Porters Five Forces

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

2. 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

3. 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

4. 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

5. 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