Scribd Logo
Upload

Welcome to Scribd!

  • 53 views

    Five Forces Modal

    Uploaded by

    Chetan Bansal
    Michael Porter introduced the Five Forces model in 1979 to analyze industry competition and business strategy. The five forces include: the threat of new entrants, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing competitors. The model helps companies understand the industry attractiveness and create competitive advantages through strategies that address the five forces, such as differentiation or cost leadership. While useful for industry analysis, limitations include its static nature and focus on existing competitors rather than innovation.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Five Forces Modal

    Uploaded by

    Chetan Bansal
    53 views27 pages
    Michael Porter introduced the Five Forces model in 1979 to analyze industry competition and business strategy. The five forces include: the threat of new entrants, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing competitors. The model helps companies understand the industry attractiveness and create competitive advantages through strategies that address the five forces, such as differentiation or cost leadership. While useful for industry analysis, limitations include its static nature and focus on existing competitors rather than innovation.

    Original Description:

    Five forces model - ME Porter

    Original Title

    five forces modal

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Michael Porter introduced the Five Forces model in 1979 to analyze industry competition and business strategy. The five forces include: the threat of new entrants, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing competitors. The model helps companies understand the industry attractiveness and create competitive advantages through strategies that address the five forces, such as differentiation or cost leadership. While useful for industry analysis, limitations include its static nature and focus on existing competitors rather than innovation.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    53 views27 pages

    Five Forces Modal

    Uploaded by

    Chetan Bansal
    Michael Porter introduced the Five Forces model in 1979 to analyze industry competition and business strategy. The five forces include: the threat of new entrants, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing competitors. The model helps companies understand the industry attractiveness and create competitive advantages through strategies that address the five forces, such as differentiation or cost leadership. While useful for industry analysis, limitations include its static nature and focus on existing competitors rather than innovation.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 27

    PORTER’s FIVE FORCEs MODEL

    PREPARED BY:
    Chetan bansal
    Robin
    Michael E. Porter

     Born in 1947.

     Professors in Harvard
    Business School.

     Introduced Porter's 5
    Forces Model which
    was published first in
    Harvard Business
    review(HBR)

     Written 18 books & over


    125 Articles.
    INTRODUCTION
    • The Five Forces model of Porter is an outside-in
    business unit strategy tool that is used to make an
    analysis of the attractiveness (value...) of an industry
    structure.

    • Collective strength of these forces determines the profit


    potential of an industry and thus its attractiveness
    PORTER’s Five Forces Chart
    Importance of The 5 Forces

    Measure and monitor


    strategy effectiveness

    Strategize :
    * Competitive advantage
    * Cost advantage
    * Market dominance
    * New product development
    * Contraction / Diversification
    * Price leadership
    * Global
    Industry analysis :
    * Re-engineering
    1) Industry relevance * Downsizing
    2) Industry players * De-layering
    3) Industry structure * Restructuring
    4) Future changes

    Basic knowledge How to deal with competition?


    of business strategy
    What strategy & forces that influence
    to use? the decision making
    PORTER’s FIVE FORCEs MODEL
    1. Threat of
    new entrants
    1. Threat of new entrants
    The market is full of competition. Not only the existing firms pose threat to
    the business, but the arrival of new entrants is also a challenge.

    As per the ideal scenario, the market is always open for entry and exits,
    resulting in comparable profits to all the firms.

    But, this is not applicable in the real picture market.

    In reality, all industries have some traits that protect their high profits and
    help them in warding off potential new entrants by erecting barriers
    Threats of New Entrants :
    McDonald’s company analysis

    1. The threat of new entrants in the fast food industry is


    high because there are no legal barriers.
    2. The economies of scale and the access of the
    distribution are the major barriers that firms face in the
    industry.
    3. Firms must spend a large amount of capital on
    advertising and marketing in order to enjoy successful
    existence and long life of a fast food outlet.
    4. Large established companies with strong brand names
    such as McDonald’s make it more difficult to enter the
    market because new entrants are faced with price
    competition from existing chain restaurants.
    5. Thus, it takes a pretty much time for a new business to
    establish in the fast food industry.
    Threat of New Entrants
    Economies of Scale

    Barriers to Product Differentiation


    Entry
    Capital Requirements

    Customer Switching Costs

    Access to Distribution Channels

    Government Policy

    Expected Retaliation
    PORTER’s FIVE FORCEs MODEL

    Bargaining
    Power of
    Suppliers
    Bargaining power of suppliers
    Since the company needs raw material for producing, therefore the
    producers have to build a relationship with its suppliers.
    When suppliers have the power in their hands, they can exert
    influence on the producing firms by selling them raw materials at
    higher prices.
    EXAMPLE

    Wal-Mart as an organization thrives on the basis of its


    relationship with its suppliers.
    PORTER’s FIVE FORCEs MODEL

    Threat of
    Substitute
    Products
    Threat of substitutes
    The substitutes can be defined as the products of other industries that
    have the ability to satisfy similar needs.

    Example: Coffee can be a substitute for tea, as it can be also used as a


    caffeine drink in the morning.

    When price of a substitute product changes, the demand of a related


    product also gets affected.

    When the number of substitute product increases, the competition also


    increases as the customers have more alternatives to select from. This
    forces the companies to raise or lower down the prices. Hence, it can be
    concluded that the competition created by the substitute firms is ‘price
    competition’.
    Threat of Substitute: Examples
    PORTER’s FIVE FORCEs MODEL

    s Bargaining
    Power of
    Buyers
    3. Bargaining power of buyers

    This has an important effect on the manufacturing industry.

    When there many producers and there is a single customer in the


    market,
    then that situation is called as ‘monopsony’.

    In these markets, the position of the buyer is very strong and he sets the
    price. In reality, only a few monopsony markets exists.

    The bargaining power of the buyers compels the firms to reduce the
    prices
    and may also demand a product or service of higher quality at low price.
    Bargaining power of Customers:
    Example of Coca-Cola Company

    depends on the marketing channel used. or Coca-Cola,

    1. Super Markets
    2. Convenience Stores
    3. Mass Merchandisers
    4. Soda Shop
    5. vending machine
    6. Restaurants and Food stores

    Bargaining power of buyer is high for fountain supermarkets


    and mass merchandising because of the low profitability and
    strong negotiation power of retail channels but for vending
    bargaining power is non- existing caused by high profitability.
    PORTER’s FIVE FORCEs MODEL

    Rivalry inside the


    industry
    5. Rivalry inside the industry
    For most industriesthe intensity of competitive rivalry is the
    major determinant of the competitiveness of the industry.

    Potential factors:

    • Sustainable competitive advantage through innovation


    • Competition between online and offline companies
    • Level of advertising expense
    • Powerful competitive strategy
    • Firm concentration ratio
    • Degree of transparency
    Intensity of rivalry among established firms
    : Examples
    Coca-cola
    • Traditional competition:
     Prices of Pepsi, local brands
     Market share
     Promotional actions of competition

    • New entrants:
     New “look-a-like” manufacturers

    • Substitute products:
     Fashionable new drinks, milk drinks, coffee, beer, ...
    Coca-cola
    • Suppliers:
     Price and availability of ingredients on world market
     Quality speed safety, traceability, flexibility of supply chain

    • Buyers/consumers:
     High as a result of intense competition both among
    branded and unbranded products.
     Combined purchase power of shops, bars, supermarkets
    Competitive Advantage
    • The Competitive Advantage model of Porter learns that
    competitive strategy is about taking offensive or defensive
    action to create a defendable position in an industry, in order
    to cope successfully with competitive forces.

    • Companies can combat the pressure of the five forces and


    create competitive advantages.

    • There are 2 basics types of Competitive Advantage :


     Cost leadership (low cost)
     Differentiation
    Strengths of five forces
    model:
     The model is strong tool for competitive analysis at
    industry level.

     It provides useful input for performing a SWOT


    analysis.
    Limitations
    • Inside-out strategy is ignored (core competence)

    • It does not cope with synergies and interdependencies


    within the portfolio of large corporations (parenting
    advantage)

    • The environments which are characterized by rapid, systemic and


    radical change require more flexible, dynamic or emergent
    approaches to strategy formulation (disruptive innovation)

    • Sometimes it may be possible to create completely new markets


    instead of selecting from existing ones (blue ocean strategy)

    You might also like