...Porter’s 5 Forces Analysis = Suppliers, Customers, New Entrants, Substitute Products, Competitors What is Porter’s 5 Forces Analysis? Porter’s 5 forces analysis represents the competitive environment of the firm. It is a strategic foresight to avoid putting the competitive edge at risk and ensure the profitability of products on a long term. For the company this vision is quite important because the firm is able to direct its innovations in terms of choice of strategies and investments. The profitability of businesses within the industrial structure depends on the following forces: Competitive rivalry within the industry; Threats of new entrants; Threats of substitutes products; Bargaining power of customers; Bargaining power of suppliers. Golden Rules 6th force = Often the model is adjusted with a 6th force, the public authorities. This is important because the law and the norms can influence each of Porter’s 5 forces. Key factors for success = The key success factors of the environment have to be identified. To have a competitive advantage some strategic elements should be controlled. Threats of new entrants Public Authorities Bargaining power of suppliers Competitive rivalry within the industry Bargaining power of customers Threats of substitute products © Copyright 2008 LUXINNOVATION G.I.E., The National Agency for Innovation and Research in Luxembourg 1/2 Porter’s 5 Forces Analysis = Suppliers, Customers, New Entrants, Substitute Products...
Words: 594 - Pages: 3
...The Five Forces Framework and Competitive Strategy In this framework due to Michael Porter there are two high-level stages in the creation of competitive strategy, each stage corresponding to a high-level determinant of profitability mentioned in the previous section. The first stage is the assessment of the attractiveness of the industry in which a given company is embedded based on a structural analysis of the industry. In this stage, called the five forces framework, five forces that influence industry attractiveness are identified, as well as the factors (e.g., number of competitors, size of competitors, capital requirements) that determine the intensity of each force and therefore the cumulative intensity of the five forces. The purpose of the five forces framework is to relate the degree (or intensity) of competition in a given industry, as qualitatively measured by the combined strength (or intensity) of five forces, to the attractiveness of the industry, defined as its ability to sustain profitability. Based on the structural analysis, a particular company may be in a very attractive industry (e.g., pharmaceuticals) or in an unattractive industry (e.g., steel). However, though a firm exists in an unattractive industry, it can still be highly profitable by choosing the proper competitive position within the industry, for example, e.g., a mini-mill such as Nucor in the steel industry in the nineteen-eighties. The second stage of strategy creation addresses the competitive...
Words: 286 - Pages: 2
...While planning for long-term objectives, the concepts of Michael Porters five forces analysis will be used to analyze the market. This analysis will show the competitive environment in the tour guide industry, and also, the attractiveness of the market. The word ‘attractiveness’ refers to the overall profitability in the industry. The greater power that exists among the external factors the more unattractive is the industry. We will now dig deeper into the external factors seen from our point of view. Suppliers Bargaining Power of Suppliers i.e. to what extent suppliers can have an influence on the policy making of the company. Suppliers play an important part in making quality propositions for the company. The process of value creation encompasses managing quality in the entire chain of processes leading to the production of final product or service. We are not that much dependent from our suppliers, because we do not have such a big relationship with suppliers. The core competitiveness of our company is the unique service provided by our employees. Potential entrants Bargaining Power of Customers Bargaining Power of Customers i.e. to what extent the customers can affect the policy making and fortunes of the company. Customers are indeed the key ingredients for a company, but the company’s profitability depends upon to what extent customers are willing to pay for the product. Customers of course have plenty of options in the market place. And the customer will weigh...
Words: 494 - Pages: 2
...Porter argues that a competitive strategy must emerge from a refined understanding of the rules of competition that determine market attractiveness (Clegg p.60). Michael Porter’s Five Forces Model focuses on defining the rules of competition within a market, which I find to be important, and should be considered when analyzing an organizations’ Strategy and Competitive Performance. Business strategists’ main focus is to understand and know how to deal with competition. At times managers define competition briefly and many times only include ‘today’s’ direct competitors. Porter suggests, competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The fifth force, the intensity of competitive rivalry, is the result from all five forces combined that defines an industry’s structure and shapes the nature of competitive interaction within an industry. The bargaining power of customers “Powerful customers” are able to apply pressure to drive down prices, or increase the required quality for the same price, and ultimately reduce profits in an industry. The smaller the number of customers, the greater their power and if the size of their orders are in larger volume, the greater the power! Customers enjoy strong bargaining power when they can choose from a wide range of supply firms and they find it easy and inexpensive to switch to alternative suppliers...
Words: 582 - Pages: 3
...Porter’s 5 Forces The ability rivalry has worked to enable the English Premier League to become one of the top clubs within the world and Europe, in order to attract the finest players worldwide. Strategy We aim to increase our revenue and profitability by expanding our high growth businesses that leverage our global community and marketing infrastructure. The key elements of our strategy are: * Expand our portfolio of global and regional sponsors: We are well positioned to continue to secure sponsorships with leading brands. Over the last few years, we have implemented a proactive approach to identifying, securing and supporting sponsors. In addition, we are focused on expanding a regional sponsorship model, segmenting new opportunities by product category and territory. As part of this strategy, we have opened an office in Asia and are in the process of opening an office in North America. These are in addition to our London and Manchester offices. * Further develop our retail, merchandising, apparel & product licensing business: We will focus on growing this business on a global basis by increasing our product range and improving distribution through further development of our wholesale, retail and e-commerce channels. Manchester United branded retail locations have opened in Singapore, Macau, India and Thailand, and we plan to expand our global retail footprint over the next several years. In addition, we will also invest to expand our portfolio of product...
Words: 3110 - Pages: 13
...company choose to compete(Asch & Bowman, 1996)? By answering this, the company can therefore to find a well position for its company and make their own strategies but in the meantime, the other issues will be raised, that is what markets are the company are competing in? In order to define the market the firm is, company need to know well about what customers needs, and who it is the customers see the firm will competing with. Porter (1980) said that “the first step in structural analysis is an assessment of the competitive environment – the basic competitive forces and the strength of each in shaping industry structure. The second is an assessment of the company's own strategy-of how well it has positioned itself to prosper in this environment.” When these two are taken together, these two will be the key factors to forecasting a company earning power. 2. Literature Review 2.1 The theory of Porter's five forces The successful of a company's competitive strategy depends on how it relates to its external environment and how well they prepare for it. In the contrast, a company who does not...
Words: 2007 - Pages: 9
...THE FIVE FORCES INDUSTRY COMPETITORS. Rivalries naturally develop between companies competing in the same market. Competitors use means such as advertising, introducing new products, more attractive customer service and warranties, and price competition to enhance their standing and market share in a specific industry. To Porter, the intensity of this rivalry is the result of factors like equally balanced companies, slow growth within an industry, high fixed costs, lack of product differentiation, overcapacity and price-cutting, diverse competitors, high-stakes investment, and the high risk of industry exit. There are also market entry barriers. PRESSURE FROM SUBSTITUTE PRODUCTS. Substitute products are the natural result of industry competition, but they place a limit on profitability within the industry. A substitute product involves the search for a product that can do the same function as the product the industry already produces. Porter uses the example of security brokers, who increasingly face substitutes in the form of real estate, money-market funds, and insurance. Substitute products take on added importance as their availability increases. BARGAINING POWER OF SUPPLIERS. Suppliers have a great deal of influence over an industry as they affect price increases and product quality. A supplier group exerts even more power over an industry if it is dominated by a few companies, there are no substitute products, the industry is not an important consumer for the suppliers...
Words: 1142 - Pages: 5
...Coursework 1 Hand in Date and Time: 13/11/13 at 3pm on StudyNet and in Coursework Hand-In point Weighting: 30% Title: Marketing Audit Format: Report Type: Group (approx 4-5 members) Select one of the following organisations and familiarise yourself with the relevant organisation website * Apple Inc www.apple.com CONSUMER ELECTRONICS * Tiffany’s & Co www.tiffanys.co.uk LUXURY RETAIL 1. Write a brief overview of the organization Access the relevant industry Mintel /Keynote report and other relevant research from information databases 2. Identify and illustrate the SBU’s (Strategic Business Units) for the organization External Environment 3. Apply PESTEL to the chosen industry. Illustrate and provide detailed explanations 4. Apply Porters 5 Forces to the relevant industry /organization /sector. Illustrate and provide detailed explanations 5. Illustrate in a grid format: Opportunities and Threats Internal Environment 6. Apply McKinsey’s 7S matrix to the organization /sector 7. Apply Marketing mix to the organisation /sector 8. Illustrate in a grid format: Strengths and Weaknesses SWOT Analysis 9. Illustrate in a grid format: corporate SWOT Analysis 10. Illustrate in a grid format: SBU SWOT Analysis (For Apple choose ipad and for Tiffany’s choose Jewellery Strategic Positioning 11. Identify competitors for Apple or Tiffany’s and using a perceptual map with appropriate axes demonstrate a gap in the market...
Words: 1792 - Pages: 8
...Nestle Porter's 5 Forces * What does the model tell you about the nature of competition in the industry? External Analysis (Porter's Five Forces Analysis) Threat of Substitute products (low) Food and beverage market has a long industry chain and big industry span so threat in substitute products is low. Giants such as Wrigley (Mars, Milkway, Snickers and etc), Unilever (Knorr, Cornetto ,Lipton Ice tea and etc) ,Coca Cola, Nestle have similar products to offer to customers. But in Nestle case threat of substitute products is high because of wide range of similar products that can compete directly with Nestlé. For example, Danone led Nestle to decreasing sales in 2009 in European Markets. In order to make a differentiation in the worldwide market Nestle should innovate its products to stay in the market and to go beyond its substitutes. Recent innovation made by Nestle health consciousness and wellness factor that has been introduced in all products of company. Threat of new Entrants (low) The company has been lunched since 1866 which gave Nestle a wide experience in the food and beverage industry. With substantial brand equity and a base of loyal customers Nestlé is at an insignificant risk from entrants. Nestlé has an advantage of holding majority of the share in the market where competition is becoming increasingly fierce in the world today. Although the food and beverage industry is very competitive and is constantly evolving with entrants, small business...
Words: 310 - Pages: 2
...rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored Cornerstone of Blue Ocean Strategy: 'Value Innovation' A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market Blue Ocean vs. Porter’s 5 forces model The Porter’s Five Forces is focusing more on what makes an organization competitive in existing red markets and it is concerned with the micro-environmental factors affecting businesses within the same industry. Factors such as competitive rivalry, new entrants, buyer power, supplier power, and threat of substitution are factors which when conquered would not necessarily make you as a market leader Porter’s model is based on the insight that a corporate strategy should meet the...
Words: 445 - Pages: 2
...INTRODUCTION: Samsung Group of companies was found in 1938 and major leading company to provide financial and manufacturing services. Since 1980 it has made vast development in semiconductor and electronics industry. Samsung has made remarkable growth in net profits since last two decades. This is regarded as the ways of Samsung conducts the business and strategic INFORMATION MANAGEMENT is the pillars of the entire business at Samsung. For a long period relationships between corporate strategy and information systems; Top management of the firms were not much interested. Information management systems are to be thought as same to corporate data processing and support the daily routine functions (Rockart, 1979). Information management systems based on computer based response to any type of interaction whether at transaction level and supply levels etc. Although Samsung is a much consolidated company but it requires more strategic development planning system to identify more future projects to compete its sister companies in the world. Shipping of products and the best use of strategic information management can enhance the capabilities of the managers to identify the achievable targets of selling of new products of fashionable mobiles by installing the new information management systems. Supply Chain Operations need more development to improve Samsung’s global business operations. OBJECTIVES: The main objective of the Samsung company...
Words: 890 - Pages: 4
...* What does the model tell you about the nature of competition in the industry? External Analysis (Porter's Five Forces Analysis) Threat of Substitute products (low) Food and beverage market has a long industry chain and big industry span so threat in substitute products is low. Giants such as Wrigley (Mars, Milkway, Snickers and etc), Unilever (Knorr, Cornetto ,Lipton Ice tea and etc) ,Coca Cola, Nestle have similar products to offer to customers. But in Nestle case threat of substitute products is high because of wide range of similar products that can compete directly with Nestlé. For example, Danone led Nestle to decreasing sales in 2009 in European Markets. In order to make a differentiation in the worldwide market Nestle should innovate its products to stay in the market and to go beyond its substitutes. Recent innovation made by Nestle health consciousness and wellness factor that has been introduced in all products of company. Threat of new Entrants (low) The company has been lunched since 1866 which gave Nestle a wide experience in the food and beverage industry. With substantial brand equity and a base of loyal customers Nestlé is at an insignificant risk from entrants. Nestlé has an advantage of holding majority of the share in the market where competition is becoming increasingly fierce in the world today. Although the food and beverage industry is very competitive and is constantly evolving with entrants, small business don’t have much advantages...
Words: 918 - Pages: 4
...Structural analysis of an industry is a valuable tool that can be used as a primary determinant of a firm's long-term profitability. Understanding the dynamics of competitive forces can provide insight into the attractiveness of an industry and the potential for returns on capital. Michael Porter, a Harvard Business School professor, has developed a framework for understanding an industry's structure. Porter's analysis is widely taught in business schools and commonly used by analysts. Porter's book, Competitive Strategy, provides an excellent, readable resource for understanding the impact of competitive forces on an industry. According to Porter, the five competitive forces affecting an industry are: threat of entry, competitive rivalry, bargaining power of suppliers, threat of substitutes, and the bargaining power of buyers. Let's use the airline industry as an example of how an analyst may interpret the competitive forces that affect an industry. Threat of Entry The threat of new entrants presents the possibility that new firms will enter the industry and diminish industry returns by passing along value to buyers in the form of lower prices and raising the cost of competition. Factors that determine the threat of entry include capital requirements, economies of scale, switching costs, and brand value. In the airline industry, access to capital is plentiful. Banks extend credit to airline carriers, and the debt and equity markets provide alternatives for raising funds...
Words: 961 - Pages: 4
...The Five Forces of Competition Analysis (Fill in the blanks – 10 points for each) Time allowed: 30 minutes 1. Threat of New Entrants: Barriers to _______. These barriers are high when: a. Economies of scale are ________. b. Product differentiation is ________. c. ________ Capital requirements d. ________Switching costs e. ________ Access to distribution channels f. Government policy ________. 2. Bargaining Power of Suppliers increases when: a. Suppliers are ______ and ______ in number b. Suitable substitute products are not ________ c. Individual buyers are not _______ customers of suppliers and there are ______ of them d. Suppliers’ goods are _______ to buyers’ marketplace success e. Suppliers’ products create ______ switching costs. f. Suppliers pose a threat to integrate ______ into buyers’ industry 3. Bargaining Power of Buyers increases when: a. Buyers are _______ and ______ in number b. Buyers purchase a ______ portion of an industry’s total _______ c. Buyers’ purchases are a _______ portion of a supplier’s annual revenues d. Buyers can switch to another product without incurring ______ switching costs e. Buyers pose threat to integrate _______ into the sellers’ industry 4. Threat of Substitute Products increases when: a. Buyers face _______ switching costs b. The substitute product’s price is _______ than the firm’s. ...
Words: 320 - Pages: 2
...Mobile computing has revolutionized the way we do business, shop and communicate. Let’s break down briefly how mobile computing has an effect on each of the Porter’s five forces. 1. Bargaining Power of Suppliers Mobile computing gives suppliers more bargaining power, especially with the integration of social networking. There is variation of services and personalization that is readily available with so much customer input. Considering supplier costs, development is either costly or it isn’t. If the application is extensive, supplier costs (or development costs) can be considerable. The buying industry can hinder the supplying industry in development if buyers are demanding of a more extensive application (features, etc) or are reluctant to use an upgraded version of the service or application. This would influence the costs of development, and lower stance in terms of rivalry. 2. Bargaining Power of Customers As there are many options and avenues for buying online, customers have a lot of buying power in the mobile world. They can rate a product, service or application quickly and share their reviews with virtually anyone. Because there is a great deal of competition, buyers have an upper hand in naming a price. Additionally, there are many avenues to shop or use a service on ther internet, and switching to an alternative site, brand or provider of a service is relatively easy to do. If a buyer does not like the eBay application for instance, they can switch to...
Words: 494 - Pages: 2
