porters

• 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