Michael Porter’s Five Forces Model
In Retail Industry
Under the guidance of:
Anand Patil Sir.
Presented By:Sudheer Kumar.
Michael Porter (1980) considers that rivalry
(competition) on the market is result of the five
variables or main forces: rivalry level, bargaining
power of customers and that of suppliers, the
threat of new entrants and of substitute products.
These variables are interconnected. They are
illustrated in the matrix of the five competitive
forces of Porter.
These forces are using in several industrial
sectors. Like Retails, Telecom, Airline, Pharma etc.
1.Threat of New Entrants.
One trend that started over a decade ago has been a
decreasing number of independent retailers.
Walk through any mall and you'll notice that a majority of
them are chain stores.
While the barriers to start up a store are not impossible
to overcome, the ability to establish favorable supply
contracts, leases and be competitive is becoming virtually
Their vertical structure and centralized buying gives chain
stores a competitive advantage over independent
2.Bargaining power of suppliers.
Historically, retailers have tried to exploit relationships
Bargaining power of buyers is moderate because of the
size and concentration of major retailers.
To reduce power and you retain customers, retailers seek
to differentiate products and create strong brands.
Individual private customers have a relatively low
bargaining power in front of large retail chains, however,
their power is greater for small retailers, who are less
A contract with a large retailer such as Wal-Mart can
make or break a small supplier. In the retail industry,
suppliers tend to have very little power.
Key points for retailers in bargaining with suppliers
3.Power of Buyers.
Individually, customers have very little
bargaining power with retail stores.
It is very difficult to bargain with the clerk at
Safeway for a better price on grapes.
But as a whole, if customers demand highquality products at bargain prices, it helps keep
4.Threat of substitute products.
The tendency in retail is not to specialize in one
good or service, but to deal in a wide range of
products and services.
This means that what one store offers you will
likely find at another store.
Retailers offering products that are unique have
a distinct or absolute advantage over their
Productivity surplus got through the use of e-commerce, in comparison with the
5. Competitive Rivalry
Is increased by equal size and power of dominant
retailers who are pushing to increase market
The trend of extinction of small retailers through
acquisitions, mergers alliances and high cost to
exist this market.
Among leading group there are More,
Reliance store, Big bazar and Flipkart that are
dominating the large markets of retail sector
Rivalry among the competitor
•Reliance Retail, Aditya Birla Group , Vishal Retail’s,
Bharti and Walmart, etc
Threat of entrants
• FDI policy not favorable for international players.
• Domestic conglomerates looking to start retail chains.
•International players looking to foray India.
Bargaining power of supplier
•The bargaining power of suppliers varies depending
upon the target segment.
•The unorganised sector has a dominant position.
• There are few players who have a slight edge over
others on account of being established players and
enjoying brand distinction.
Bargaining power of buyers
• Consumers are price sensitive..
•Availability of more choice.
Threat of substitutes
1.The model of porter led to following conclusion
about threat of new entrants, bargaining power
of suppliers, bargaining power of customer, the
rivalry between existing firms on retail market in
Romanian and threat from substitute product.
2.In the retail sector barriers to entry are relatively
3.Consumer bargaining power is moderate because
size and concentration of major retailers
4.There are many threats on the retail market
penetration of large discount stores.
5. E-retailing is also threat to stable trade
6. Rivalry among existing firms in retail market in
Romanian is enhanced by equal size and
power of dominant retailers who pressured to
increase their market share.
7. The trend of extinction small retailers
through acquisitions , mergers or alliances and
high cost to exist this market