Analysis Of Porter 's Five Forces Model

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VALUE INNOVATION Despite recessions and shifting markets some companies grow in revenues and profits. Why is this so? FIVE FORCES MODEL Until recently, Porter’s Five Forces Model was the dominant theory applied to factors driving competitive forces in an industry. It hypothesizes that the level of competitive intensity within an industry arises from five specific sources in determining attractiveness of an industry to potential entrants. Porter developed Five Forces Analysis in response to SWOT analysis, a model he found too vague. In this economic model, while rivalry between competing firms drives profits toward zero, industry players understand competition is imperfect so companies’ do their utmost to achieve a competitive advantage…show more content…
The number of suppliers you need to maintain key aspects of production, the uniqueness of these features, and your switching costs between suppliers are all critical. The fewer your suppliers, the greater your dependency on fewer upstream providers, the more power each wields. CUSTOMER BARGAINING POWER How powerful are your customers relative to your value proposition? The smaller your customer base, the more concentrated its power. The significance of each customer within your client base, and the lower your customer’s switching costs, can all conspire to drive your prices down. THREAT OF SUBSTITUTES Product substitutions in place of a company 's products or services are a threat. If your customers rely on you to provide a tool or service that can be easily substituted with that of another tool or service provider, your market power is weakened. When rivals become aggressive within a given marketplace a counter-response by one or more competitors typically occurs. A competitor can choose among several options: • Changing prices-this can result in a temporary advantage since competitors can quickly follow suit. • Improving product differentiation-requires more time, but improved features, improved quality can bear long-term results. • Using distribution channels creatively -ignore traditional channels through vertical integration or distributing through non-traditional outlets. The major risk in the latter strategy is to the
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