Porter five forces model

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Porter five forces model

  1. 1. Group GGroup Member IDKazi Tanvirul Islam B040006S.M. Zayed Siraj B040016Jannatul Ferdows B040017Md. Tajmilur Rahman B040036Umme Kulsum B020050
  2. 2. Porter five forces model1. Risk of entry by potential competitors2. Rivalry among Established Companies3. The Bargaining Power of Buyers4. The Bargaining Power of Suppliers5. Threat of Substitutes
  3. 3. Risk of entry by potential competitorsCompanies that are not currently competing in an industry but have the capability to do so if they choose are potential competitors. Incumbent companies are those already operating in an industry, try to discourage the potential competitors from entering the industry.Whether potential companies will come into market or not that depend on barriers to entry.Barriers to entry are the factors that make it costly for companies to entry an industry.The following are barriers to entry:-a) Brand loyalty:- Brand loyalty is when consumers have particular preference for products from firms that are already established. Not switch one brand to another.b) Absolute Cost Advantage:- Superior production process. Control of particular inputs required for production. Access to cheaper funds.c) Economic of Scale:- Economies of scale occurs when a firms expands its outputs to make unit costs fall. Produce more cost is low.d) Switch cost:- Switching costs that cost customers their time, energy, and money to stop using those products from an established company to use products from new entrants is considered high switching cost.e) Government regulation:
  4. 4. Rivalry among Established CompaniesThe extent of rivalry among established companies is a function of three factors:-a) Industry Competitive Structure Fragmented- restaurant, Health club. Consolidated- aerospace, automobiles.b) Demand conditions; growing demand is opportunities and declining demand is threat.c) Height of exit barriers; Investment in plant and equipment that have no alternative uses and can not be sold off. High fixed cost of exit. Emotional attachment to an industry. Economic dependence on the industry as there is no diversification.
  5. 5. The Bargaining Power of BuyersBuyers are the most powerful in the following circumstances:-a) When the supply industry is composed of many small companies and buyer are few in number and large.b) When the buyers purchases large quantities.c) When the supply industry depends on buyers for a large percentage of its total orders.d) When the buyer can switch orders between supply companies at low cost, thereby playing off companies against each other to force down prices.e) When it economically feasible for the buyers to purchase the input from several companies at once.f) When the buyers can use the threat to supply their own needs through vertical integration as a device for down prices.
  6. 6. The Bargaining Power of SuppliersSuppliers are the most powerful in the following circumstances:-a) When the product that supplier sell has few substitute and important to the company.b) When the company’s industry is not important customer to the suppliers.c) When suppliers respective product is differentiated to such an extent that it is costly for a company to switch from one suppliers to another.d) When, to rise price, suppliers can use the threat of vertically integrating forward into the industry and computing directly with the company.e) When buying companies cannot use the threat of vertically integrating backward and supplying their own need as a means of reducing input prices.
  7. 7. Threat of Substitutes• All firms in and industry compete with other industries offering substitute products or services. Steel producers are in competition with aluminum producers. Sugar producers are in competition with the firms which are introducing sugar-free products. The competitive force of closely-related substitute products impact sellers in several ways.• First, the presence of readily available and competitively priced substitutes places a ceiling on the prices companies in and industry can afford to charge without giving customers an incentive to switch to substitutes and thus eroding their own market position.• Another determinant of whether substitutes are a strong or weak competitive force is whether it is difficult or costly for customers to switch to substitutes to substitutes. Typical switching costs include, the cost of purchasing additional equipment, employees retraining costs, the time and costs to test the quality for technical help needed to make the changeover.• As a rule, the lower the price of substitutes and the higher the quality and performance of substitutes, the more intense are the competitive pressures posed by substitute products.
  8. 8. The End

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