fiveforces recover

7/29/2019 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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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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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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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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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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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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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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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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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

fiveforces recover

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