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PORTER FIVE FORCES OF STRATEGIC
ANALYSIS
Submitted by-Narendra kumarCentral university of rajasthan2014mcom009
MICHAEL PORTER
“An industry’s profit potential is largely determined by the intensity of competitive rivalry within that industry”
Introduction The model of the five competitive forces was
developed by Michael Porter
An important tool for analyzing an organizations industry structure in strategic processes.
These forces determine the intensity of competition and hence the profitability and attractiveness of an industry
Impact on a company’s ability to compete in a given market
Porters 5 Forces Model
BARGAINING POWER OF SUPPLIER
The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services
Example- one co. is manufacturing goods another one co. is also doing the same but supplies goods to the first one co. hence it will be regarded as supplier rather than competitor.
bargaining power means cut short the marginal power of the co.
Supplier bargaining power is likely to be high when:-
Contd.. The market is dominated by a few large suppliers rather
than a fragmented source of supply There are no substitutes for the particular input Economies of scale Increased shifting cost all these factors are studied internally and externally to
make analysis availability of resources with the
co.
resource availability in the market
BARGAINING POWER OF CUSTOMER
Determines how much customers can impose pressure on margins and volumes.
Factors increased market competition substitute availability buyer’s capacity to produce Less switching cost for buyer buying in large quantity internal analysis- co should have sufficient amount of
resource. External analysis- willingness and ability of customer to
buy and pay for product
THREAT OF NEW ENTRANT when the market is having no barrier, it will affect
profitability of the co. factors: Increase in competition Loss of existing customer Loss of market share Reduction in economies of scale High product differentiation Therefore to deal internally more amount of tie
up is required for this goodwill and ability of association is req.
Contd.. to deal externally- healthy competition should be there The competitor goodwill is necessary
to tie up. Willingness of competitor to join
hands
THREAT OF SUBSTITUTES A threat from substitutes exists if there are
alternativeproducts with lower prices of better performanceparameters for the same purpose
The threat of substitutes is determined by following factors
Brand loyalty of customers Close customer relationships Current trends. Increase product differentiation Increase product obsolescence
Contd.. To deal with it internally- new technology
co. Should use with respect to product differentiation and resource availability
To deal externally – improve product quality complementary goods should also be
manufactured.
THREAT OF EXISTING COMPETITION
This force describes the intensity of competition between existing players (companies) in an industry
Competition between existing players is likely to be high when
There are many players of about the same size
Players have similar strategies
There is not much differentiation between players and their products
Contd.. To deal internally – Technology Ability of association to create share in the
market resources to deal externally- Willingness of others to make association Goodwill of existing companies/competitor
should be analysed when co prepare strategy.
Application/Uses of five forces model
Statistical analysis dynamic analysisAnalysis of options
Influencing the power of five forces
Criticism of porter’s five forces model
Applicability in the perfect market situation
Applicability in the static market applicability in the systematic
market or well organised market
Conclusion Thus, Porters Model of Five Competitive
Forces is a simple but powerful tool for understanding where power lies in a business situation.
It helps to understand both the strength of your current competitive position & thestrength of a position you are looking to move into.