Porter’s Five Forces analysis
1) Bargaining power of suppliers
Who are suppliers? –chemical companies that manufacture ingredients for the drugs, companies that manufacture any packaging/packaging materials for drugs, employees that supply labour:
• Many suppliers available in most cases
• Resources supplied not scarce in most cases
• Switching cost to another supplier low
• Supplied product not typically differentiated
• Supplier forward integration not a threat (small supplier cannot take over large drug company)
• Customers are large in a consolidated pharma industry (drug industry has been seeing lots of mergers and acquisitions in recent years so drug companies tend to be very large)
LOW Power of suppliers based on above.

2) Bargaining power of buyers
Who are buyers? In this case buyers would be Doctors and Hospitals (look at the drug industry’s sales force, they service DRs and hospitals, as drugs need to be prescribed, they can’t just be purchased over the counter)
• Many small buyers (lots of Doctor’s offices in most areas, maybe a few larger hospitals)
• Each purchases a small proportion of industry output
• Buyer backward integration not a threat (a Doctor or hospital is not going to take over a drug company)
• Relatively few manufacturing firms due to industry consolidation
• Few substitutes (alternative medicine, lifestyle changes are possible options in some cases, but if you need drugs for diabetes no real substitute for this outside of medication)
• High product differentiation (drugs are developed for specific purposes and have patent protection, differentiation decreases after patent expiry when generics can enter)
• Moderate brand loyalty
LOW Power of buyers based on above.

3) Threat from substitute products
What are substitute products for prescription drugs? There are few here, things like natural medicines,