What are the 5 forces
Bargaining power of the buyer, Bargaining Power of the supplier, threat of new entrants, threat of substitutes, Rivalry of competitors
Definition of porters five forces
Porters five forces analysis is a decision making tool that allows managers to identify 5 forces that represent the key sources to competitive pressure
1.Threat of new entrants
Examines how easily it is for new entrants to enter a new market. E.g like where are there high start up costs that could deter new businesses because if a new business can enter it could steal another’s business customers leading to more profit and less for original business.
Strategies to raise barriers to entry
Use patents
Develop a strong brand
Spend large amounts of capital on advertising
Undercut the prices of new entrants
What are Porters five forces uses
Managers have to figure out strategies to cope with these forces. The use of these strategies will help the business grow and be profitable
Rivalry among competition
Refers to how much competition is in the industry. Who are the rivals? How are the quality of products in comparison to others? The more competition the less attractive it is to new businesses e.g coke + Pepsi
Strategies to reduce Rivilary
Buy out rivals
Promote heavily
Bring new products
Bargaining powers of buyers
Buyers power concerns the ability of the customers within an industry to affect or determine prices they pay e.g airlines or supermarkets
Buyers have strong powers when…
They buy in bulk
Knowing exact costs
Aware of alternate suppliers
If a product has a USP or not
If a product is exclusive or not
Strategies to influence buyers…
Loyalty cards
Lower price
Increase quality
Offer a usp
Bargaining power of suppliers
Suppliers have more power when there are few suppliers and many firms buying from them. Limiting the powers of the supplier will improve the competitive position of the business
How to influence suppliers…
Taking over the role of the supplier
Try a new supplier
Find substitutes in that particular output
Threat of substitutes
This concerns the availability of alternative products that customers could switch to. The more substitutes there are, the weaker the position of the business
Strategies to reduce the threat of substitutes…
Create brand loyalty
use pricing strategies
Expensive to switch e.g mobile contracts