Porters Five Forces Flashcards
What is Porter’s Five Forces?
A framework developed by Michael E. Porter to analyze the competitive dynamics of an industry.
What does Porter’s Five Forces help businesses assess?
The strength of different market forces that impact profitability.
What is the first force in Porter’s Five Forces?
Threat of New Entrants.
What factors increase the threat of new entrants?
- Low capital requirements
- Lack of strong brand loyalty
- No regulatory barriers
What factors decrease the threat of new entrants?
- High startup costs
- Economies of scale
- Strong customer loyalty
- Government regulations
What is the second force in Porter’s Five Forces?
Bargaining Power of Suppliers.
What indicates high supplier power?
- Few suppliers exist
- No substitute inputs
- Suppliers offer differentiated products
- Switching costs are high
What indicates low supplier power?
- Many suppliers exist
- Easy to switch suppliers
- No supplier differentiation
What is the third force in Porter’s Five Forces?
Bargaining Power of Buyers (Customers).
What indicates high buyer power?
- Few buyers exist
- Buyers purchase in bulk
- Low switching costs
- Products are undifferentiated
What indicates low buyer power?
- Many buyers exist
- High switching costs
- Differentiated products
What is the fourth force in Porter’s Five Forces?
Threat of Substitute Products or Services.
What indicates a high threat of substitutes?
- Many substitutes exist
- Substitutes have better price-performance
- Switching costs are low
What indicates a low threat of substitutes?
- Few substitutes
- No price advantage in switching
- High brand loyalty
What is the fifth force in Porter’s Five Forces?
Industry Rivalry (Competitive Rivalry).
What indicates high industry rivalry?
- Many competitors
- Slow industry growth
- High fixed costs
- Little differentiation
What indicates low industry rivalry?
- Few competitors
- Strong brand differentiation
- Fast industry growth
What do Porter’s Five Forces analyze?
Industry attractiveness and profitability.
How does a strong force affect profitability?
It limits profitability.
How does a weak force affect profitability?
It increases profitability.
What do companies use the framework for?
To develop competitive strategies.
How do industry dynamics affect the forces?
They change over time, affecting how the forces interact.
