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Porter's Five Forces Model

Porter's Five Forces model identifies and analyzes five competitive forces that shape every industry: the threat of new entrants, the power of suppliers, the power of buyers, the threat of substitutes, and competitive rivalry within an industry. The model helps determine an industry's weaknesses and strengths. It can be used to analyze the attractiveness of an industry and assess the competitive environment.

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Parth Natani
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38 views

Porter's Five Forces Model

Porter's Five Forces model identifies and analyzes five competitive forces that shape every industry: the threat of new entrants, the power of suppliers, the power of buyers, the threat of substitutes, and competitive rivalry within an industry. The model helps determine an industry's weaknesses and strengths. It can be used to analyze the attractiveness of an industry and assess the competitive environment.

Uploaded by

Parth Natani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Porter’s A model that identifies and analyses

five competitive forces that shape


Five Forces every industry and helps determine
Model an industry’s weaknesses and
strengths.
• Competitive Rivalry
• Potential of new entrants in the
industry
• Power of Suppliers
Porter’s • Power of Customers
Five Forces- • Threat of substitute products
• It refers to the number of competitors and
their ability to undercut a company.
Competition • The large number of competitors the lesser
in the the power of a company.
Industry • Conversely when a competitor rivalry is low,
a company has greater power to charge
higher prices and set the terms of deals to
achieve higher sales and profits.
• Price Wars
• Advertising Battles
What happens • Launches of New Products
when there is • Increased Customer Services and
Warranties.
high rivalry?
• Suppliers gain power if they can
increase their prices easily, or
reduce the quality of their product.
• The more suppliers you have to
Supplier Power choose from, the easier it will be to
switch to a cheaper alternative.
• But if there are fewer suppliers, and
you rely heavily on them, the
stronger their position – and their
ability to charge you more.
• When you deal with only a few savvy
customers, they have more power.
• But if you have many customers and little
competition, buyer power decreases.
Buyer • If the number of buyers is low compared to
Power the number of suppliers in an industry, then
they have what's known as "buyer power."
This means they may find it easy to switch to
new, cheaper competitors, which can
ultimately drive down prices.
• When there are many suppliers
and a few large buyers
Circumstances • When the buyers purchase in
in which the large quantities
bargaining • When the suppliers industry
power is depends on the buyers for a large
higher percentage of its total orders
The threat of substitution rises
when customers find it easy to
switch to another product, or when
a new and desirable product enters
Threat of the market unexpectedly.
Substitutes
• Your position can be affected by potential
rivals' ability to enter your market.

• If it takes little money and effort to enter your


Threat of New market and compete effectively, or if you have
little protection for your key technologies, then

Entry rivals can quickly enter your market and


weaken your position.

• However, if you have strong and durable


barriers to entry, then you can preserve a
favorable position and take fair advantage of it
• Product differentiation
• High Capital Cost
Various • Cost disadvantages
Entry • Access to distribution channel
Barriers- • Government Policy
• Patents etc.
A fictitious business owner called Martin. He's
deciding whether to switch his focus to
something in agriculture, as he likes the idea of
hands-on work, in a rural environment,
supplying people with something they really
need. He carries out a Five Forces analysis to
help him decide whether to buy a farm and
start a new enterprise – and meets some
surprises!
• The threat of new entry is quite high. If
anyone looks as if they're making a
sustained profit, new competitors can
come into the industry easily, reducing
profits.
• Competitive rivalry is extremely high. If
someone raises prices, they'll quickly be
undercut. Intense competition puts strong
downward pressure on prices.
• Buyer power is strong. Again this can put
a strong downward pressure on prices.
• There is some threat of
substitution. There's some cross-product
substitution and ability to import food.
• Porter's Five Forces model can help you to
analyze the attractiveness of a particular
industry, evaluate investment options, and
assess the competitive environment in your
market.
Purpose and
Benefits • Porter's Five Forces allows you to gain
valuable insights into your current market,
or one that you're considering moving into.
This can help you to develop a strategy to
succeed.

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