Porter 5 Forces

Porter 5 Forces

1. Bargaining Power of Suppliers

   • Number of Suppliers
   • Size of Suppliers
   • Uniqueness of Service
   • Cost of change
   • It is primarily related to the power of suppliers have to raise their prices
     • Power will be higher where there are few suppliers
     • Power will bw also higher where there are significant switching costs associated with moving to another supplier

2. Bargaining Power of Buyers

   • Number of Customers
   • Size of Customers and size of orders
   • Differences between competitors
   • Price Sensitivity
   • Switching Costs
   • It is related to Customer ability to force prices down or get improved product quality
     • It also will be higher when customers are few and concentrated and when the offering is undifferentiated

3. We are talking about Strategic analysis and the Model can be also used for the Positioning Approach strategy. The Model is used in order to analyse the ATTRACTIVENESS of the industry. So that we are in the Micro Enviroment of a chosen Market.

4. Threat of New Entrants

   • Economies of Scale
   • Capital Investment requirements
   • Customer Switching Costs
   • Access to distribution Channels
   • Retaliation from existing Industry Playerrs
   • These are the Barriers to make it more difficult for New Entrants

5. Threat of Substitutes

   • Buyers' willingness to buy substitutes
   • Prices and Performance of Substitutes
   • The Cost of Switching to Subs
   • Reduces Attraction and Profitability of Market

6. Intensity of Rivalry

   • Structure of Competition- stronger rivalry with equally sized rivals, weaker with clear Market Leader
   • Structure of Industry's Costs- High FC encourages competitors to fill in the unused Capacity via Price Cutting
   • Degree of Differentiation- Industries that can differentiate their products more have less rivalry, unlike primary markets like coal and steel
   • Switching Costs-reduced rivalry when Buyers have the decision to buy from alternative supplier and have high switching costs
   • Strategic Objectives- more aggressive growth strategies from competition means more intensity, whereas 'milking profit' in mature industries means less intensity
   • Exit Barriers- High barriers to leaving Industry>High Costs like closing down factories = greater rivalry