Porters five forces Flashcards
What are porters five forces?
- Suppliers
- Potential entrants
- Buyers
- Substitutes
- Industry competitors
What is internal rivalry?
Competition for market share amongst the firms in the industry
Internal rivalry is likely to impact profitability negatively when:
- There are numerous equal competitors
- High exit barriers
Price competition heats up when
- There are many sellers
- Some firms have cost advantages
- Excess capacity
How does entry hurt incumbent’s profitability?
- Cutting into market share
- Intensifying internal rivalry > Decline in margins
Barriers to entry can be:
- Exogenous
- Endogenous
What does exogenous entry barrier mean?
Nature of the industry
What does endogenous entry barrier mean?
Incumbents strategic choices
Factors that affect the threat of entry are:
- Minimum efficient scale
- Government policies
- Brand loyalty of consumers
Availability of substitutes erodes:
The demand for an industry’s output
Changes in demand can in turn affect:
- Internal rivalry
- Entry/exit
What kind of power do buyers have in competitive markets?
Indirect power
What are two ways a firm can outperform its rivals?
- Develop a cost advantage
- Develop a differentiation advantage
What are some strategies to cope with the five forces?
- Use strategies to reduce internal rivalries
- Increase switching costs for the customers
- Pursuing entry deterring strategies
What are some major barriers to entry
- Huge development costs
- Experience based advantages
- Buyer reluctance to buy from startups
- Customers
