Porter’s five forces analysis is an influential tool for the firms to evaluate the market competition which was developed by Harvard business school’s Micheal E. Porter. It consists of five specific forces which determine the profitability of business based on other business in the industry. According to the porter “The origin of profitability is identical regardless of industry”. Porter just developed this model against the SWOT model.
Important five forces for evaluating competitive power given by Porter are:
THREAT OF NEW ENTRY
This force examines the ease and difficulty level for the competitors entering in industry. The power of a firm can be affected by the new entry of business in your market. If it is easy for the competitors to enter a marketplace it will affect the firm and market share being depleted. If competitors find difficulty then it is an advantage for the firm. Competitors can easily enter in your market and weaken your market position and harm to your market share. A firm needs strong and durable barriers to preserve their position in the market.
THREAT OF SUBSTITUTION
This force is studied to examine that how easy it is for the consumer to switch for the products and services to the competitors. This includes a number of competitors, the price of competitors, and the quality of product provided by competitors and how much profit they are earning through this. Simply this affects the consumers, means they find a different way of the same thing what you do. For example, if you are providing a chemical that reacts easily they will find a chemical which retracts the same but may be cheaper in cost. So these substitutions weaken the power of a firm.
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BUYER POWER
Buyer power or we can say the bargaining power of customers means here one studies how easy it is for the customers to drive the price down. This force can affect the price and quality of the products. It becomes easy when there are many options available in the market and very easy for a consumer to switch to other. It completely depends on the customer, if a product is purchased in the small amount so buying power is low and vice versa.
SUPPLIER POWER
This force analyzes the power and control of the supplier. It directly means that how much control it has over the potential to drive the price up and it can affect the business profitability i.e. lower the business profitability. In addition, the number of suppliers plays a vital role in business because if they are few in numbers, they have more power and vice versa.
INDUSTRY RIVALRY
This force of the framework examines the intensity of competitive rivalry. The most important thing is the number of competitors and capability of them. If there are many competitors in the market and they are offering the same product and services then it can directly affect to your power in a market. If you are not able to provide a good deal to suppliers and buyers, they will elsewhere and if you have uniqueness then no one can take your place in the market.
References
Vignali, G., & Vignali, C. (2009). Porters 5 Forces. In Fashion Marketing and Theory (Vol. 95, No. 103, pp. 95-103). Access Press UK in association with GSE Research.
Dagmar, R. (2001). Porters 5 Forces. Retrieved June, 14, 2013.
