FIVE FORCES ANALYSIS

Five forces analysis helps the marketer to contrast a competitive environment. It

has similarities with other tools for environmental audit, such as PEST analysis, but
tends to focus on the single, stand alone, business or SBU (Strategic Business Unit)
rather than a single product or range of products. For example, Dell would analyze the
market for Business Computers i.e. one of its SBUs.

Five forces analysis looks at five key areas namely the threat of entry, the
bargaining power of buyers, the bargaining power of suppliers, the threat of substitutes,
and competitive rivalry.

Threat of Entry
It is not only present rivals that cause a threat to firms in an industry; the
possibility that new firms may enter the industry also affects competition. In theory,
any firm should be able to enter and exit a market, and if free entry and exit exists, then
profits always should be nominal. In reality, however, industries possess characteristics
that protect the high profit levels of firms in the market and inhibit additional rivals
from entering the market. These are barriers to entry.

Threat of New Entrants depends on: