Porter's Five Forces model is used to analyze the competitive environment in an industry and determine its profitability. The five forces are: 1) threat of new entrants, 2) bargaining power of suppliers, 3) threat of substitutes, 4) rivalry among existing competitors, and 5) bargaining power of customers. The model helps firms understand the industry structure and develop corporate strategies accordingly. For example, in the auto industry, there are many substitute options for sedans which increases the threat of substitutes. Suppliers also have strong bargaining power which affects industry profitability.

1. Porter’s Five Force Model
BY
ASHISH
BARAPATRE(13034)

2. Definition
“Porter’s five forces model is an analysis tool that uses five forces to determine the profitability
of an industry and shape a firm’s competitive strategy”
“It is a framework that classifies and analyses the most important forces affecting the intensity
of competition in an industry and its profitability level.”

3. Understanding the tool

4. 1. Threat of New Entrants
This force determines how easy (or not) it is to enter a particular industry. If an industry is profitable
and there are few barriers to enter, rivalry soon intensifies. When more organizations compete for
the same market share, profits start to fall. It is essential for existing organizations to create high
barriers for new entrants.

5. 2. Bargaining power of suppliers
Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their buyers.
This directly affects the buying firms’ profits because it has to pay more for materials. Suppliers have strong
bargaining power when:
There are few suppliers but many buyers;
Suppliers are large and threaten to forward integrate;
Few substitute raw materials exist;
Suppliers hold scarce resources;
Cost of switching raw materials is especially high.

6. 3. Threat of Substitutes
This force is especially threatening when buyers can easily find substitute products with
attractive prices or better quality and when buyers can switch from one product or service to
another with little cost. For example, to switch from coffee to tea doesn’t cost anything, unlike
switching from car to bicycle.

7. Example

8. 4. Rivalry Among Existing Competitors.
This force is the major determinant on how competitive and profitable an industry is. In competitive industry,
firms have to compete aggressively for a market share, which results in low profits. Rivalry among competitors
is intense when:
There are many competitors;
Exit barriers are high;
Industry of growth is slow or negative;
Products are not differentiated and can be easily substituted;
Competitors are of equal size;
Low customer loyalty.

9. 5.Bargaining power of customers (buyers)
The bargaining power of customers is also described as the market of outputs: the ability of
customers to put the firm under pressure, which also affects the customer's sensitivity to price
changes. Firms can take measures to reduce buyer power, such as implementing a loyalty
program. The buyer power is high if the buyer has many alternatives

10. Bargaining power of Customer
Customer bargaining power is likely to be high when:
Customers could produce the product themselves.
The product is not of strategically importance for the customer.
The customer knows about the production costs of the product.

11. ANALYSIS
Consumers are price sensitivity.
Availability of more choices.

12. A Buyer has power if:
Concentrated buying power.
Standard or Undifferentiated.
Low profit margins.
Strong potential.
Product or Service

13. Example
Factors Tata Nano advantage Buyer power
Differentiation Price, Durability, brand equity. Low
Concentration Large number of Consumers. Low
Profitability Easy availability of loans. Low

14. Strategy Options
Primary Strategies
Supporting Strategies

15. Complements. Complements increase the demand of the primary product with which they are used,
thus, increasing firm’s and industry’s profit potential.
For example, iTunes was created to complement iPod and added value for both products. As a result,
both iTunes and iPod sales increased, increasing Apple’s profits.
Sixth Force : Complements

16. Porters 5 force model of Airtel DTH
Inter firm
Rivalry Very high
Price war
litigations
Threats of new
entrants is low
DTH market is
already crowded
with 7 firms
Bargaining power
of Buyers high
Lots of options
&substitutes
price sensitive
buyer
Threats of
substitutes very
high
cable tv:- very
high
IPTV:- High
Bargaining
power of
suppliers very
high

17. Rivalry
within the
company is
very High
Threats of
new entrants
is High
Market
strength of
consumers
Increasing
Threats of
substitutes
very high Eg
for sedan
there are
many options
available
Market
strength of
suppliers is
High
Porters 5 force model of Maruti Suzuki

18. THANK YOU