Porter’s Five forces Model

Table of Contents
Introduction......................................................................................................................................1

Threat of New Entrants....................................................................................................................1

Bargaining Power of Suppliers........................................................................................................1

Bargaining Power of Buyers............................................................................................................1

Threat of Substitutes........................................................................................................................2

Intensity of Competitive Rivalry.....................................................................................................2

Conclusion.......................................................................................................................................2

References:......................................................................................................................................2
Introduction

The Porter Five Forces Model is a framework used to analyze the competitive environment of an
industry. It was developed by Michael Porter, a renowned Harvard Business School professor
and strategy expert (Ku & Yang, 2016, p. 251). The model identifies five key forces that shape
the competitive landscape of an industry, including the threat of new entrants, bargaining power
of suppliers, bargaining power of buyers, threat of substitutes, and intensity of competitive
rivalry. By understanding these forces, businesses can develop strategies to compete more
effectively and improve their profitability (Mariani & Gambardella, 2019, p. 1669).

Threat of New Entrants

The threat of new entrants refers to the degree of difficulty for new competitors to enter the
market. High barriers to entry such as high capital requirements, economies of scale, and brand
recognition make it difficult for new competitors to enter the market. On the other hand, low
barriers to entry such as low capital requirements and no economies of scale make it easy for
new competitors to enter the market. In industries with high barriers to entry, existing firms have
a competitive advantage and are able to maintain their market share and profitability (Luo et al.,
2016, p. 171).

Bargaining Power of Suppliers

The bargaining power of suppliers refers to the degree of power suppliers have in determining
the price of inputs. If there are few suppliers, they have greater bargaining power, allowing them
to increase prices and reduce the profitability of businesses that rely on their inputs. On the other
hand, if there are many suppliers, they have less bargaining power and are more likely to offer
lower prices to attract customers. In industries where suppliers have a high degree of bargaining
power, businesses need to find ways to reduce their dependence on suppliers or negotiate better
deals (Zhang, Liu, & Zhao, 2017, p. 67).
Bargaining Power of Buyers

The bargaining power of buyers refers to the degree of power buyers have in determining the
price of the final product. If there are few buyers, they have greater bargaining power, allowing
them to demand lower prices from businesses that rely on their purchases. On the other hand, if
there are many buyers, they have less bargaining power and are more likely to pay higher prices.
In industries where buyers have a high degree of bargaining power, businesses need to find ways
to differentiate their products and offer better value to attract customers (Kshetri, 2015, p. 540).

Threat of Substitutes

The threat of substitutes refers to the degree to which alternative products or services can replace
the product or service of the business. If there are many substitutes, the business may lose market
share or be forced to lower prices. On the other hand, if there are few substitutes, the business
has a competitive advantage and is able to maintain its market share and profitability. In
industries with high threat of substitutes, businesses need to find ways to differentiate their
products and offer better value to customers (Tello-Gamarra & Hernández-Perlines, 2016, p. 86).

Intensity of Competitive Rivalry

The intensity of competitive rivalry refers to the degree of competition among existing
businesses in the market. High competition means that businesses need to differentiate
themselves and offer better value to attract customers. On the other hand, low competition means
that businesses have a competitive advantage and are able to maintain their market share and
profitability. In industries with high intensity of competitive rivalry, businesses need to find
ways to differentiate their products and services and improve their value proposition (Vrontis,
Thrassou, & Lamprianou, 2018, p. 362).

Conclusion

The Porter Five Forces Model is a powerful tool for analyzing the competitive environment of an
industry. By understanding the five forces of the model, businesses can identify the strengths and
weaknesses of their industry and develop strategies to compete more effectively. The model
helps businesses to assess the competitive landscape, identify potential threats, and develop
strategies to improve their profitability. In conclusion, the Porter Five Forces Model is a valuable
tool for businesses to use in their strategic planning process (Kim & Kim, 2015, p. 620).

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