Topic 2H: Competitive Forces

Question 1

What are the five competitive forces?

Answer 1

These are forces specific to the industry or organisation, which will determine long term shareholder returns.

Question 2

How are the five competitive forces used by business organisations?

Answer 2

To understand the inherent attractiveness of an Industry

By understanding inherent attractiveness of an industry

By undetstanding the impact of each individual force on on organnisation - actions may be doe to mitigate that force.

Question 3

What are the five forces?

Answer 3

Substitutes
Potential entrants
Buyer power
Supplier power
Competition and rivalry

Question 4

What are substitutes?

Answer 4

The threat that products will equally satisfy customers needs

Question 5

What are potential entrants?

Answer 5

The threat posed by by an outside organisation that may try to penetrate the marketplace, for example economies of scale, product differentiation, capital costs and distribution channels

Question 6

What is buyer power?

Answer 6

The power customers have to reduce price and incrase quality or simply shop around.

Question 7

What is supplier power?

Answer 7

The power suppliers have to increase price and reduce quality. Depends on monopoly power and switching costs and relative size of supplier

Question 8

What is competition and rivalry?

Answer 8

The inherent level of rivalry and competition in the industry between existing firms