Porter's Five Forces Model

• Who devised the five forces model?

  Professor Michael Porter
• What does the five forces model assess?

  Market attractiveness and competition nature
• How can the five forces model explain industry profits?

  By analyzing competition and market structure
• Why might some industries have low profits according to Porter?

  Due to high competition and low entry barriers
• What does Porter compare to explain profit differences?

  Airline industry and soft drinks market
• What is a characteristic of the soft drinks market?

  High operating profit margins
• What factors contribute to high profits in the soft drinks market?

  Brand loyalty and high entry barriers
• What is the effect of high rivalry in an industry?

  Low profits
• What is the significance of barriers to entry?

  They discourage new market entrants
• How does brand loyalty affect new entrants?

  It increases barriers to entry
• What is a market with low barriers to entry likely to experience?

  High competition
• Why might hairdressing salons have low barriers to entry?

  Easy to set up and operate
• What is a lucrative activity with low barriers to entry mentioned?

  Dog walking
• Why do markets with low barriers to entry tend to have low margins?

  High competition reduces profitability
• What is a common type of business found on high streets?

  Hairdressing salons
• Why is it easier to set up as a hairdresser?

  It has relatively low barriers to entry
• What is a lucrative activity that can be easily set up?

  Dog walking
• How do high barriers to entry affect industry profits?

  They allow firms to earn high profits
• What is a characteristic of markets with low barriers to entry?

  They tend to be highly competitive
• What is a significant requirement for pharmaceutical products?

  Investment in research and development
• What is a risk associated with the pharmaceutical industry?

  It involves a long-term process of testing
• What is necessary for effective competition in the oil and gas market?

  Technical expertise and resources
• Why does Nike have high profit margins?

  Due to brand loyalty and awareness
• What does high bargaining power of suppliers indicate?

  Suppliers can dictate prices and terms
• When are suppliers considered powerful according to Porter?

  When there are few suppliers and high demand
• How can substitute products affect an industry?

  They can lead customers to choose alternatives
• What has changed in the newspaper industry due to technology?

  Increased substitutes for traditional news sources
• What is a consequence of high competition in the leisure market?

  More choices for consumers
• How does market growth affect competition intensity?

  Slow growth leads to more intense rivalry
• What does the phrase "a rising tide floats all boats" imply?

  Fast-growing markets reduce rivalry intensity
• What can increase competition in a market with high fixed costs?

  Difficulty in exiting the industry
• How does technological change influence competition?

  It reduces barriers to entry and increases rivalry
• How can a takeover affect bargaining power?

  It can reduce supplier bargaining power
• What is the purpose of Porter's five forces model?

  To assess industry competition and attractiveness
• How can the five forces model be linked to diversification strategies?

  It assesses competition in target markets
• What does high intensity of rivalry indicate for a market?

  It suggests fierce competition among firms
• What is a key factor in determining market competition?

  Market size and growth
• What is the relationship between fixed costs and competition intensity?

  High fixed costs increase competition intensity
• How does the five forces model help in exam answers?

  It provides a framework for analyzing industries
• What are the main forces in Porter's five forces model?

  • Barriers to entry
  • Bargaining power of suppliers
  • Bargaining power of customers
  • Threat of substitute products
  • Intensity of rivalry