Slide 3

Porter 5 Forces Analysis

An excellent framework that could help managers, entrepreneurs and investors
 Evaluate whether a business is operating in a profitable industry.
 Helps to oppose a competitive environment ( environment audit = environment
investigation) focus on the business not specific product.

Porter’s model deals with the strategy towards the opportunities and threats in the
organizations external environment (especially competitive strategy ).

Slide 4

Porter´s Model
Porter has identified five competitive forces that shape every industry and every market.
These forces determine the intensity of competition and hence the profitability .From the
results of Porter´s model analysis, strategies could be formulated to help companies
identify opportunities and avoid threats.

Slide 5
Each force in this framework could be categorized as :
 Strong
Strong forces are perceived as threats to the enterprise.
Strong forces have strong bargaining power thus limit the enterprise’s ability to increase
price or lower cost.
 Medium
 Weak
Weak forces are perceived as opportunities. Weak forces have low bargaining power
thus the enterprise could increase price or lower cost to sustain more profit.

Slide 6
Threat of Entry
New competitor could change major determinants of the market environment (e.g. prices,
customer loyalty).Always a latent pressure for reaction and adjustment for existing
players in the market.

Slide 7
Threat of entry
Economies of scale e.g. the benefits associated with bulk purchasing.The high or low
costs of entry e.g. how much will it cost for the latest technology?How long does it take
for new staff to acquire the necessary skills to do the work?How loyal are the end users
in this industry?

Slide 8

Ease of access to distribution channels e.g.: Do our competitors have the distribution
channels sewn up?Will competitors retaliate?Government action e.g. will new laws be
introduced that will weaken our competitive position?How important is differentiation?
E.g. The Champagne brand cannot be copied.

Slide 9
Bargaining Power of buyer
Especially Users Sensitive to prices.
Tourists looking for cheaphotels.com
More hotel competitors within a tourist hotspot, bargaining power of customer will be
higher because customer able to do comparison
Hotel will use different type of promotion, prices, advertisement or other way to attract
customer.

Slide 10
Bargaining Power of buyer
Buyers has ability to influence the prices and demand higher quality. Ex: airline industry
Trigger competition in a competitive environment ( airline industry).This forces airlines to
bring down prices in order to compete which gives the buyers the advantage of enjoying
lower prices and different promotions

Slide 11
Bargaining Power of buyer

How large are your buyers’ company?

How many companies are there for the buyer to choose from?
Are the buyers buying a huge volume?
Do you depend only on a few buyers to sustain your sales?
How hard is it for the buyers to switch and use a competing product?
Are the buyers purchasing from you as well as your competitors?
Do the buyers have the capacity to enter your business and produce the goods
themselves?

Slide 11
Bargaining Power of suppliers
The term 'suppliers' comprises all sources for inputs that are needed in order to provide
goods or services e.g. Hotel industry ( furnishings companies, training service providers,
marketing companies , ..etc)

Slide 12
Bargaining Power of suppliers

The more powerful a seller is on buyer, more influence the seller has.This influence
reduce the profits of the buyer through more advantageous pricing, limiting quality of the
product or service, or shifting some costs onto the buyer (e.g. shipping costs).

Slide 13
Bargaining power of suppliers
Suppliers are powerful if:
Suppliers are concentrated or differentiated: If there are only a few suppliers (or one) in
the market, the suppliers will have more leverage because of the lack of available
alternatives.

Significant costs involved in switching suppliers: Customers are less likely to switch
suppliers if there are large costs associated with switching.

Suppliers can forward integrate: If a supplier has the power to or threatens to forward
integrate, the buyer may be forced to accept influence from the supplier.

Slide 14
Bargaining power of suppliers
Are there substitutes for your suppliers’ products?
Do your suppliers serve multiple industries?
Does the total industry revenue accounting for only a small portion of the supplier’s total
revenue?
Do you have high switching cost to use another supplier?
Do suppliers have the capacity to enter your business?
Does your company capable to enter the supplier’s business?
Slide 15
Threat of substitute
A threat from substitutes exists if there are alternative products with lower prices of better
performance parameters for the same purpose. They could potentially attract a significant
proportion of market volume and hence reduce the potential sales volume for existing
players.Ex: Hotel face a threat of substitutes,(cottage and B&B , Inn ) popular and
acceptable for consumer (standard service with very reasonable price)

Slide 16
How many close substitutes are available?
How many close substitutes are available?
How pricy are the substitutes?
What is the perceived quality of the substitutes?

Slide 17
Rivality
This force describes the intensity of competition between existing players (companies) in
an industry.

High competitive pressure results in pressure on prices, margins, and hence, on

profitability for every single company in the industry

Rivalry among competitors can lead to an aggressive pricing and promotion in battles to
benefit and attract more customers. In hotel industry, there is low switching cost for
consumer, they can change hotel anytime so degree rivalry is very high.

 Strategies formulation
After analyzing each force individually, the next step is to interrupt the results of this
framework as a whole.having strong suppliers that are raising their prices, are you able to
shift the cost to your customers?
Do you have a weak buyer?
You can also formulate strategies according to the results to change your situation. For
instance, you can stop buying from your suppliers. You can also launch your own
retailers and sell your own goods through your own distribution channels.
Depending on your own situation, try to formulate the right strategies to increase your
bargaining power against the five forces.