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Porter five forces of strategic analysis


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Narendra kumar
Central University of Rajasthan
Dept of Commerce
3r batch 2014-2016

Published in: Education
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Porter five forces of strategic analysis

  1. 1. PORTER FIVE FORCES OF STRATEGIC ANALYSIS Submitted by- Narendra kumar Central university of rajasthan 2014mcom009
  2. 2. MICHAEL PORTER  “An industry’s profit potential is largely determined by the intensity of competitive rivalry within that industry”
  3. 3. 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
  4. 4. Porters 5 Forces Model
  5. 5. 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:-
  6. 6. 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
  7. 7. 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
  8. 8. 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.
  9. 9. Contd.. to deal externally-  healthy competition should be there  The competitor goodwill is necessary to tie up.  Willingness of competitor to join hands
  10. 10. THREAT OF SUBSTITUTES A threat from substitutes exists if there are alternative products with lower prices of better performance parameters 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
  11. 11. 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.
  12. 12. 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
  13. 13. 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.
  14. 14. Application/Uses of five forces model  Statistical analysis  dynamic analysis  Analysis of options
  15. 15. Influencing the power of five forces
  16. 16. 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
  17. 17. 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 & the strength of a position you are looking to move into.