Porter’s Five Forces Analysis
Introduction
Introduced more than thirty years ago by Professor Michael Porter of the Harvard Business School, five forces analysis has long been and remains perhaps the most popular analytical tool in the business world for industry analysis.
(Figure Porter’s Five Forces model – “Industry Analysis”).
The Purpose of Five Forces Analysis
Visit the executive suite of any company and the chances are very high that the chief executive officer and her vice presidents are relying on five forces analysis to understand their industry
The purpose of five forces analysis is to identify how much profit potential exists in an industry.
To do so, five forces analysis considers the interactions among the competitors in an industry, potential new entrants to the industry, substitutes for the industry’s offerings, suppliers to the industry, and the industry’s buyers.
If none of these five forces works to undermine profits in the industry, then the profit potential is very strong.
If all the forces work to undermine profits, then the profit potential is very weak. Most industries lie somewhere in between these extremes. This could involve, for example, all five forces providing firms with modest help or two forces encouraging profits while the other three undermine profits.
Once executives determine how much profit potential exists in an industry, they can then decide what strategic moves to make to be successful. If the situation looks bleak, for example, one possible move is to exit the industry.
Elements / Components of Five Forces Analysis
-
The Rivalry among Competitors in an Industry
The competitors in an industry are firms that produce similar products or services. Competitors use a variety of moves such as advertising, new offerings, and price cuts to try to outmaneuver one another to retain existing buyers and to attract new ones. Because competitors seek to serve the same general set of buyers, rivalry can become intense
Understanding the intensity of rivalry among an industry’s competitors is important because the degree of intensity helps shape the industry’s profit potential. Of particular concern is whether firms in an industry compete based on price. When competition is bitter and cutthroat, the prices competitors charge—and their profit margins—tend to go down. If, on the other hand, competitors avoid bitter rivalry, then price wars can be avoided and profit potential increases.
Industry concentration is an important aspect of competition in many industries. Industry concentration is the extent to which a small number of firms dominate an industry.
Among circuses, for example, the four largest companies collectively own 89 percent of the market. Meanwhile, these companies tend to keep their competition rather polite. Their advertising does not lampoon one another, and they do not put on shows in the same city at the same time. This does not guarantee that the circus industry will be profitable; there are four other forces to consider as well as the quality of each firm’s strategy. But low levels of rivalry certainly help build the profit potential of the industry.
2. The Threat of Potential New Entrants to an Industry
Competing within a highly profitable industry is desirable, but it can also attract unwanted attention from outside the industry. Potential new entrants to an industry are firms that do not currently compete in the industry but may in the future.
New entrants tend to reduce the profit potential of an industry by increasing its competitiveness.
If, for example, an industry consisting of five firms is entered by two new firms, this means that seven rather than five firms are now trying to attract the same general pool of customers. Thus executives need to analyze how likely it is that one or more new entrants will enter their industry as part of their effort to understand the profit potential that their industry offers.
New entrants can join the fray within an industry in several different ways. New entrants can be start-up companies created by entrepreneurs, foreign firms that decide to enter a new geographic area, supplier firms that choose to enter their customers’ business, or buyer firms that choose to enter their suppliers’ business.
Barrier to entry
Every industry is unique to some degree, but some general characteristics help to predict the likelihood that new entrants will join an industry.
New entry is less likely, for example, to the extent that existing competitors enjoy economies of scale (because new entrants struggle to match incumbents’ prices), capital requirements to enter the industry are high (because new entrants struggle to gather enough cash to get started), access to distribution channels is limited (because new entrants struggle to get their offerings to customers), governmental policy discourages new entry, differentiation among existing competitors is high (because each incumbent has a group of loyal customers that enjoy its unique features), switching costs are high (because this discourages customers from buying a new entrant’s offerings), expected retaliation from existing competitors is high, and cost advantages independent of size exist.
3.The Threat of Substitutes for an Industry’s Offerings
Executives need to take stock not only of their direct competition but also of players in other industries that can steal their customers.
Substitutes are offerings that differ from the goods and services provided by the competitors in an industry but that fill similar needs to what the industry offers .
How strong of a threat substitutes are depends on how effective substitutes are in serving an industry’s customers.
At first glance, it could appear that the satellite television business is a tranquil one because there are only two significant competitors—DIRECTV and DISH Network. These two industry giants, however, face a daunting challenge from substitutes. The closest substitute for satellite television is provided by cable television firms, such as Comcast and Charter Communications. DIRECTV and DISH Network also need to be wary of streaming video services, such as Netflix, and video rental services, such as Redbox. The availability of viable substitutes places stringent limits on what DIRECTV and DISH Network can charge for their services. If the satellite television firms raise their prices, customers will be tempted to obtain video programs from alternative sources. This limits the profit potential of the satellite television business.
The dividing line between which firms are competitors and which firms offer substitutes is a challenging issue for executives.
4.The Power of Suppliers to an Industry
Suppliers provide inputs that the firms in an industry need to create the goods and services that they in turn sell to their buyers. A variety of supplies are important to companies, including raw materials, financial resources, and labor .
The relative bargaining power between an industry’s competitors and its suppliers helps shape the profit potential of the industry.
If suppliers have greater leverage over the competitors than the competitors have over the suppliers, then suppliers can increase their prices over time. This cuts into competitors’ profit margins and makes them less likely to be prosperous.
On the other hand, if suppliers have less leverage over the competitors than the competitors have over the suppliers, then suppliers may be forced to lower their prices over time. This strengthens competitors’ profit margins and makes them more likely to be prosperous.
Thus when analyzing the profit potential of their industry, executives must carefully consider whether suppliers have the ability to demand higher prices.
5.The Power of an Industry’s Buyers
Buyers purchase the goods and services that the firms in an industry produce For Subway and other restaurants, buyers are individual people. In contrast, the buyers for some firms are other firms rather than end users. For Procter & Gamble, for example, buyers are retailers such as Walmart and Target who stock Procter & Gamble’s pharmaceuticals, hair care products, pet supplies, cleaning products, and other household goods on their shelves.
The relative bargaining power between an industry’s competitors and its buyers helps shape the profit potential of the industry.
If buyers have greater leverage over the competitors than the competitors have over the buyers, then the competitors may be forced to lower their prices over time. This weakens competitors’ profit margins and makes them less likely to be prosperous.
Walmart furnishes a good example. The mammoth retailer is notorious among manufacturers of goods for demanding lower and lower prices over time.
In 2008, for example, the firm threatened to stop selling compact discs if record companies did not lower their prices. Walmart has the power to insist on price concessions because its sales volume is huge. Compact discs make up a small portion of Walmart’s overall sales, so exiting the market would not hurt Walmart. From the perspective of record companies, however, Walmart is their biggest buyer. If the record companies were to refuse to do business with Walmart, they would miss out on access to a large portion of consumers.
On the other hand, if buyers have less leverage over the competitors than the competitors have over the buyers, then competitors can raise their prices and enjoy greater profits. This description fits the textbook industry quite well. College students are often dismayed to learn that an assigned textbook costs $150 or more. Historically, textbook publishers have been able to charge high prices because buyers had no leverage. A student enrolled in a class must purchase the specific book that the professor has selected.
Used copies are sometimes a lower-cost option, but textbook publishers have cleverly worked to undermine the used textbook market by releasing new editions after very short periods of time.
order pregabalin without prescription pregabalin online buy buy dapoxetine without prescription
canadian pharmacieswith no prescription
zithromax for sale usa: azithromycin over the counter – buy zithromax without prescription online
http://cytotecsale.pro/# п»їcytotec pills online
doxycycline buy usa buy doxycycline 100mg online uk doxycycline canada brand name
doxycycline over the counter south africa: doxycycline hyclate 100 mg – doxycycline 50mg capsules
https://cytotecsale.pro/# buy cytotec online fast delivery
where can you buy prednisone otc prednisone cream buy prednisone from canada
Motorcycle Blank Key Uncut Blade For KTM DUKE 125 250 390 690 990 Motorbike Racer
スーパーコピー時計
Electronic Component Sourcing
buy medicine canada
https://globalcanadianpharmacies.com/
buy online prescription drugs
Thanks , I have just been looking for information about this topic for a while
and yours is the greatest I have found out so far. But, what in regards to the bottom line?
Are you sure about the source?
doxycycline online canada doxycycline rx coupon or doxycycline 150 mg
http://nedrafoster.com/__media__/js/netsoltrademark.php?d=doxycyclinesale.pro doxycycline cap price
doxycycline pharmacy doxycycline 100mg coupon and how to get doxycycline online buy doxycycline pills online
Fine, curly hair can be a challenge, but these hairstyles make it easy to look stunning.
OMG! This is amazing. Ireally appreciate it~ May I speak out on a secret only I KNOW and if you want
to seriously get to hear You really have to believe mme
and have faith and I will show how to find good hackers for good price
Once again I want to show my appreciation and may
all the blessing goes to you now!.
40mg doxycycline prices doxylin or doxycycline prescription cost
http://unitedfoodandbeveragellc.com/__media__/js/netsoltrademark.php?d=doxycyclinesale.pro doxylin
doxycycline price comparison doxycycline 100mg coupon and where can i buy doxycycline in singapore doxycycline price in india
スーパーコピーランク代引きブランド専門
PPR Four Ways Shower Mixer
I’m often to blogging and i really appreciate your content. The article has actually peaks my interest. I’m going to bookmark your web site and maintain checking for brand spanking new information.
Its like you read my thoughts! You appear to understand so
much about this, like you wrote the book in it or something.
I think that you just could do with some percent to drive the message home a bit, however instead
of that, that is great blog. A great read.
I will definitely be back.
Pretty! This has been a really wonderful post. Many thanks for providing these details.
Hey! I realize this is kind of off-topic but I had to ask.
Does building a well-established blog such as yours require
a lot of work? I’m completely new to operating a blog
but I do write in my diary on a daily basis. I’d like to
start a blog so I can easily share my personal experience and thoughts
online. Please let me know if you have any ideas or tips for brand new aspiring blog owners.
Thankyou! https://tallerisbetter.com/increase-your-height-with-surgery/tibial-lengthening/oxnard-california/index.html
cost clomid without insurance: buy clomid – can i order clomid
https://cytotecsale.pro/# how to get cytotec online
п»їclomid buy clomid over the counter buying cheap clomid no prescription
buy amoxicillin uk
medication doxycycline 100mg: doxycycline hyclate 100 mg – 500 mg doxycycline pill
https://cytotecsale.pro/# where to get cytotec pills
where can i buy cheap clomid without a prescription buy clomid over the counter how to buy generic clomid no prescription
как посмотреть фильм с ноутбука на телевизоре samsung
methotrexate 5mg canada buy generic medex for sale purchase reglan generic
If you are going for finest contents like me, just visit this site all
the time for the reason that it provides feature contents, thanks
Link exchange is nothing else except it is only placing the other person’s weblog link on your page at suitable place and other person will also do same in support of you.
celebrex 200 mg cost
Try to slowly read the articles on this website, don’t just comment, I think the posts on this page are very helpful, because I understand the intent of the author of this article.
orlistat 60mg drug buy acyclovir medication buy allopurinol 100mg generic
Galvanized Clipped Head Framing Nails
Outdoor Chaise Lounge Swing Chair
株式会社ブランドコピー激安人気館
Прогон сайта лиц.Заказать прогон Хрумером и ГСА по Траст базам с гарантией. Беру за основу для продвижения Ваши ключевые слова и текст.
Заказать Прогон Хрумером и ГСА можно в телеграмм логин @pokras777 здесь наша группа в телеграмм https://t.me/+EYh48YzqWf00OTYy или в скайпе pokras7777
Spam4d sebagai bandar judi slot online
prednisone 20mg capsule cost of prednisone tablets or prednisone 20mg prices
http://kritterjitters.com/__media__/js/netsoltrademark.php?d=prednisonesale.pro buy prednisone 20mg without a prescription best price
prednisone 30 mg coupon where can you buy prednisone and prednisone brand name in usa prednisone online india
I appreciate you sharing this blog post. Thanks Again. Cool.
prednisone rx coupon: how can i get prednisone – where can you buy prednisone
https://clomidsale.pro/# buy generic clomid without rx
where can i buy cheap clomid cheap clomid where can i buy cheap clomid pill
doxycycline cheap australia doxycycline buy canada or doxycycline mexico
http://acmebowling.net/__media__/js/netsoltrademark.php?d=doxycyclinesale.pro doxycycline for sale
40mg doxycycline prices doxycycline india buy and doxycycline 100mg canada buy doxycycline online australia
doxycycline price singapore: doxycycline brand name – doxycycline 200 mg price
https://clomidsale.pro/# get generic clomid without prescription
cytotec online cytotec pills buy online buy cytotec over the counter
It’s amazing in support of me to have a site, which is beneficial for my know-how.
thanks admin
prednisone without prescription prednisone 10 tablet or prednisone 40 mg daily
http://lagorcepalacemiamibeach.com/__media__/js/netsoltrademark.php?d=prednisonesale.pro buy prednisone 20mg without a prescription best price
ordering prednisone buy prednisone mexico and how to get prednisone tablets buy prednisone online paypal
Risani zaplet igralnega avtomata, posvečen hišnim ljubljenčkom, bo ugajal vsem, ki želijo postati stabilni plačila. Ker to olajšata sama tema in pozitiven dizajn s podobami smešnih psov, ki lahko tvorijo plačane kombinacije na igrišču s 6 koluti. Demo versions of every game may be played without having to provide personal information or pay any money at all. Razpon stav v avtomatu je 20-200 kreditov. Največji množitelj, ki ga Rottweiler dodeli ikoni, je x1,5. Players may participate in a variety of competitions and races as part of the Lemon Casino’s online customer loyalty program, which entails earning points for playing and winning on certain slots as well as other online casino games. Razpon stav v avtomatu je 20-200 kreditov. Največji množitelj, ki ga Rottweiler dodeli ikoni, je x1,5.
http://www.mokpo-bath.com/bbs/board.php?bo_table=free&wr_id=33646
Igrajo še oskarjevec Kevin Costner (Pleše z volkovi), Michael Cera (Juno, serija Odbita rodbina), Jeremy Strong (Velika Poteza, Sodnik), Bill Camp (serija The Night Of), Chris O’Dowd (Dom gospodične Peregrine za nenavadne otroke), Brian d’Arcy James (V žarišču) in oskarjevi nominiranec Graham Greene (Pleše z volkovi). Reža za selfi kamero na vrhu zaslona ostaja. Ni najbolj premijski oblikovni dodatek, še vedno pa veliko bolje od reže v obliki kapljice ali dinamičnega otoka, ki zasede večjo površino zaslona. Vseeno pa še naprej čakamo, da bodo selfi kamere pod zaslonom postale norma. Pri uporabi spletnih strani ni starostnih omejitev. Uporaba spletnih strani je namenjena uporabnikovi lastni uporabi. Prijava drugih oseb ali izpolnjevanje obrazcev za druge osebe ni dovoljena, za kar uporabnik jamči s polno odškodninsko odgovornostjo in nase prevzema pasivno legitimacijo v primeru spora.
cheap losartan topiramate 200mg pills topamax 100mg canada
スーパーコピー時計大阪
Household Metal Double Shaft Shredder
Smallest Portable Oxygen Concentrator
vibramycin doxycycline: doxycycline 400 mg daily – doxycycline 20 mg tablets
http://zithromax.pro/# zithromax 500mg
zithromax purchase online zithromax without prescription where can i buy zithromax in canada
I don’t even understand how I stopped up right here,
however I believed this post used to be good. I don’t recognise who you
might be but certainly you are going to a well-known blogger when you are not already.
Cheers!
rosuvastatin sale motilium sale motilium online
Hi there, I wish for to subscribe for this weblog to
get most up-to-date updates, thus where can i do it please assist.
buy cytotec in usa: buy cytotec over the counter – how to get cytotec online
http://doxycyclinesale.pro/# doxycycline 50 mg india
buy cheap prednisone prednisone buy cheap prednisone where can i buy
doxycycline 100mg price australia cost doxycycline australia or doxycycline 100mg without prescription
http://flammablecontainer.com/__media__/js/netsoltrademark.php?d=doxycyclinesale.pro> doxycycline for sale usa
purchase doxycycline without prescription doxycycline 200 mg cost and how to buy doxycycline doxycycline online
I love your blog.. very nice colors & theme. Did you design this website yourself or did you hire someone
to do it for you? Plz reply as I’m looking to design my own blog and would
like to know where u got this from. appreciate it
doxycycline for sale usa doxycycline brand in india or where can you get doxycycline
http://hescells.com/__media__/js/netsoltrademark.php?d=doxycyclinesale.pro doxycycline capsules for sale
doxycycline 50mg tablets purchase doxycycline online and doxycycline for sale over the counter doxycycline brand
WCB or Stainless Steel Wedge Gate Valve
International Sea Freight
ブランドコピー大阪老舗
canadian meds
https://canadianpharmnow.com/
reliable online pharmacy
I could not resist commenting. Perfectly written!