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Porter 5 Forces
Porter 5 Forces
Five Forces model of Michael Porter is a very elaborate concept for evaluating
company's competitive position. Michael Porter provided a framework that
models an industry and therefore implicitly also businesses as being influenced
by five forces. Michael Porter's Five Forces model is often used in strategic
planning.
Porter's competitive five forces model is probably one of the most commonly used
business strategy tools and has proven its usefulness in numerous situations.
When exploring strategic management models,
In general, any CEO or a strategic business manager is trying to steer his or her
business in a direction where the business will develop an edge over rival firms.
Michael Porter's model of Five Forces can be used to better understand the
industry context in which the firm operates. Porter's Five Forces model is a
strategy tool that is used to analyze attractiveness of an industry structure.
• Barriers to entry
• Threat of substitutes
• Bargaining power of buyers
• Bargaining power of suppliers
• Rivalry among the existing players
Some later economists also consider government as the sixth force in this model.
Barriers to entry measure how easy or difficult it is for new entrants to enter into
the industry. This can involve for example:
Every top decision makes has to ask: How easy can our product or service be
substituted? The following needs to be analyzed:
Ex.
Questions?
5-what happened to price, profit and MKT share when substitutes are
introduced?
Having a customer that has the leverage to dictate your prices is not a good
position.
For Example,
P & G have online portal to ask the customer about their views and new ideas
about the products of their desire
Force 4: Bargaining power of suppliers
For Examples,
The bargaining power of Microsoft and Intel in more because they are the huge
suppliers of software and hardware. Microsoft enforces computer manufacturers
to load Windows in their computers and place their logo on laptops, desktops
and server machines. Intel on the other hand also demands computer
manufacturers to place their logo on machines using Intel processor. Intel and
Microsoft are enforcing their terms and conditions also charging high cost from
the computer manufacturing companies.
For Example,
Dell computer known for low cost and best quality computer, laptop and server
manufacturer in the industry. The key behind dell success is maintaining better
relationship and collaboration with the supplier of computer hardware and
software.
Force 5: Rivalry among the existing players
Rivalry among competing firms is the most powerful of the five competitive
forces. The ongoing war between firms competing in the same industry for
gaining customer share to increase revenues and profits. The competition is
more intense if firm pursue strategies that gives competitive advantage over the
strategies pursued by rivals.
Rivalry is the fifth factor in the Five Forces model but probably the one with the
most attention
Examples,.
- In the past few years number of new features were added in the mobiles now it
not only give the functionality of cell phone but able to take pictures, make
videos, watch streaming and use Internet. The firms like Nokia, Siemens,
Samsung and other are following each other strategies to minimize the
differentiation in the product so customer can easily switch brands.
- In the past television companies offer maximum one year warranty but now
competition is tough other market player Samsung, LG, Haier, Philips and
others enter in the market with their high quality products to compete Sony,
that’s the reason customer is getting more services in the form of extended
warranty periods.
- Pepsi Vs Coca Cola are competing by increasing advertising and offering new
beverages in the market
Amazon.com is the best selling online book store offering huge library containing
millions of books on variety of subjects. People come to amazon because they
enjoy user friendly design, products, books and search capability of the site but
when it come to purchase the product customer move to other site such as
buy.com for purchase on discounts. Buy.com CEO says, ” The Internet is going
to shrink retailers margins to the point where they will not survive.”
Examples,
- Dell.com offer computers and laptops of high quality at low prices as compared
to the competitors.