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Porters 5 Forces Model

Porter's Five Forces Model analyzes five competitive forces that determine the profitability of an industry. The five forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and the intensity of rivalry among existing competitors. Understanding these forces helps determine an industry's attractiveness and profit potential. It also identifies factors that could change an industry's competitive landscape over time.

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44 views

Porters 5 Forces Model

Porter's Five Forces Model analyzes five competitive forces that determine the profitability of an industry. The five forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and the intensity of rivalry among existing competitors. Understanding these forces helps determine an industry's attractiveness and profit potential. It also identifies factors that could change an industry's competitive landscape over time.

Uploaded by

Joy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Porter’s Five Forces Model

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Porter’s Five Forces Model

- Five competitive forces determine how much


economic value is created by the industry and
divided among the companies that compose
the industry versus the value that needs to be
bargained away by customers and suppliers,
or constrained by potential new entrants ( or
substitute products).
Porter’s Five Forces Model

- Therefore the 5F model helps to determine


the industry’s attractiveness ( ex. Potential for
profit)
- The right industry makes a huge difference in a
firm’s chances for success
- Also helps to identify what factors can vary for
the industry’s attractiveness to change as well
https://business-frontiers.org/
Threat of New Entrants
Barriers to Entry:
- Economies of Scale
- Product Differentiation
- Capital Requirements
- Access to Distribution Channels
- Cost Disadvantage Independent to Scale
- Government Policy
- Expected Retaliation
- Political protectionism
Bargaining Power of Suppliers
Determinants of the supplier’s power:
- Sales Volume
- Product Differentiation, Commoditization
- Buyer price sensitivity
- Buyer switching cost
- Number of Suppliers
- Substitute products
Threat of Substitute Products
- A constraint on how much can be charged
- Substitution can come from inside or outside
the industry
- The more substitutions the less attractive an
industry might be
Bargaining Power of Buyers
Determinants of Buyer’s power:
- Purchase volume
- Product differentiation, commoditization
- Price sensitivity
- Switching cost
- Number of firms to buy from
- Availability of substitute products
Intensity of Rivalry among Competitors
Rivalry among the firms is affected by the
following:

- competitor balance
- industry growth rate
- degree of differentiation
- competitive position

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