Topic: Porter's 5 Forces Model

Analysis and Case Study

Name: Mayank Ranjan

Roll no. 1023055
Class: B.Com(Hons.) Ist Year
Section: 'A'
Paper Name: Management Principles and
Application.
Paper Code: DSC 1.1
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Porters Five Forces Model Of
Competition
By Michael E. Porter
About Michael E. Porter
Michael E. Porter has for long been professor of Strategic Management
at Harvard School (USA). He is an authority on competitive strategy
and competitive advantage leve written sixteen books and more than one
hundred research papers “Competitive Strateg (1980). “Cases in
Competitive Strategy (1982). Competitive Advantage: Creating and
Sustaining Superior Performance’ (1985). The Competitive Advantage of
Nation (1990) are some of his books which are a must read in
management courses of universities and institutes throughout the world.
Porter has been awarded honorary doctorates from seve universities and
is the recipient of several awards and prizes.

Porter's Five Forces Model

Forces Driving Industry Competition 2

1.Threats of entry: New entrants to an industry bring new capacity, and attempt to gain market share.
When barriers to entry are high and a new entrant can expect sharp retaliation from the existing players,
the threat of entry will not be high. There are six sources of barriers to entry:
(a)Economies of scale-Economies of scale restrict entry by forcing the aspirant either to come on a large
scale or to accept a cost disadvantage. These economies may be in any area of business, eg, production,
marketing, financing, human resources,etc.
(b)Product differentiation- Due to product differentiation an existing firm is able to create customer
loyalty. A new entrant finds it difficult to overcome such loyalty and must spend beavily on adevertising.
Product differentiation may act as powerful harrier where brand loyalty is quite high such as in soft drinks,
cosmetics, bathing soaps and other personal care products.
(c)Cost disadvantages. The existing firms may have cost advantages which are not avilable to potential
rivals irrespective of their size. These advantages may accrue due to learning, proprietary technology access
to the best sources of raw material. Favourable location and so on. According to learning curve, cost per
unit declines as an organisation gains experience. New aspirants with no experience face higher costs than
the established firms. Thus, learning or experience curve can work as a powerful entry barer.
(d)Access to distribution channels.. The distribution channels enjoyed by the established firms may not be
available to the new entrants. The wholesale and retail channels may be limited and the existing firms might
have tied up with them. In such a case entry will be restricted. Sometimes, this barrier is so high that the new
entrant has to create an entirely new distribution channel as Timex did in the watch industry.
(e)Government policy The Government may restrict or even foreclose entry to an
industry through licensing when it feels that supply of a particular product exceeds its demand. The
Government may also create entry barriers through controls over raw material prices, pollution control,
product safety regulations,etc.
(f)Government Policy: The Government may restrict or even foreclose entry to an industrythrough
licensing when it feels that supply of a particular product exceeds its demand.The Government may also
create entry barriers through controls over raw material
prices, pollution control, product safety regulations, etc.

(2) Bargaining Power of Customers: When customer group is powerful there may be buyersmarket.
Powerful customers can shape product quality, prices, distribution channels, me bargaining power of
customers is high in the following circumstances:
(a)There are large-volume buyers and industry has heavy fixed costs.
(b)The product is standard or undifferentiated and, therefore, buyers can find alternative suppliers. (c)When
the product purchased forms a significant component (in terms of costs) of the buyer’s own product. Such
buyers will purchase selectively as in case of automobile components or TV picture tubes.
(d)If buyers operate on a low profit margin, they will be more prices sensitive.
(e)When the industry’s product is not important to the quality of buyers’ product.
(f)The buyers are likely to dominate the industry if they pose a problem of backward integration as in case
of textiles and automobiles.
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(3).Bargaining Power of Suppliers: Suppliers can exercise power on firms in an industry by raising prices of
goods and services. The supplier group is powerful in the following circumstance

(a)The group consists of a few firms and is more concentrated than the industry it sells.
(b)The product is unique or differentiated.
(c)It sells product as having no substitutes.
(d)It poses a threat of forward integration.

(4).Substitute products: The substitutability of products of an industry also determines te degree of

competition in that industry. In several cases product substitutes have affe the growth of industry. For
example, credit cards and debit cards are better substitute than. travellers cheques, Light Emitting Diodes
(LED) save more energy than CFL bus E-mail is quicker than a letter, one day cricket match is more
enjoyable than a match
The following factors determine how strong is the competitive pressure from sastaProducts:
(a) The substitute product is readily available and attractively priced
(b) The buyer views/perceives the substitute product as being better in terms of Performance, among
other relevant attributes.
© The costs of end products to switch to substitutes.

(5).Rivalry between existing firms: The various factors discussed above constitute external
competition. It is also necessary to analyse competition between the firms existing in the industry.
Strategists should seek answers to the following questions regarding competitors.
(1).Who are the major competitors and what are their current market share
(2). What are the main strengths and weaknesses of the competitors?
(3). How are their products positioned in terms of market segment or customer g
(4).What are the pricing policies, distribution channels and promotion level
competitors?
(5).How are the major brands differentiated from the customers' viewpoint?
(6).What is the brand image of each competitor's product?
(7). What customer needs are fulfilled, are there any unfulfilled needs?

Porter's model of competition highlights the fact that competition is more than just
rivalary with existing competitors, it provides framework to think how value is created and divided
among existing and potential participants in an industry.

How porter's model help a business firm?

Porter 5 Forces is a powerful tool for business analysis and strategy development. It can help you to
understand the competitive landscape, identify opportunities and threats, and develop strategies to
build a sustainable competitive advantage.An analysis of all f0ive competitive forces gives you a
comprehensive view of the factors affecting profitability in your industry. When you understand each
force, you can formulate a strategy that will allow the company to better cope with competitive forces
and increase profit potential.
 Case study analysis 4

Coca-Cola, or Coke, is a carbonated soft drink manufactured by the Coca-Cola Company. In 2013, Coke
products were sold in over 200 countries worldwide, with consumers drinking more than 1.8 billion
company beverage servings each day.[1] Coca-Cola ranked No. 87 in the 2018 Fortune 500 list of the
largest United States corporations by total revenue.[2] Based on Interbrand's "best global brand" study of
2020, Coca-Cola was the world's sixth most valuable brand.

Coca Cola Porter’s Five Forces analysis covers the company’s competitive landscape as well as the factors
affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of
new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and
competitive rivalry. Let us start the Coca Cola Porter Five Forces Analysis:

Threat of New Entrants: There are significant barriers to entry into the industry specifically on the scale at
which Coca-Cola Operates. Coca-Cola has 1000s of bottling plants and thousands of distribution centers to
match its scale. Hence, the Threat of New Entrants is Significantly lower.

The Bargaining Power of Buyers: Buyers Exude significant loyalty. Also from an option point of view, they
are limited to Pepsi. Hence, the bargaining power of the Buyers is significantly limited by the distribution
reach of Coca Cola.

The bargaining power of suppliers: The Suppliers of Coca-Cola are represented by bottlers and plastic
bottle suppliers. There is no significant technology differentiation and the cost of Switching is relatively
easy.

The threat of substitutes: The only substitute which can match the prowess of Coca-Cola is Pepsico. Hence
There are not a lot of Substitutes available in the market.But Coca Cola not only has to compete with other
soft drinks but other beverages that one can drink instead of Coca Cola. As the Switching cost is negligible
and the benefits of the substitute product are usually good, the threat of Substitutes is Strong.

Competitive rivalry: Last but not least the competitive rivalry between Pepsico and Coca-Cola is very
high. They match each other and compete in almost all markets and segments making them fierce rivals
in operational excellence, pricing, and human resource retention.The level of differentiation is
low.Hence, we can conclude that Competitive rivalry between the firms in the beverages industry is
strong.
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Conclusion
To conclude, the above Coca Cola Porter Five Forces Analysis highlights the various elements which impact its
competitive environment. This understanding helps to evaluate the various external business factors for any
company.Hence, going by the above analysis,, we would consider Coca-Cola’s attractiveness in Industry to be Very
High. The same is reciprocated by the fantastic financial performance and the way it defends the territory to kill new
entrants. This is also represented by the shareholder’s value it has created over the years.
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References
1. Wikipedia
2. Management Principles and Application by Dr. Shruti
Mathur
3. Fundamentals of Management by Dr. Pradeep Kumar
4. Investopedia
5. www.mbaskool.com