Porter's 5 forces

• Barriers to entry:

  • Are there barriers to enter the market?
  • If new businesses can enter the market easily then the existing businesses will have a challenge to keep their profits high. Examples include strong brand identity of existing business's products and high levels of advertising
• Supplier power: If suppliers have high levels of power they are able to push up prices for raw materials and components, so lowering profit margins for the business. Examples are the costs switching to a new supplier
• Buyer power: Concerns the ability of the customers within an industry to affect/determine the price they pay. The higher the buyer power, the lower the potential of the business to set the price themselves ect. Examples are product USP and exclusivity, brand identity and the loyalty of the product bought
• Degree of competition in the market: The lower the level of competition, the higher the profit margins. Extent of rivalry between competing businesses within a market will determine the prices set for products and the profit that is made
• Examples include: Industry concentration, e.g. is the market a monopoly or an oligopoly with few businesses dominating the market?, Product differentiation, strength of brands in the market
• Threat or risk of substitute products or services: this concerns the availability of alternative products that customers could switch to. The more substitute products available, the weaker the position of the business and vice cersa
• Examples include: Rate of change of technology, the faster the rate, the more quickly substitutes are likely to occur, switching costs for customers