Professional Documents
Culture Documents
FORCES MODEL
1 By
Sujata Sawant
PORTERS 5 FORCES MODEL
Themodel of the Five Competitive Forces was
developed by Michael E. Porter
Threat of New
Entrants
Entrants
Competitive Rivalry
Bargaining Power between Bargaining Power
of Suppliers Existing Players of Customers
Threat of
Substitutes 3
PORTERS 5 FORCES MODEL- 1
Bargaining Power The term 'suppliers' comprises all sources for
of Suppliers inputs that are needed in order to provide
goods or services
• The market is dominated by a few large
suppliers rather than a fragmented source of
supply
• There are no substitutes for the particular input
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• The switching costs from one supplier to
another are high
PORTERS 5 FORCES MODEL- 2
• Customers could produce the product themselves
• The product is not of strategical importance for the
customer
• The customer knows about the production costs of
the product
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PORTERS 5 FORCES MODEL- 3
The threat of new entries will depend on the
Threat of
extent to which there are barriers to entry .
New Entrants
These are,
• High initial investments and fixed costs
• Brand loyalty of customers
• Scarcity of important resources, e.g. qualified expert
staff
• Existing players have close customer relations
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PORTERS 5 FORCES MODEL- 4
A threat from substitutes exists if there are alternative
Threat of products with lower prices of better performance
Substitutes parameters for the same purpose
The threat of substitutes is determined by following factors
• Brand loyalty of customers
• Close customer relationships
• Current trends.
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PORTERS 5 FORCES MODEL- 5
This force describes the intensity of competition
Competitive Rivalry
between existing players (companies) in an industry
between Existing Players
Competition between existing players is likely to be high
when
• There are many players of about the same size
• Players have similar strategies
• There is not much differentiation between players
and their products
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FIVE FORCE ANALYSIS
Three aspects of
corporate planning
Analysis of Options
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FIVE FORCES ANALYSIS CAN PROVIDE VALUABLE
INFORMATION FOR THREE ASPECTS OF CORPORATE
PLANNING
• Attractiveness of an industry
Statical Analysis • Insights on profitability
• Reveal insights about the potential future
attractiveness of the industry Insights on profitability
Dynamical Analysis
• Determines potential changes of competitive forces are
scenarios
• Improves their own competitive position
Analysis of Options • A new strategic direction
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INFLUENCING THE POWER OF FIVE
FORCES
Power of Five Forces
Reducing the
Reducing the Reducing the Reducing the Reducing the
Competitive Rivalry
Bargaining Bargaining Threat of Threat of
between Existing
Power of Suppliers Power of Customers New Entrants Substitutes
Players
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CONCLUSION
Thus, Porters Model of Five Competitive Forces is a
simple but powerful tool for understanding where power
lies in a business situation. It helps to understand both
the strength of your current competitive position & the
strength of a position you are looking to move into.
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