1. Describe Michael Porter’s model and its components. Pick an industry and describe how the different components of the model relate to the industry. Porter 's Five Forces model, it named after Michael E. Porter. He identifies and analyzes five competitive forces that structure every industry, helps to determine an industry 's weaknesses and strengths. There are five components of Porter 's five forces model i. Potential of new entry into the industry ii. Rivalry among existing firms iii. Bargaining power of buyer iv. Bargaining power of supplier v. Threat of Substitute Product Potential of new entry into the industry: A company 's power is also affected by the force of new entrants company into the market. Well established …show more content…
The bargaining power of buyers refers to the ability of buyers to bargain down prices charged by companies in the industry. Powerful buyers can alter the profit of an industry. So, bargaining power of buyer is a threat. Example- soap powder produce by Uniliver, the principal buyers of soap powder are supermarket chains and discount stores like Walmart, Terget have the avility to alter the profit of soap powder industry. Bargaining power of supplier: Suppliers the companies that provide inputs or row materials into the industry. The bargaining power of supplier refers to the ability of alterring product price by providing poor inputs or sevices. Powerful suppliers narrow down the profits out of an industry by raising the costs of companies in the industry. So, powerful suppliers are a threat. Example- Personal computer (PC) industry havily depends of Intel Corporation for micro processor. Threat of Substitute Product: It refers to products of different businesses or industry that can meet same customer needs. Example- the need of coffe sometime alternatively meet by the tea or soft drinks. So, tea or soft drinks companies can be threat for companies in cofee
Michael Porter's Five Forces analyze the external and internal environment of a company to increase the awareness of threats and structure of the industry that company competes within. Thus, the Five Forces is an ideal tool which can help companies to maintain their competitiveness with a higher profitability.
I am going to apply Porter’s 5 Force model in “professional basketball Industry” to draw conclusions about major success factors for firms (here teams). For that I am selecting NBA industry.
Threat of New Entrants – In the food industry, consumers’ attitudes are based on their brand loyalty and preference. Although the capital for the new entrants could be low, the brand loyalty is difficult to establish in the short-run; therefore, the threat of new entrants is low.
...not provide the company with opportunities to analyze its internal strengths and weaknesses like that of the SWOT analysis. In short, Porter’s five forces model is related to the threats of the company resulted in the current market scenario.
Porter’s five forces I based on the argument that the potential of an organization is determined by the structure of the industry and the market it is operating in and that companies that are operating where competition is limited is likely to be more profitable; an industry with fierce competition would be unprofitable.
Porter’s competitive forces model includes five forces that need to be analysed. These forces include the intensity of rivalry from traditional competitors, threat of new market entrants, threat of substitute products and services, bargaining power of customers and bargaining power of suppliers (Laudon & Laudon, 2007). See diagram below;
Threat of substitute products: This information allows us to analyze to what degree our product is threatened by the entry of a substitute. The Oreo cookie product can easily be substituted by another flavor or imitation. However, Oreo’s brand is what distinguishes it from its competitors. Oreo is an old brand established on family values. Oreo carries this through its international campaign and as a result strengthens its presence.
Until the introduction of a “sixth force” in the mid-nineties, the “Porter’s Five Forces Model” as it was originally developed by Michael E. Porter in 1979 explained how “five competitive forces” determine industry attractiveness. Porter opined that in the fight to sustain long-term profitability, a firm must be strategic towards competition, and beyond competition, keep tabs on a broader set of competitive forces; customers who can drive prices down, suppliers who exercise some level of power, new entrants who might come in to compete for profits and substitute products and services that essentially place constraints on the profitability and growth on any industry. With the extension of this model, the sixth force (as shown in exhibit 1) included showed the impact of complimentary products and services on the attractiveness and overall profitability of an industry. In general, the Six Forces model proposes that the underlying structural drivers of any industry determine the performance of the players.
Substitutes may eliminate the need for the previous product. Substitutes present a threat if switching costs are minimum and there is a high tendency to substitute. There is also a danger of generic substitution. These are substitutes that are a total other product but still influence consumers to use it instead your product.
The Porter five forces model (see Appendix 1) as an external analysis tool was established by Michael E. Porter and firstly announced in his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors” in 1980 . The main idea of the Porter five forces concept is that the attractiveness of a market depends on the characteristic of the five competitive forces that have an impact on a company (see Appendix 2).