PORTER’S FIVE FORCES MODEL

BYSREEJITH SREENIVASAN

Micheal Eugene Porter

Micheal Porter the Professor in industrial organization economics at Harward School Of Business Developed the Porter five forces analysis framework for analyzing industries

PROFITABLE MARKET YEILDING HIGH RETURN WILL DEFINITELY ATTRACT NEW BUSINESS TO VENTURE IN IT EXCEPT IF THERE IS AN ENTRY BARRIER AND EXIT BARRIER.

EXAMPLE E-COMMERCE SITES. WITH THE NEW ENTRANTS LIKE MYNTRA.COM, SHOPCLUES.COM, PAYTM, REDIFF.COM

POTENTIAL ENTRANTS

Suppliers of raw materials, components, labor, and services (such as expertise) to the Firm can be a source of power over the firm when there are few substitutes.

If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them.

Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.

THREAT FROM THE SUPPLIERS

THREAT OF SUBSTITUTESThe existence of products outside of the

domain of the common product boundaries increases the tendency of customers to switch to alternatives.

EXAMPLE SOAPS HAVE SUBSTITUTES LIKE HANDWASH, LIQUID SOAP, PAPER SOAP, FACE WASH , HAND SANITIZER.

Threat From The Buyers

The ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

The buyer power is high if the buyer has many alternatives.

They can force down the prices Availability of existing substitute

products. Example :- Smartphone market.

Threat From Competition And RivalryFor most industries the intensity of

competitive rivalry is the major determinant of the competitiveness of the industry.

Huge Advertising Expenses. Competitive Advantage through innovationPowerful competitive strategyExample :- major rivals in soft drink market

are Coco-Cola & Pepsi, Mountain Dew v/s Thums Up , Fanta v/s Mirinda, Slice v/s Maaza.

Thank You