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    Porter 5 Forces Model

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    Kumen22
    Porter's Five Forces Model provides a framework for analyzing competitive forces in an industry. The five forces are: the threat of new entrants, the power of suppliers, the power of buyers, the threat of substitutes, and rivalry among existing competitors. Together these forces determine the long-term profit potential of an industry. The model helps understand how these different forces determine the competitive intensity and attractiveness of an industry.

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    Porter 5 Forces Model

    Uploaded by

    Kumen22
    551 views24 pages
    Porter's Five Forces Model provides a framework for analyzing competitive forces in an industry. The five forces are: the threat of new entrants, the power of suppliers, the power of buyers, the threat of substitutes, and rivalry among existing competitors. Together these forces determine the long-term profit potential of an industry. The model helps understand how these different forces determine the competitive intensity and attractiveness of an industry.

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    Porter's 5 Forces Model - A tool for Industry Analysis

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    Porter's Five Forces Model provides a framework for analyzing competitive forces in an industry. The five forces are: the threat of new entrants, the power of suppliers, the power of buyers, the threat of substitutes, and rivalry among existing competitors. Together these forces determine the long-term profit potential of an industry. The model helps understand how these different forces determine the competitive intensity and attractiveness of an industry.

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    Download as PPT, PDF, TXT or read online from Scribd
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    551 views24 pages

    Porter 5 Forces Model

    Uploaded by

    Kumen22
    Porter's Five Forces Model provides a framework for analyzing competitive forces in an industry. The five forces are: the threat of new entrants, the power of suppliers, the power of buyers, the threat of substitutes, and rivalry among existing competitors. Together these forces determine the long-term profit potential of an industry. The model helps understand how these different forces determine the competitive intensity and attractiveness of an industry.

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    Porters Five Forces Model

    Porters Five Forces Model


    Developed by Michael Porter in 1979/1980 Considered a classic industry analysis tool Provides a framework for perspective on multiple competitive factors affecting your company and industry Five basic competitive forces whose collective strength determines the long-run profit potential of an industry

    Porters Five Forces Model

    Porters Five Forces model is a useful generic structure for thinking about the nature of industries. The definition of an industry is as follows: The group of firms producing products that are close substitutes for each other Michael Porter
    Competitive Strategy

    The Five Forces


    Threat of New Entrants/ Barriers to Entry

    Bargaining Power of Suppliers

    Rivalry Among Existing Competitors

    Bargaining Power of Customers

    Threat of Substitutes

    APPLICATION

    Sources for this section: Michael E. Porter, Understanding Industry Structure, Revised 2007 and How Competitive Forces Shape Strategy, Harvard Business Review, 1979

    Rivalry Among Existing Competitors

    Rivalry determined by number of firms, relative size, degree of differentiation between firms, demand conditions and barriers to exit Competition among rivals is greatest when:

    There are many competitors, nearly equal in size or power Slow industry growth High barriers to exit

    Rivalry Among Existing Competitors

    Industry competition is based on price when:

    There is low differentiation and/or low switching costs between competitors Fixed costs are high, but marginal costs are low Capacity must be expanded in large increments, disrupting the supply and demand balance The product is perishable (groceries, airline seats, information)

    Threat of New Entrants/Barriers to Entry

    Threat of potential entrants determined by:


    Attractiveness of industry Height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.)

    Customer switching costs (high fixed costs involved in switching to another supplier) Capital requirements (e.g., very high in gas exploration) Incumbency advantages independent of size (e.g., proprietary technology, patents) Unequal access to distribution channels (how much have existing competitors tied up distribution channels) Restrictive government policy

    Threat of New Entrants/Barriers to Entry


    large capital requirements or the need to gain economies of scale quickly.

    strong customer loyalty or strong brand preferences.

    lack of adequate distribution channels or access to raw materials.

    Bargaining Power of Suppliers

    Strength of suppliers determined by:

    Number of suppliers and their degree of differentiation Portion of a firms inputs obtained from a particular supplier Portion of a suppliers sales sold to a particular firm Switching costs Potential for Vertical Integration

    Bargaining Power of Suppliers

    A supplier group is powerful if:

    It is more concentrated than the industry it sells to (e.g., Microsoft: near-monopoly in operating systems, with fragmentation among PC-making customers) Industry participants face high switching costs when changing suppliers Differentiated products offered by suppliers No substitutes for what the supplier group offers Supplier group does not depend heavily on a particular industry

    Power of Customers/Buyers

    Power of customers determined by:


    Number of buyers Firms degree of differentiation Portion of a firms inputs sold to a particular buyer Portion of a buyers purchases bought from a particular firm Switching costs Potential for vertical integration

    Threat of Substitutes

    A substitute performs the same function as an industrys product or service, but by a different means

    Determined by the number of potential substitutes, their closeness in function and relative price Not just another product: sometimes the substitute is to do without the product or to do it themselves

    Long distance phone service providers vs. VoIP providers (Skype and Vonage) Mobile phone as primary phone vs. landline

    Smart Phones Industry

    Automotive Industry

    Oil Industry

    Media Industry

    http://www.strategicmanagementinsight.com/topics/vertical-integration.html

    Application of Porters Five Forces Model - SmartPhones

    Background of Smartphones

    Simon designed by IBM in 1992 Palm started the concept/evolved from PDAs (nonwireless context) Advanced productivity tools (calendars, emails, etc.) High cost/high end devices Look and feel of a mini PC Perceived sense of increased efficiency Ability to expand and add-on to augment the user experience Started primarily for business- expanded to consumers/entertainment

    Smartphone Competitors

    Smartphone Definition:

    Competitors:

    Many functions other than a regular cellular phone Mini computer inside a normal cell phone Can upload applications Revolutionary phone, media flare and internet access

    RIM Apple LG Samsung Motorola HTC Nokia

    Operating systems:

    Apple Android Microsoft Windows Phone 7 Facebook?

    Threat of New Entrants/Barriers to Entry

    Knowledge barrier
    Brand recognition Carrier relationship

    Highly fragmented
    Exclusive technology? Operating system: high barrier to entry/open source?

    Device: lower manufacturing barriers to entry

    Power of Suppliers

    Who are they:

    Chip mfrs, circuit boards, cameras, touch screen (raw materials) - mixed Carriers traditionally carriers had power; Apple now has changed this Distribution channels carrier store, big box retailer carriers primarily Software/operating system shifting toward OS?

    Power of Customers

    Who are they:

    Consumer power on a group/demographic level; trend seekers Enterprise can choose device; longer term view Carriers very powerful

    Threat of Substitutes

    Email Skype/Gizmo/VoIP iPad notebook/computer Regular old cell phone Landlines Visit in person No mobile device

    Rivalry Among Existing Competitors


    Huge Very fast moving/phones becoming obsolete

    Conclusions

    Very strong, but lots of competition Quickly changing Innovation is key Huge opportunity for growth upside Carrier dependent

    Recommendations

    Form good relationship with carrier Innovate Operating system Dont forget voice

    5 Forces

    Analysis (Modern Retail / Banking Industry / BPO/Automobile)

    Rivalry among the competitor

    Threat of entrants

    Bargaining power of supplier

    Bargaining power of buyers

    Threat of substitutes

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