Porter Five Forces Analysis

ostiarius five forces analysisis a framework for effort analysis and business strategy development formed byMichael E. PorterofHarvard Business Schoolin 1979. It draws uponindustrial organizativirtuosoconomicsto derive five forces that determine the militant intensity and therefore runiveness of amarket. Attractiveness in this setting refers to the oerall fabrication profitability. An unattractive industry is one in which the conclave of these five forces acts to drive down overall profitability.A very unattractive industry would be one approaching pure competition, in which open profits for all firms argon driven tonormal profit. Five forces scourge of new competition Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will reduce profitability for all firms in the industry. Unless the entry of new firms can be blocked byincumbents, the abnormal profit rate will campaign towards zero (perfect competition). * The existence ofbarriers to entry(patents,rights, etc. The most attractive instalment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily. * Economies of output differences * Brand equity * Switching cost orsunk cost * Capital requirements * Access to distribution * Customer loyaltyto established brands * infinite cost * Industry profitability the much profitable the industry the more attractive it will be to new competitors. Threat of assuagement outputs or services The existence of products outside of the realm of the common product boundaries increases the dispositionof customers to switch to alternatives.Note that this should not be confused with competitors similar products but tout ensemble different ones instead. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitors similar product. Increased marketing for drinking tap water might shrink the pi e for both Coke and Pepsi, whereas increased Pepsi advertising would presumable grow the pie (increase consumption of all soft drinks), albeit while giving Pepsi a larger slice at Cokes expense. * Buyer propensity to substitute * congress price performance of substitute Buyerswitching costs * perceived level ofproduct differentiation * Number of substitute products available in the market * Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product. * Substandard product * step depreciation Bargaining power of customers (buyers) The bargaining power of customers is as well describe as the market of outputs the ability of customers to put thefirmunder pressure, which also affects the customers sensitivity to price changes. Buyer concent dimensionn tofirmconcentration ratio * Degree of dependency upon existing channels of distribution * Bargaining leverage, oddly in industries with highfixed cost * Buyer switching costs relative tofirmswitching costs * Buyer information approachability * Availability of existing substitute products * Buyerprice sensitivity * first derivative advantage (uniqueness) of industry products * RFMAnalysis Bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs.Suppliers of raw materials, components, crusade, and services (such as expertise) to thefirmcan be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e. g. , invest excessively high prices for unique resources. * Supplier switching costs relative tofirmswitching costs * Degree of differentiation of inputs * Impact of inputs on cost or differentiation * Presence of substitute inputs * Strength of distribution channel * Supplier concentration tofirmconcentration ratio * Employee solidarity (e. g. labor unions) Supplier competition ability to forward vertically integrate and overturn o ut the BUYER Ex. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from him. effectiveness of war-ridden rivalry For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. * Sustainablecompetitive advantagethrough variety * Competition between online and offline companies * Level ofadvertisingexpense * Powerfulcompetitive strategy * Flexibility through customization, volume and variety