces
The marketing audit success is down to the implementation of its recommendations, if no guidance is suggested on how to utilise the five forces analysis, its success is questionable.
define the importance of rivals force
The importance of this force is the number of competitors and their ability to threaten a company. The larger the number of competitors, along with the number of equivalent products and services they offer, the lesser the power of a company. Suppliers and buyers seek out a company’s competition if they are unable to receive a suitable deal. When competitive rivalry is low, a company has greater power to do what it wants to do to achieve higher sales and profits (Investopedia, nd)
define threat of new entrants
A company’s power is also affected by the force of new entrants into its market. The less time and money it costs for a competitor to enter a company’s market and be an effective competitor, the more a company’s position may be significantly weakened. An industry with strong barriers to entry is an attractive feature for companies that would prefer to operate in a space with fewer competitors (Investopedia, nd)
Define the power of suppliers
This force addresses how easily suppliers can drive up the price of goods and services. It is affected by the number of suppliers of key aspects of a good or service, how unique these aspects are, and how much it would cost a company to switch from one supplier to another. The fewer the number of suppliers, and the more a company depends upon a supplier, the more power a supplier holds (Investopedia, nd)
Power of customers
the ability customers have to drive prices down. It is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a customer to switch from one company to another. The smaller and more powerful a client base, the more power it holds (Investopedia, n.d)
threat of substitutes
Competitor substitutes that can be used in place of a company’s products or services pose a threat. For example, if customers rely on a company to provide a tool or service that can be substituted with another tool or service or by performing the task manually, and if this substitution is fairly easy and of low cost, a company’s power can be weakened. (Investopedia, nd)
