porters five forces Flashcards
what is porters five forces and who created it
Michael Porter offered a structure for conducting analysis of a businesses competitive environment. Each force can either be favourable or adverse in relation to the impact on the business.
what are the forces
- Rivalry among existing competitors
- Threats of new entrants
- Bargaining power of customers
- Bargaining power of suppliers
- Threat of substitutes
what is the difference between low and high rival intensity markets in relation to the products + price
markets with high intensity of rivals tend to compete more on a lowest price competition and low cost producing. Whereas rivalry in low intense markets tends to have competition based on differentiation (Branding, product features/functions, innovation, marketing)
characteristics of low intense rivalry markets
- A few companies dominate the market
- Branding important to consumers
- Booming market gives opportunities for all
- Little spare capacity
- High barriers to entry
- No direct competition from abroad
characteristics of high intense rivalry markets
- Many competitors of roughly equal size
- Products relatively undifferentiated
- Market growth is slow
- Capacity utilisation low
- Low barriers to entry, cheaper/easier to enter the market
- Directly faces overseas competition
what is the danger of new companies entering the market largely dependant on
barriers to entry
Barriers to entry meaning
Factors in a market that can make it hard for new companies to break into the market
what are typical barriers to entry
- Patents and technical knowhow of staff
- Strong brand identity and customer loyalty
- High costs to customers of switching supplier
- Substantial network infrastructure
What does it mean for companies in markets which have a low threat of new entrants
They may be able to keep prices relatively high, enjoying high profit margins, with no fears of new rivals undercutting them
when is buying power unfavourable for the business
When the buying power between a business and their customers shifts in customers direction.
What type of companies would be unaffected/favourable by shifts in customers direction for buying power
Those that sell its product to many individual customers
What company would find consumer buying power to be unfavourable
Companies that sell their products to just a few large customers, unless they offer a discount too grave to ignore.
what context is customer power reduced significantly
where a businesses product is complex or such a major investment that customers may not be able to afford to change the firm they buy from.
what does the threat of substitutes consider
considers the chances that a product or service in another market may become seen by customers as a viable substitute for the product.
what are ‘threat of substitutes’ considered to be
indirect competitors, rather than companies selling exactly the same type of product or service
