Porter’s 5 Forces
• To shape every industry and market
• determine competition’s intensity > profitability and attractiveness of industry.
Bargaining Power of Suppliers
• suppliers overpowerfirms in an industry?
• Supplier’s bargaining power high/low?
? high when:
? Few large suppliers dominate market than fragmented source of supply
? no substitutes for particular input
? low:
?suppliers customers fragmented
? switching costs from one supplier to another are high
Bargaining power of customers
Determines how much pressure can they impose on margins and volumes
? high when:? buying large volumes, there is a concentration of buyers
? product undifferentiated and can be replaced
? Switching to alternative product simple and not costly
? Customers with low margins,price-sensitive and know production costs
Threat of New Entrants
• Higher competition, easier entrance
• new entrants could change major determinants of market environment (market shares, prices,customer loyalty)
• Threat will depend on extent of barriers to enter. typically:
? Economies of scale (minimum size requirements for profitable operations)
? High initial investments and fixedcosts
• Customer’s brand loyalty
• Protected intellectual property (patents, licenses)
• Scarcity of important resources (qualified expert staff)
• Access to raw materials & distribution channelscontrolled by existing players
• High switching costs for customers
• Legislation & government action
Threat of Substitutes
• if alternative products exist > potentially attract significantproportion of market volume, reduce potential sales volume for existing players.
• Similarly to threat of new entrants:
• Customer brand loyalty
• Close customer relationships
• Switching costs forcustomers
• relative price for performance of substitutes
• Current trends
Competitive Rivalry between Existing Players
• intensity of competition
• High> pressures prices, margins, hence, on…