What Are Michael Porter’s Five Forces Model?

What Are Michael Porter’s Five Forces Model?

1 Answer

  1. Porter’s five forces is an analysis tool used to determine intensity of competition using five industry forces namely, threat of new entry, bargaining power of buyers, threat of substitutes, bargaining power of suppliers and industry rivalry.
    1. Threat of new entry: In this force you analyze the ease with which you can enter a particular market or industry. Threat of new entrant is high when barriers to entry in a market are low. Those can be less capital needed to enter a market, no government regulation, products are nearly identical, etc.
    2. Bargaining power of buyers: When buyers have power to demand goods at lower price or goods with higher quality. Bargaining power of buyers is high when few buyers exist in the market, buyers are price sensitive or switching cost is low or almost negligible.
    3. Threat of substitutes: When your product in the market can be easily substituted by any other product. For example, in the soft drink industry Coke can be easily replaced with Pepsi.
    4. Bargaining power of suppliers: When the number of suppliers in the industry are limited, bargaining power shifts to suppliers. They may charge premium for supplying materials.
    5. Industry rivalry: This is a major determinant of existing competition in the industry and also how profitable the industry is.

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