Description
PORTER FIVE FORCES MODEL
PORTER’s FIVE FORCEs MODEL
PREPARED BY:
AMITANSHU SRIVASTAVA
INTRODUCTION
• The Five Forces model of Porter is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value...) of an industry structure.
• It captures the key elements of industry competition.
PORTER’s FIVE FORCEs MODEL
Potential entrants
Threat of new entrants
Bargaining power Industry competitors of suppliers
Suppliers
Rivalry among existing firms
Buyers
Bargaining power of buyers
Threat of substitutes
Substitute products
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Threat of New Entrants
Economies of Scale
Barriers to Entry
Product Differentiation Capital Requirements Customer Switching Costs Access to Distribution Channels Government Policy Expected Retaliation
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
Suppliers are likely to be powerful if:
Supplier industry is dominated by a few firms Suppliers’ products have few substitutes Buyer is not an important customer to supplier Suppliers’ product is an important input to buyers’ product Suppliers’ products are differentiated Suppliers’ products have high switching costs
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
Buyers are concentrated Purchase accounts for a significant fraction of supplier’s sales Products are undifferentiated Buyers face few switching costs Buyer presents a credible threat of backward integration Buyer has full information Buyers compete with the supplying industry by:
* Bargaining down prices * Forcing higher quality * Playing firms off of each other
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products
Threat of Substitute Products
Keys to evaluate substitute products:
Products with improving price/performance tradeoffs relative to present industry products
Products with similar function limit the prices firms can charge
Example:
Electronic security systems in place of security guards Fax machines in place of overnight mail delivery
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products
Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Using price competition
Staging advertising battles Increasing consumer warranties or service Making new product introductions
Occurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors
Coca-cola
• Traditional competition:
? Prices of Pepsi, local brands ? Market share ? Promotional actions of competition
• New entrants:
? New “look-a-like” manufacturers
• Substitute products:
? Fashionable new drinks, milk drinks, coffee, beer, ...
Coca-cola
• Suppliers:
? Price and availability of ingredients on world market ? Quality speed safety, traceability, flexibility of supply chain
• Buyers/consumers:
? High as a result of intense competition both among branded and unbranded products. ? Combined purchase power of shops, bars, supermarkets
Competitive Advantage
• The Competitive Advantage model of Porter learns that competitive strategy is about taking offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces.
• Companies can combat the pressure of the five forces and create competitive advantages.
• There are 2 basics types of Competitive Advantage :
? Cost leadership (low cost) ? Differentiation
Strengths of five forces model:
? The model is strong tool for competitive analysis at industry level. ? It provides useful input for performing a SWOT analysis.
Limitations
• Inside-out strategy is ignored (core competence) • It does not cope with synergies and interdependencies within the portfolio of large corporations (parenting advantage) • The environments which are characterized by rapid, systemic and radical change require more flexible, dynamic or emergent approaches to strategy formulation (disruptive innovation) • Sometimes it may be possible to create completely new markets instead of selecting from existing ones (blue ocean strategy)
doc_874722172.pptx
PORTER FIVE FORCES MODEL
PORTER’s FIVE FORCEs MODEL
PREPARED BY:
AMITANSHU SRIVASTAVA
INTRODUCTION
• The Five Forces model of Porter is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value...) of an industry structure.
• It captures the key elements of industry competition.
PORTER’s FIVE FORCEs MODEL
Potential entrants
Threat of new entrants
Bargaining power Industry competitors of suppliers
Suppliers
Rivalry among existing firms
Buyers
Bargaining power of buyers
Threat of substitutes
Substitute products
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Threat of New Entrants
Economies of Scale
Barriers to Entry
Product Differentiation Capital Requirements Customer Switching Costs Access to Distribution Channels Government Policy Expected Retaliation
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
Suppliers are likely to be powerful if:
Supplier industry is dominated by a few firms Suppliers’ products have few substitutes Buyer is not an important customer to supplier Suppliers’ product is an important input to buyers’ product Suppliers’ products are differentiated Suppliers’ products have high switching costs
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
Buyers are concentrated Purchase accounts for a significant fraction of supplier’s sales Products are undifferentiated Buyers face few switching costs Buyer presents a credible threat of backward integration Buyer has full information Buyers compete with the supplying industry by:
* Bargaining down prices * Forcing higher quality * Playing firms off of each other
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products
Threat of Substitute Products
Keys to evaluate substitute products:
Products with improving price/performance tradeoffs relative to present industry products
Products with similar function limit the prices firms can charge
Example:
Electronic security systems in place of security guards Fax machines in place of overnight mail delivery
PORTER’s FIVE FORCEs MODEL
Threat of Threat of New New Entrants Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products
Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Using price competition
Staging advertising battles Increasing consumer warranties or service Making new product introductions
Occurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors
Coca-cola
• Traditional competition:
? Prices of Pepsi, local brands ? Market share ? Promotional actions of competition
• New entrants:
? New “look-a-like” manufacturers
• Substitute products:
? Fashionable new drinks, milk drinks, coffee, beer, ...
Coca-cola
• Suppliers:
? Price and availability of ingredients on world market ? Quality speed safety, traceability, flexibility of supply chain
• Buyers/consumers:
? High as a result of intense competition both among branded and unbranded products. ? Combined purchase power of shops, bars, supermarkets
Competitive Advantage
• The Competitive Advantage model of Porter learns that competitive strategy is about taking offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces.
• Companies can combat the pressure of the five forces and create competitive advantages.
• There are 2 basics types of Competitive Advantage :
? Cost leadership (low cost) ? Differentiation
Strengths of five forces model:
? The model is strong tool for competitive analysis at industry level. ? It provides useful input for performing a SWOT analysis.
Limitations
• Inside-out strategy is ignored (core competence) • It does not cope with synergies and interdependencies within the portfolio of large corporations (parenting advantage) • The environments which are characterized by rapid, systemic and radical change require more flexible, dynamic or emergent approaches to strategy formulation (disruptive innovation) • Sometimes it may be possible to create completely new markets instead of selecting from existing ones (blue ocean strategy)
doc_874722172.pptx