Subject: BAM 040 – Managerial Economics

Activity 2: Porter’s Five Forces Framework

Questions:
1. Which of the following Porter’s five forces framework gives the most impact on the
sustainability of Industry Profit? Why?
2. How does the buyer drive the prices of businesses down?

Porter’s Five Forces Framework

This framework helps the business assess and analyze its strategies to boost its attractiveness
and profitability. This would furthermore explain and examine the factors that could impact the
business environment.

Among Porter's five forces framework, the Bargaining Power of Buyers would give the most
impact on the sustainability of Industry Profit. It is because the number of customers that would buy
your goods or services will reflect the revenue generated by the business. The customers are the
reason why the business existed in the first place. If you have a higher number of customers, you have
the higher power when it comes to giving the prices for the products or services you offer, and the
opposite would happen if you only have a few customers. The fact that you have an impressive
number of customers means that a huge amount of revenue is generated. Thus, giving the business
higher industry profit.

The buyer drives the prices of businesses down through the power they have. Given that the
buyer is the priority of the business when there is only a small number of them, they can demand the
prices. He/she will take advantage of the situation and the businesses would be left with no other
alternative. Since their objective is to sell their products or services.

To sum it up, Porter’s five forces framework played an important role in the strategies made
by businesses to sustain their profitability and survival in the industry. All the five forces frameworks
are helpful. It's up to the business entities how they could efficiently apply it.