PORTER FIVE FORCES OF STRATEGIC

ANALYSIS

Submitted by-Narendra kumarCentral university of rajasthan2014mcom009

MICHAEL PORTER

“An industry’s profit potential is largely determined by the intensity of competitive rivalry within that industry”

Introduction The model of the five competitive forces was

developed by Michael Porter

An important tool for analyzing an organizations industry structure in strategic processes.

These forces determine the intensity of competition and hence the profitability and attractiveness of an industry

Impact on a company’s ability to compete in a given market

Porters 5 Forces Model

BARGAINING POWER OF SUPPLIER

The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services

Example- one co. is manufacturing goods another one co. is also doing the same but supplies goods to the first one co. hence it will be regarded as supplier rather than competitor.

bargaining power means cut short the marginal power of the co.

Supplier bargaining power is likely to be high when:-

Contd.. The market is dominated by a few large suppliers rather

than a fragmented source of supply There are no substitutes for the particular input Economies of scale Increased shifting cost all these factors are studied internally and externally to

make analysis availability of resources with the

co.

resource availability in the market

BARGAINING POWER OF CUSTOMER

Determines how much customers can impose pressure on margins and volumes.

Factors increased market competition substitute availability buyer’s capacity to produce Less switching cost for buyer buying in large quantity internal analysis- co should have sufficient amount of

resource. External analysis- willingness and ability of customer to

buy and pay for product

THREAT OF NEW ENTRANT when the market is having no barrier, it will affect

profitability of the co. factors: Increase in competition Loss of existing customer Loss of market share Reduction in economies of scale High product differentiation Therefore to deal internally more amount of tie

up is required for this goodwill and ability of association is req.

Contd.. to deal externally- healthy competition should be there The competitor goodwill is necessary

to tie up. Willingness of competitor to join

hands

THREAT OF SUBSTITUTES A threat from substitutes exists if there are

alternativeproducts with lower prices of better performanceparameters for the same purpose

The threat of substitutes is determined by following factors

Brand loyalty of customers Close customer relationships Current trends. Increase product differentiation Increase product obsolescence

Contd.. To deal with it internally- new technology

co. Should use with respect to product differentiation and resource availability

To deal externally – improve product quality complementary goods should also be

manufactured.

THREAT OF EXISTING COMPETITION

This force describes the intensity of competition between existing players (companies) in an industry

Competition between existing players is likely to be high when

There are many players of about the same size

Players have similar strategies

There is not much differentiation between players and their products

Contd.. To deal internally – Technology Ability of association to create share in the

market resources to deal externally- Willingness of others to make association Goodwill of existing companies/competitor

should be analysed when co prepare strategy.

Application/Uses of five forces model

Statistical analysis dynamic analysisAnalysis of options

Influencing the power of five forces

Criticism of porter’s five forces model

Applicability in the perfect market situation

Applicability in the static market applicability in the systematic

market or well organised market

Conclusion Thus, Porters Model of Five Competitive

Forces is a simple but powerful tool for understanding where power lies in a business situation.

It helps to understand both the strength of your current competitive position & thestrength of a position you are looking to move into.