PORTER FIVE FORCES MODEL

Prepared by Gadha Viswambharan Elivis Crispine Oloo Riyas Y

Porters 5 Forces Model - Introduction

The model of the Five Competitive Forces was

developed by Michael E. Porter

An important tool for analyzing an organizations

industry structure in strategic processes.

These forces determine the intensity of competition

and hence the profitability and attractiveness of an industry

Porter Five-Forces Model

Porter five forces model of competitive analysis is widely used

approach for developing strategies in many industries.

Porter Five-Forces Model

According to porter, the nature of competitiveness in a given

industry can be viewed as a composite of five forces.

Rivalry among competitive firms Potential entry of new competitors Potential Development of Substitute Products Bargaining power of suppliers Bargaining power of consumers

Porter Five-Forces Model

Rivalry Among Competitive Firms
Rivalry among competing firms is the most powerful of the five competitive forces. The ongoing war between firms competing in the same industry for gaining customer share to increase revenues and profits. The competition is more intense if firm pursue strategies that gives competitive advantage over the strategies pursued by rivals.

Examples
In telecommunication industry firms are lowering their prices to increase consumer call ratio by minimize per minute profit margin but increasing overall company revenues.

Porter Five-Forces Model

Potential Entry of New Competitors
Potential entry of new competitors is also the factor to intense the competition in the industry. Larger the pool of new entrants result in more changes of intense competition. Barriers to entry, however can restrict the firms from entering the market, more number of entry barriers will make it difficult for the new entrants to exploit the opportunity of new market.

Porter Five-Forces Model

Potential Development of Substitute Products
Firms mostly monitoring the trends within the industry to track the strategies but competition not only arise within the similar industry but also in different industry. Companies in other industry offer products with similar features and functionality or even better act as substitute for the products. For Instance, the producers of eyeglasses and contact lenses are facing mounting competitive pressures from growing consumer interest in laser surgery. Newspaper are feeling competitive force of the general public turning to cable news channels for late-breaking news and using Internet sources to get information about sports results, stock quotes, and job opportunities.

Porter Five-Forces Model

Bargaining Power of Suppliers
Bargaining power of supplier effect the intensity of competition especially if there are huge number of supplier, less availability of raw material and the cost of switching supplier or raw material is high. These attributes in the industry gives power to the supplier to enforce term and conditions on manufacturers and charge high cost of raw material.

Porter Five-Forces Model

Bargaining Power of Consumers
Consumers are the final user of the products, performance of the companies totally depend upon the consumers. Bargaining power of consumers is more especially when they are huge in number and consumers purchase in large quantity. Rivals firms offer discounts, warranty and services to switch the consumer from one brand to another in same industry.

For Example,
P & G have online portal to ask the customer about their views and new ideas about the products of their desire

Influencing the Power of Five Forces

Power of Five Forces

Reducing the Bargaining Power of Suppliers

Reducing the Bargaining Power of Customers

Reducing the Threat of New Entrants

Reducing the Threat of Substitutes

Reducing the Competitive Rivalry between Existing Players

1. Partnering 2. S.C.M 3. Increase loyalty

1. Partnering 2.Cut intermedia ries 1. Create Brand image 1. Increase switching costs 2.Alliances

2. Alliances

1. Avoid price competition 2. Differentiate your product 3. Communicate with competitors

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Critique
It does not take into account new business

models & dynamics of market

Model assumes relatively static market

structures
Model is not applicable for industries having a

complex structure

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Conclusion
Thus, Porters Model of Five Competitive Forces is a

simple but powerful tool for understanding where power lies in a business situation. It helps to understand both the strength of your current competitive position & the strength of a position you are looking to move into.

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References
S.C. Bhattacharya, Strategic Management concepts and cases,

Wheeler Publishing, New Delhi. Haberberg, A. and Rieple, A. (2001) The Strategic Management of Organizations, Essex: Pearson Education Limited. Porter. M. (1979) How competitive forces shape strategy, Harvard Business Review, Vol. 57 Issue 2, pp.5-8. Robert A. Pitts, David Lei, Strategic Management, Vikas Publishing House, New Delhi, pp. 44-51. www.soopertutorials.com Free Online IT and Management Tutorials Tutorial Source http://www.soopertutorials.com/business/strategicmanagement/3028porter-fiveforces-model.html