Porter's 5 Forces framework analyzes five competitive forces that shape an industry: threat of new entry, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and competitive rivalry. The document also discusses Porter's Diamond model, which analyzes four attributes that create a national competitive advantage: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure and rivalry. As an example, Germany has developed a regional advantage in luxury car manufacturing due to strong supporting industries, skilled workforce, sophisticated buyers demanding powerful engines, and intense competition among rivals.

1. Porter’s 5 Forces Analysis
Marketing is the study and management of exchange relationships. Marketing is the business process
of creating relationships with and satisfying customers.
Supplier
Power
Threat of
Substitute
Buyer
Power
Threat of
New Entry Competitive
Rivalry
By- Ms.Shivani Naik Devrukhkar, ASSISTANT PROFESSOR,
(MBA, MCOM, PGDHE, NET, B.ED)

2. Porter’s 5 Forces Analysis
Marketing is the study and management of exchange relationships. Marketing is the business process
of creating relationships with and satisfying customers.
Supplier
Power
Threat of
Substitute
Buyer
Power
Threat of
New Entry Competitive
Rivalry

3. Porter’s 5 Forces Analysis
Supplier
Power
Threat of
Substitute
Buyer
Power
Threat of
New Entry Competitive
Rivalry

4. Suggested videos
Harvard Business Review
1. https://hbr.org/video/3590615226001/the-explainer-porters-five-forces
2. https://www.youtube.com/watch?v=XCWHSeDU-zk

5. •Porter's Five Forces is a framework for analyzing a company's competitive environment.
•Porter's Five Forces is a frequently used guideline for evaluating the competitive forces that influence a variety of
business sectors.
•It was created by Harvard Business School professor Michael E. Porter in 1979 and has since become an
important tool for managers.
•These forces include the number and power of a company's competitive rivals, potential new market entrants,
suppliers, customers, and substitute products that influence a company's profitability.
•Five Forces analysis can be used to guide business strategy to increase competitive advantage.

6. Understanding Porter's Five Forces
Porter's Five Forces is a business analysis model that helps to explain why various industries are able to
sustain different levels of profitability. The model was published in Michael E. Porter's book, Competitive
Strategy: Techniques for Analyzing Industries and Competitors in 1979.
The Five Forces model is widely used to analyze the industry structure of a company as well as its corporate
strategy. Porter identified five undeniable forces that play a part in shaping every market and industry in the
world, with some caveats. The Five Forces are frequently used to measure competition intensity,
attractiveness, and profitability of an industry or market.

8. Bargaining Power of
Buyers

9. Factors influencing bargaining power of buyers
• Seller’s switching costs
• Differentiation of products
• Buyer information availability
• Power of distribution channels (Amazon, Walmart, Apple)
• Network effects
• Bargaining leverage
• Other factors

10. • Buyer Price sensitivity
• Fragmentation of suppliers
• Discretionary v/s staples
• Share of wallet
• Recency and frequency of purchase
• Access to limited resources

11. Apple’s Strategy to exert power over the supply and buyer
side.
Read the patent battle between Apple and Qualcomm
https://www.reuters.com/legal/transactional/apple-loses-bid-
second-bite-qualcomm-patents-after-license-2021-11-10/

12. Bargaining Power of
Suppliers

13. Factors influencing bargaining power of suppliers
• Customer’s switching barriers
• Patent and industry standards
• Brand equity
• Limited competition
• Supplier v/s buyer concentration
• Strength of distribution channels
• Organization of labour
• After Sales

14. Threat of New entrants

15. Factors influencing new entrants
• Barriers to entry
• Economies of scale
• Industry profitability
• Powers of incumbents
a. Network effects
b. Customer Switching costs
c. Brand equity
d. Patents
e. Customer Loyalty
f. Product differentiation

16. Factors influencing new entrants
• Expected retaliatory actions
• After sales markets
• Other
a. Government Policy
b. Access to key suppliers or resources

17. Threat of Substitute
product or services

18. Factors affecting threat of substitutes
• Price performance comparison
• Buyer’s switching costs
• Purchase factors for consumers
• Product differentiation
• Number of substitute products

19. Rivalry among Existing competitors
Indicators of highly competitive industries:
• Many competitors of similar size
• Slow aggregate industry growth
• High fixed costs
• High exit barriers
• Highly committed players
• Competitors have different ways of measuring success

20. McDonald’s Case Study
https://panmore.com/mcdonalds-five-forces-analysis-porters-model
Please refer to the case study and prepare for classroom discussion

21. Porter’s Diamond Model

22. Determinants of National Advantage

23. Example: Germany’s Luxury Car Manufacturing Industry
• An example where Porter’s Diamond can be used to explain a regional advantage is in Germany’s
luxury high power car manufacturing industry, for brands such as Audi.
• The car manufacturing industry in German has a regional advantage because it satisfies the four
key factors in Porter’s Diamond. With firm strategy and rivalry, we see that there is strong rivalry
amongst lots of car manufacturers and so they compete intensely and keep developing more
innovative and quality products.
• There are certain demand conditions amongst the homebuyers. In parts of Germany, there are no
speed limits, so the sophisticated homebuyers want more powerful cars. Consequently, the industry
aims to cater for this particular need by developing innovative engines

24. • There are also related and supporting industries such as the iron and steel industry which provide
materials for car manufacturers, high level of education and training in the workforce, banks for
capital, component suppliers and IT infrastructure.
• There are also factor conditions, which include skilled engineers from renowned German
universities and the government’s focus on scientific research, which helps to push the car
manufacturing industry.
• The government has played a major role in creating the regional advantage as it supported and
funded scientific research and launched the construction of more roads and canals in the 19th
century. By, satisfying all these factors in Porter’s Diamond it, therefore, helps to explain why
Germany’s luxury high power car manufacturing industry has a regional advantage.
• Porter, M. (2008) The Five Competitive Forces That Shape Strategies, Harvard Business
Review.