5 forces model

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5 forces model

  1. 1. Porter’s 5 Forces ModelPotentialEntrantsIndustry CompetitionRivalry AmongExisting FirmsSuppliers BuyersSubstitutesThreat of new entrantsThreat of substitutegoods and servicesBargainingpowerof buyersBargainingpowerof suppliers
  2. 2. Competitive Forces – SomeExamples• Competitors vying for market share – PCmanufacturing• New entrants – the relative ease with whichnew firms can compete with establishedfirms – Internet travel agencies• Substitute goods and services – electronicgadgets in place of watchmen• Customers’ bargaining power – forces downprices, obtain better products at the sameprices• Suppliers’ bargaining power – raise prices,increase market share
  3. 3. Potential Entrants–Barriers to Entry• Economies of scale• Product differentiation• Capital requirements• Switching costs• Government policy• Cost disadvantages independent of scale
  4. 4. Potential Entrants–Barriers to Entry• Cost disadvantages independent of scale– Proprietary product technology– Favourable access to raw materials– Favourable locations– Government subsidies– Learning curve or experience curve
  5. 5. Buyers• A buyer group is powerful if the followingcircumstances hold true– It is concentrated– Purchases large volumes relative to theseller’s sales– Products it purchases from the industry arestandard or undifferentiated
  6. 6. Suppliers• A supplier or supplier group is powerful ifthe following circumstances hold true– Suppliers are connected and have a tacitagreement– They supply important ingredients that areneeded by the industry– Substitutes are not easily available

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