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108yog
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porter 5 force model - January 22nd, 2010

Porters Five Forces Analysis


A Strategic Tool Ideas + Strategies + Marketing = Success

A Five Forces Analysis, as developed by Michael Porter, is an important marketing planning tool for looking at the competitive environment that affects your business. Understanding the competitive dynamics of your industry is critical to your potential success.

An industry is defined as a group of firms marketing products or services which are close substitutes for each other. Examples include the banking industry, the automotive industry and the furniture industry. The most influential model for analyzing the nature of competition within an industry is Michael Porter’s Five Forces Model. It can be used in conjunction with various other strategic tools for audit and analysis, such as the SWOT Analysis and the PEST Analysis.

The model is illustrated here:


Porter has determined that there are five forces that govern industry attractiveness and long-run profitability. These include the threat of entry of new competitors (new entrants), the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and the degree of rivalry between existing competitors.

Threat of New Entrants

In the first of the five forces, new competitors in industry can raise the level of competition, reducing its attractiveness to current members. The threat of new entrants largely depends on the height of the barriers to entry. Very high entry barriers exist in certain industries, such as shipbuilding, while other industries are quite easy to enter, such as real estate or restaurants. Some of the key barriers to entry include:
• Economies of scale
• Capital and/or investment requirements
• Customer’s costs to switch
• Access to industry distribution channels
• Likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can also decrease industry attractiveness and profitability by limiting price levels. The threat of substitute products is correlated with:
• Buyers' willingness to substitute products/services
• The relative price and performance of substitutes
• The cost of switching to one of the substitutes
Bargaining Power of Suppliers
Suppliers are defined as the businesses that supply materials & other products to the businesses within an industry.
The cost of items purchased from suppliers, such as raw materials and component parts, can have a significant impact on a company's bottom line. If suppliers gain strong bargaining power over an individual company, the company's industry becomes less attractive. The bargaining power of suppliers will be high when:
• There are many buyers and few dominant suppliers
• There are undifferentiated, highly valued products in the industry
• Suppliers threaten to integrate forward into the industry, illustrated by brand-name manufacturers threatening to set up their own retail outlets
• Buyers do not threaten to integrate backwards into the supply chain
• The industry does not play a key customer group role to the suppliers
Bargaining Power of Buyers
Buyers are the people and/or organizations who create the demand in an industry. The bargaining power of buyers is greater in the following instances:
• There are few dominant buyers and many sellers in the industry
• Products are standardized
• Buyers threaten to integrate backward into the industry
• Suppliers do not threaten to integrate forward into the buyer's industry
• The industry is not a main supplying group for the buyers
Intensity of Rivalry
The fifth of the five forces, the intensity of rivalry between competitors in an industry, depends chiefly on:
• The structure of competition - a rivalry is more intense where there are many small or closely-sized competitors; a rivalry is less intense when an industry has a clear market leader
• The structure of industry costs – an industry with high fixed costs motivates competitors to cut prices
• Degree of differentiation - industries where products are commodities, such as steel or coal, experience a greater degree of rivalry; industries where competitors can clearly differentiate their products find less rivalry
• Switching costs - rivalry is lowered where buyers face high switching costs, as when there is a high cost associated with the decision to buy a product from an alternative supplier
• Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry becomes more intense; when competitors are milking the profits in a mature industry, the degree of rivalry is lower
• Exit barriers - when the barriers (such as the cost to close down factories) to leaving an industry are high, then competitors tend to show a greater degree of rivalry
At Idea Drivers, we are dedicated to helping entrepreneurs, freelancers and small business people in driving great ideas from concept to reality…© Assisting you in creating an outstanding planning document for the marketing of your new or changing business is just one of the many ways we do that. Feel free to contact us and we’ll give you a hand. We’re ready when you are!

And by the way. . . if you know someone else who could use our services, please send us their information and we will be happy to follow up with them!
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Jitendra Mazee
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Re: porter 5 force model - February 25th, 2016

Quote:
Originally Posted by 108yog View Post

Porters Five Forces Analysis


A Strategic Tool Ideas + Strategies + Marketing = Success

A Five Forces Analysis, as developed by Michael Porter, is an important marketing planning tool for looking at the competitive environment that affects your business. Understanding the competitive dynamics of your industry is critical to your potential success.

An industry is defined as a group of firms marketing products or services which are close substitutes for each other. Examples include the banking industry, the automotive industry and the furniture industry. The most influential model for analyzing the nature of competition within an industry is Michael Porter’s Five Forces Model. It can be used in conjunction with various other strategic tools for audit and analysis, such as the SWOT Analysis and the PEST Analysis.

The model is illustrated here:


Porter has determined that there are five forces that govern industry attractiveness and long-run profitability. These include the threat of entry of new competitors (new entrants), the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and the degree of rivalry between existing competitors.

Threat of New Entrants

In the first of the five forces, new competitors in industry can raise the level of competition, reducing its attractiveness to current members. The threat of new entrants largely depends on the height of the barriers to entry. Very high entry barriers exist in certain industries, such as shipbuilding, while other industries are quite easy to enter, such as real estate or restaurants. Some of the key barriers to entry include:
• Economies of scale
• Capital and/or investment requirements
• Customer’s costs to switch
• Access to industry distribution channels
• Likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can also decrease industry attractiveness and profitability by limiting price levels. The threat of substitute products is correlated with:
• Buyers' willingness to substitute products/services
• The relative price and performance of substitutes
• The cost of switching to one of the substitutes
Bargaining Power of Suppliers
Suppliers are defined as the businesses that supply materials & other products to the businesses within an industry.
The cost of items purchased from suppliers, such as raw materials and component parts, can have a significant impact on a company's bottom line. If suppliers gain strong bargaining power over an individual company, the company's industry becomes less attractive. The bargaining power of suppliers will be high when:
• There are many buyers and few dominant suppliers
• There are undifferentiated, highly valued products in the industry
• Suppliers threaten to integrate forward into the industry, illustrated by brand-name manufacturers threatening to set up their own retail outlets
• Buyers do not threaten to integrate backwards into the supply chain
• The industry does not play a key customer group role to the suppliers
Bargaining Power of Buyers
Buyers are the people and/or organizations who create the demand in an industry. The bargaining power of buyers is greater in the following instances:
• There are few dominant buyers and many sellers in the industry
• Products are standardized
• Buyers threaten to integrate backward into the industry
• Suppliers do not threaten to integrate forward into the buyer's industry
• The industry is not a main supplying group for the buyers
Intensity of Rivalry
The fifth of the five forces, the intensity of rivalry between competitors in an industry, depends chiefly on:
• The structure of competition - a rivalry is more intense where there are many small or closely-sized competitors; a rivalry is less intense when an industry has a clear market leader
• The structure of industry costs – an industry with high fixed costs motivates competitors to cut prices
• Degree of differentiation - industries where products are commodities, such as steel or coal, experience a greater degree of rivalry; industries where competitors can clearly differentiate their products find less rivalry
• Switching costs - rivalry is lowered where buyers face high switching costs, as when there is a high cost associated with the decision to buy a product from an alternative supplier
• Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry becomes more intense; when competitors are milking the profits in a mature industry, the degree of rivalry is lower
• Exit barriers - when the barriers (such as the cost to close down factories) to leaving an industry are high, then competitors tend to show a greater degree of rivalry
At Idea Drivers, we are dedicated to helping entrepreneurs, freelancers and small business people in driving great ideas from concept to reality…© Assisting you in creating an outstanding planning document for the marketing of your new or changing business is just one of the many ways we do that. Feel free to contact us and we’ll give you a hand. We’re ready when you are!

And by the way. . . if you know someone else who could use our services, please send us their information and we will be happy to follow up with them!
Hey friend, thanks for the article and explaining about the topic. As we know that Porter's five forces evaluation is a platform that tries to evaluate the level of competition within an industry and enterprise tactic improvement. I am also uploading a document where you would get more detailed information.
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File Type: ppt Porter's_Five_Forces_Model.ppt (543.5 KB, 0 views)
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