COMPETITIVE

FORCES MODEL
(PORTER’S 5 FORCES)
z

QUARTER 2_WEEK 2_DAY 1-4

 z
 One of the most famous models ever developed
for industry analysis, famously known as Porter’s
5 Forces, was introduced by Michael Porter in
his 1980 book “Competitive Strategy: Techniques
for Analyzing Industries and Competitors.”

 According to Porter, analysis of the five forces

gives an accurate impression of the industry and
makes analysis easier.
z
 COMPETITIVE
z FORCES MODEL
(PORTER’S 5 FORCES)
a. Intensity of industry rivalry.
The number of participants in the industry and their
respective market shares are a direct representation of the
competitiveness of the industry. These are directly affected by
all the factors mentioned above. Lack of differentiation in
products tends to add to the intensity of competition. High exit
costs such as high fixed assets, government restrictions, labor
unions, etc. also make the competitors fight the battle a little
harder.
 COMPETITIVE
z FORCES MODEL
(PORTER’S 5 FORCES)

b. Threat of potential entrants.

 This indicates the ease with which new firms can enter
the market of a particular industry. If it is easy to enter an
industry, companies face the constant risk of new
competitors. If the entry is difficult, whichever company
enjoys little competitive advantage reaps the benefits for a
longer period. Also, under difficult entry circumstances,
companies face a constant set of competitors.
 COMPETITIVE
z FORCES MODEL
(PORTER’S 5 FORCES)

c. Bargaining power of suppliers.

 This refers to the bargaining power of suppliers.
If the industry relies on a small number of
suppliers, they enjoy a considerable amount of
bargaining power. This can particularly affect
small businesses because it directly influences
the quality and the price of the final product.
 COMPETITIVE
z FORCES MODEL
(PORTER’S 5 FORCES)
d. Bargaining power of buyers.
 The complete opposite happens when the bargaining
power lies with the customers. If consumers/buyers
enjoy market power, they are able to negotiate lower
prices, better quality, or additional services and
discounts. This is the case in an industry with more
competitors but with a single buyer constituting a
large share of the industry’s sales.
 COMPETITIVE
z FORCES MODEL
(PORTER’S 5 FORCES)
e. Threat of substitute goods/services.
 The industry is always competing with another industry
producing a similar substitute product. Hence, all firms in an
industry have potential competitors from other industries.
This takes a toll on their profitability because they are
unable to charge exorbitant prices. Substitutes can take two
forms – products with the same function/quality but lesser
price, or products of the same price but of better quality or
providing more utility.
z
 SAMPLE
z

PORTER’S
5 FORCES
ANALYSIS
ON
EXISTING
z
COFFEE
SHOP
THE COMPETITIVE ENVIRONMENT OF STARBUCKS: PORTER’S FIVE
z
FORCES
 Author: Anne-Laure N.

 To understand how Starbucks has become not only the leader in coffee,
but also a strong and recognized brand, it is necessary to understand its
strategy with its competitors. Both domestic as Tully's Coffee, Gloria
Jean's, Caribou Coffee, and international competitors such as Dunkin
Donuts and McDonald's, always require Starbucks to evolve, differentiate
and grow.
 Let us study the Porter model to better analyze the strategy of the
brand. This model aims to identify the forces in the competitive
environment and their intensities, to adapt its strategy to gain competitive
advantage and well, to make a profit above the industry average.
z
EVALUATION
z
 Think of a new product you would want to introduce in the market. It can be a good
already sold but which you can innovate and improve, or it could be something new
you yourself conceptualized. Describe the product in terms of design, composition
as to materials used, product use and attributes which you believe are unique in that
product.
PRODUCT DESCRIPTION COMPOSITION AS TO PRODUCT USE AND
(in terms of design, you can MATERIALS USED ATTRIBUTES
draw it here)
     
EVALUATION
z
B. With the product that you wanted to introduce in the market,
perform a Porter’s 5 forces depending on the industry that you
wanted to engage in. (Refer to the given examples above
Threats of
New Entrants:

Rivalry:
Bargaining Power Bargaining
of Suppliers: Power of Buyers:

Threat from
substitutes: