porters

Cards (22)

  • porters five forces
    *suggests 5 forces of the competitive environment that may determine likely profits of a business in that environment (affect profitability)
    *analyses state of market and helps managers of existing businesses to figure out best strategy to gain competitive advantage - decision making tool
    *shows potential market entrants how profitable market is likely to be and whether it's worth getting into + where to position themselves
  • barriers to entry (entry threat)
    how easy is it for new businesses to enter the market?
  • easy to enter market
    high threat (competitive advantage of existing businesses can be eroded - reduction in market share, profits and prices due to competition)
  • hard to enter market
    low threat - barriers to entry exist
  • barriers to entry
    factors that make it difficult and expensive to enter the market
  • examples of barriers to entry
    patents & copyrights, economies of scale, customer & brand loyalty, exclusive rights to distribution channels (could use vertical integration either forward or backward), lobbyists,
  • buyer power
    can buyers drive a hard bargain - do they have a lot of power in terms of what/where they purchase?
  • when will there be high buyer power?
    *few buyers with many sellers
    *standardised products are sold (ability to easily switch) - homogonous products
  • impact of high buyer power
    powerful customers would be able to push down prices of products and reduce the profits
  • overcoming high buyer power
    *differentiate product
    *create buyer group
    (decrease number of sellers) - limit options for buyers
    *find new customers (more buyers)
    *increase marketing/start price wars (reduce sellers)
  • supplier power
    can suppliers increase their prices - do they have a lot of power?
  • when is supplier power high?
    few suppliers that provide raw materials and components - able to charge higher prices as they know businesses in the industry need them
  • overcoming high supplier power
    lock in longer contracts, maximise economies of scale (use more JIC), offer to merge as a forward vertical integral partner
  • threat of substitutes

    are the alternatives for consumers?
  • substitutes according to porter's model
    products that perform the same function as the one in the industry
  • impact of many substitutes
    demand is lower as there are more alternatives, making the environment more competitive and thus reducing profitability as prices would be reduced
  • what type of products does threat of substitutes affect most?
    undifferentiated products
  • overcoming high threat of substitutes
    build brand loyalty, meet customer needs better, cost leadership (porter's generic strategy), build moat (eg Prime Video by Amazon) - reduce risk of consumers switching, market new product that exactly meets the needs of a specific group of customers (lack of substitutes)
  • rivalry

    level of competition within the industry
  • where will rivalry be high/intense?
    *in market with lots of equally-sized competitors
    *market selling standardised goods
    *young industries where competitors are following growth strategies
  • impact of intense rivalry
    prices might have to be reduced to be able to be competitive (to raise demand)
  • overcoming intense rivalry
    cost leadership/differentiation, increase marketing