fiveforces recover
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PORTERS FIVE FORCES MODEL
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This tool was created by Harvard Business
School professor, Michael Porter.
To analyze the attractiveness and likely-profitability of an industry/ company.
By studying the structure of the model and
dynamics between these forces, a company candiscover opportunities for improving upon your
strategies.
WHAT IS THE MODEL ABOUT
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SIGNIFICANCE OF THE MODEL/ WHEN DO YOU USE
THE MODEL
Making a qualitative evaluation of a firm's strategicposition.
For most consultants, the framework is only a startingpoint or 'check-list' they might use.
The tool is used to identify whether new products,services or businesses have the potential to be profitable
Analyze Competitors position For Creating new strategies ,plans and investment
decision The Model also supplements SWOT analysis
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COMPETITORS RIVALRY
THREAT OF
SUBSTITUTES
BARGAINING
POWER OFTHE BUYERS
BARRIERS TO
ENTRY
BARGAINING
POWER OF THE
SUPPLIERS
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COMPETITORS /INDUSTRy RIVALRy:The rivalry amongst existing firmsanalysis will help you tounderstand the risk that your competitors may compete for market
position and if their competitive tactics are likely to be effective.
You will find that your competitors may compete for market
position using tactics such as;
price competition,
advertising,
increased customer service, or
through offering longer warrantee periods
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Analyzing Industry RivalryTo analyze industry rivalry in your industry,
you will need to consider the following
factors :
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Analysis criteria Description
Industy growth rate Refers to overall growth rate of your
industry.
High fixed cost Refers to the proportion of the totalindustry costs that are fixed and variable.
Product differences Refers to your ability to differentiateyour product based on tangible product
differences.
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Analysis criteria Description
Switching Costs Refers to the cost incurred by customers
of your industry to switch their source of
supply
Informational Complexity Refers to the how easy or hard it is to
understanding your products.
Exit Barriers Refers to the ease with which your
competitors can exit your industry.
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BARGAINING POWER OF THE BUyERS: Bargaining power of the buyers is the ability of thebuyers to put the firm under pressure to reduce the prices.It is also called as the Market of Output
To analyze the Bargaining Power of your Customers you will
need to review your industry by considering the following generic
criteria :
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Analysis criteria Description
The Differentiation of Outputs if the products or services in your industry are
similar or are you able to easily differentiateyour products and services from those of your
competitors?
Presence of Substitutes A substitute is a different product or service
that can be used instead of your industries
products or services. Substitutes are typically
products/services that are not in your industry.
Importance of volume to buyers Buyers who buy only a few of your products
each year are less likely to shop around for
price on those items.
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Analysis criteria Description
Cost relative to total buyer purchases Buyers tend to prioritize their negotiation
efforts in the areas where they spend the most
money. If your product or service is a large
expense for your customer, then you are more
likely to be the focus of their negotiations.
Buyer information about supplierproducts
This tends to relate to technical products,where the technology in the product is
different to the technology of the industry.
How easy is it for your customers to
understand your product? or your competitors
products?
Buyer profitability Buyer profitabilityare your customers
profitable and likely to remain profitable?
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BARGAINING POWER OF THE SUPPLIERSBargaining power of the suppliers is the ability of suppliers to
increase the price of the inputs and hence it is also called as the
Market of Inputs
It is found that as the bargaining power of suppliers increases
the industry profitability tends to decrease.
To analyze thebargaining power of suppliers to ones industry,
one will need to consider the following factors :
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Analysis criteria Description
Differentiation of Inputs Refers to valued, unique and tangible product
differences that exist only in your suppliers
products.
Switching Costs Refers to any cost incurred by you to switch
to another or a new supplier
Supplier concentration relative to
Industry concentration
Refers to the ratio of suppliers to buyers in
your industry
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Analysis criteria Description
Importance of volume to the supplier Refers to the suppliers capacity and the
volume that you purchase.
Cost relative to the total purchases of
the industry
Refers to the value to be derived from
entering into price negotiations
Impact of inputs on cost or
differentiation
Refers to the role your suppliers product
plays in differentiating your product or
service.
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Threat of substitutesAn analysis of the threat of substitute products will identify the
likelihood that customers to your industry will switch to
purchasing an alternative product from outside your industry.
To analyze the threat of Substitute Products, one needs to
consider the following factors :
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Analysis criteria Description
The relative price performance of
substitutes
Refers to the cost effectiveness of the
substitute products, (Total supply chain costs)
Switching costs Refers to any cost incurred by your customers
to switch to an alternative product
Buyer propensity to substitute Refers to your customers loyalty to your
product or service
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BARRIERS TO ENTRY:An analysis of the threat of new entrants will discover howhigh the entry barriers are in your industry. An industry withhigh barriers to entry will have less risk from new competitorsthan an industry with low barriers to entry.
An analysis of the threat of new entrants seeks to identify thebarriers to entry or the things about the industry that willmake it harder for a new entrant to shift into the industry.
To analyses the threat of new entrants to ones industry, one
needs to consider the following factors :
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Analysis criteria Description
Economies of scale Refers to the total size of an industry and the
level of concentration within that industry
Government policy Refers to a government regulation or policy
which prevents or prohibits others from
entering your industry
Expected retaliation Refers to the response existing competitors
may take to the emergence of a new
competitor.
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Analysis criteria Description
Stage in industry life cycle If an industry is new or emerging you will
expect to see an increase in the number of
competitors in that industry, however if an
industry is mature or in decline you are less
likely to see new entrants.
Absolute cost advantage Refers to the cost of producing your product
or service
Capital requirements Refers to the cost of producing your product
or service
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Thank you
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