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FIVE FORCES MODEL

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Five Forces Model by Michael Porter

For evaluating a company's competitive position, Michael Porter's Five Forces model is a
elaborate idea. A framework created by Michael Porter depicts an industry and, consequently,
businesses, as being shaped by five forces. The Five Forces model developed by Michael Porter
is frequently used in strategic planning. One of the most popular tools for business strategy
analysis is Porter's competitive five-forces model, which has proven useful when analyzing
strategic management models in a variety of contexts. External competition is mentioned in three
of Porter's five forces. The purpose of this essay is to look at how the five forces models are used
in various industries.

Application of Five Forces Model on McDonald Fast Food Company

Power of Buyers

As the fast food industry has grown significantly in recent years, many new players have
emerged to compete with McDonald's. In this competitive market, every company strives to
produce better products at lower costs. Businesses also focus on developing products that
distinguish them from their competitors in order to attract more customers. Customers have a
wide range of options when it comes to purchasing a product. We can conclude that buyer power
is higher in the fast food industry because switching costs are so low.

Power of Inputs and Supplies

Buyers of raw materials or supplies have little bargaining power because the fast food
industry relies on a diverse set of suppliers. The company may work with various suppliers for
meat, food, dairy products, and other items. If a company is dissatisfied with its current supplier,
it can easily switch to another because there are numerous suppliers for the same product.
Suppliers have little or no bargaining power in the fast food industry because there are so many
options for deciding whether or not to approach a supplier.

McDonald's bargaining power is currently relatively stable due to its positive working
relationships with suppliers. Supplier dependence on McDonald's is the same as supplier
dependence on McDonald's. On the one hand, McDonald's has a reliable supply chain with high-
quality materials at reasonable prices. Suppliers, on the other hand, are limited to doing business
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with McDonald's, a large consumer company. However, there are numerous alternative suppliers
who can replace current suppliers without significantly lowering quality.

Threats of New Entrance

Construction of a fast food restaurant is not prohibitively expensive, and it is simple for a
new player to enter the market and offer products at competitive prices. However, in order to
compete with established major fast food players such as McDonald's, new businesses must
make significant investments in equipment and restaurant construction, among other things. It is
extremely difficult for a new entrant to compete directly with their existing businesses due to
their standardized products and services at low prices, combined with a very strong brand. Each
year, new local fast food outlets open, so there is always the risk of new competitors. To
establish a recognizable brand and compete with well-known brands, however, a significant
capital investment and many years of operations are required.

Threats of Substitutes and Compliments

McDonald's faces fierce competition not only from competitors in the fast food industry,
but also from players in other industries that offer customers alternatives to their products.
Substitute products include those found in restaurants, supermarkets, and even food items such
as pizza. Several national chains, including KFC, Subway, Pizza Hut, Domino's, Salt n Pepper,
and Fri Chicks, offer similar substitutions. As we can see, there are many products that can be
substituted for fast food, regardless of how similar or dissimilar they are in nature.

Customers can easily obtain these alternatives, which they believe are of higher quality
and less expensive than the original products. People today are very concerned about their health,
and because the majority of them believe that fast food products are high in fat and calories, they
seek out foods that will better meet their nutritional needs.

Industry Competitivemess/Rivaly

In the fast food industry, businesses compete fiercely with one another. Fast food
restaurants have increased their efforts in recent years to compete with both premium food and
beverage producers and other quick service restaurants. In order to compete, McDonald's
recently introduced premium customizable coffee drinks. In order to compete with the morning
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breakfast chains, they expanded their breakfast menu and partnered with other fast food
restaurants. Given the abundance of fast food restaurants in the area, as well as competition from
other types of restaurants, it stands to reason that the industry would be fiercely competitive. As
a result, new competitors are very likely to enter the market.
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Reference

Samuelson, W., & Marks, S. G. 2006. Managerial economics. Boston: John Wiley & Sons, Inc.