Rivalry In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers.
Porters five forces is a competitive analysis model, it helps you to understand at the nature of competition within your industry, hence it is used when completing your industry analysis.
Discovering the Five Forces Michael Porter developed a framework, which identified 5 forces that act to either increase or reduce the competitive forces within an industry.
What you do in response to your analysis is up to you and your organizations creativity. Porters Five Forces — Overview of Each Force By completing a competitive analysis you are becomming informed on who has the bargaining power before you commence negotiations with your customers and suppliers.
Being informed ensues that your negotiations are less influenced by the skill of the negotiator and more by your commercial reality. Now lets look at each of these five forces in more detail.
This is driven, in part, by the number of prospective customers compared to the number of suppliers suppliers are your competitors. A strong or powerful customer can play you off against your competitors.
Where a less strong customer may simply Porters five force to Porters five force you. In general The greater the number of customers to your inductry the less commercial power any one customer will have The greater the number of competitors you have the greater your customers negotiating power However, other factors such as the significance of the customer to you or their ability to switch to your competitors also plays a part in determining who has the power.
To learn more about the bargaining power of your customers including the top 11 things to consider during your analysis, click hereyou will also find out how to apply each of these 11 points of analysis to your industry and you will learn from the many examples provided.
When finished use your browser back button to return to this page The Threat of New Entrants to Your Industry A new entrant to your industry is a brand new competitor or maybe a new brand from on old competitor.
New competitors are restricted by up front capital costs, access to technology or requirements to obtain licenses then your market position is likely to be protected.
However, if there are no barriers to entry your position could be weakened. For example if you own a craft shop and four more craft shops open near you, the collective scale of the five craft shops may attract significantly more people to the area resulting in growth of your business.
You need to determine if a new entrant is a good or a bad thing for your business. Find out more about the threat of new entrants Click here and get your free how to guide and free analysis template!
The Bargaining Power of Your Suppliers The bargaining power of your suppliers is like the bargaining power of customers only in reverse, you are now the customer, where before you were the supplier.
How dependant on your business is your supplier, or are you dependant on your supplier? How much power does your suppliers have? In general terms the fewer suppliers that you have to choose from the less power you have to negotiate.
Other factors such as the cost to switch suppliers also plays a part in determine who has the power.
You will find that a supplier with a unique product that contributes to the uniqueness of your product has a lot of negotiating power, unless they too are dependant on you.
Learn how to complete an analysis of the power of suppliers to your industry, click here for your detailed free how to guide and free analysis template!
The Threat of Substitute Products or Services A substitute product is a product that replaces the need for your product altogether. One example, Timber is the main component of house frames. However, more and more steel frames are being produced. From a timber mills perspective, steel is a substitute for timber in house frames.
Are your customers likely to find an alternative product or service to use instead of your product or service? Will substitute products or services erode your profits? To find out more about the threat of substitute products and services to your industry click here for your free how to guide and free template!
Rivalry Amongst Existing Firms In many industries most marketing is aimed at maintaining market share, especially when looking at fast moving consumer goods. The industry becomes stable and changes in market share tend to be slow.
However, are any of your competitors thinking about growing their business?Porter's Five Forces analysis is a framework that helps analyzing the level of competition within a certain industry.
It is especially useful when starting.
Mar 25, · By Maria Gabriela Marin Porter's Five Forces Model helps strategic business managers analyze the industry in which their companies operate to determine what can be done to get an advantage over their existing competitors and also to determine how attractive a particular industry would be for new entrants.
The competitive forces that shape strategy — in under two minutes. Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry, and helps determine an industry's weaknesses and strengths.
Jun 30, · An Interview with Michael E. Porter, Professor, Harvard University. Porter's five competitive forces is the basis for much . Porter's Five Forces A MODEL FOR INDUSTRY ANALYSIS. The model of pure competition implies that risk-adjusted rates of return should be .