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The 5 forces model by Michael Porter


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This presentation is a course given to would-be entrepreneurs on tools to be used in market research. This particular presentation is about competition research carried out with the 5 Forces model by Michael Porter

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The 5 forces model by Michael Porter

  1. 1. • Econometric analysis • The different dimensions of the economic sector allow the analysis of its strategic importance • Each sector is under pressure from both suppliers and customers PORTER’S Five Forces Framework2
  2. 2. • Variable pressures that exacerbate intra-sectoral competitive struggle • My favourite  because it is easily applicable to SMEs in the context of market research PORTER’S Five Forces Framework2
  3. 3. PORTER’S Five Forces Framework
  4. 4. • Indicator of the intensity of the internal competitive struggle in the sector analysed. Sub-dimensions : Relative concentration: concentration  = bargaining power  = the ability to exert pressure on the other. Bargaining power of suppliers2
  5. 5. – Related quality: the value of the final product is strongly determined by the quality of what is purchased from the supplier (example: passenger aircraft and engines RR, Snecma). – Product differentiation: it makes it very difficult to substitute one product for another and gives the supplier power over his customer. Bargaining power of suppliers2
  6. 6. - Cost of transfer - Integration possibilities: those downstream with an acceptable cost give the supplier significant bargaining power concerning his partner. - Distribution of the added value: precise knowledge of the partner's costs and earnings pressures from the one with the highest added value (example: suppliers to the supermarket sector) - The protection of public authorities Bargaining power of suppliers2
  7. 7. • Relative concentration • Related quality: important if the value of the final product is not determined by the quality of what is purchased from the supplier • Banalisation of products: easy substitution Bargaining power of customers2
  8. 8. • Transfer cost: low transfer cost = higher power • Integration possibilities: negotiating power with its partner but barriers to entry Example: Casino (distributor  innovator), Swatch (vertical integration) • Distribution of added value • Protection by the public authorities towards the customer Bargaining power of customers2
  9. 9. Assessment factors • Number and size of competitors that give a first indication of the nature of the competitive structure • Growth in the activity that weighs on the market (low growth accentuates tensions) • The importance of fixed or storage costs leads to a negative impact on the profitability of smaller companies a rivalry between existing competitors2
  10. 10. • Product neutrality or low transfer costs that exacerbate intra-sectoral control • The diversity of competitors makes it difficult to perceive the most dangerous competitors • Importance of strategic issues • The existence of high obstructions at the exit a rivalry between existing competitors2
  11. 11. • A company is likely to become a new entrant if it has an interest in: - Integration - A growing market - Profitability • Two assessment factors: - Barriers to entry (economies of scale and scope, product differentiation, need for capital - Fear of retaliation Threat of new entrants2
  12. 12. • Depends on technological developments (DVD, MP3, floppy disk) To anticipate the threat: • Be familiar with the functional use • Monitor emerging technologies Threat of substitutes2
  13. 13. • The regulation of competition and the limitation of violations • The amplifying role of other forces The role of public authorities (the 6th force)2
  14. 14. Example: Company car legislation (deductions based on CO2/km) The role of public authorities (the 6th force)2
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