Evaluation of Banks Using Porter's 5 Forces

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This report will investigate how Porter’s five forces might be used to evaluate the future potential of modern banks, such as Tesco Bank and Virgin Money. This question has occurred through recent research into market structure and has highlighted its significance in the current market place by introducing more competition to traditional banks, supermarkets and other businesses. However, this also gives customers more choice in today’s climate, where in some cases banks have lost customers’ trust.
Porter makes clear that when there is competition in the market place, every business should have a strategic plan so they are able to manage the competition. The plan should include the additional four factors; customers, suppliers, potential
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This leads on to the factor buyer power. Tesco are a great example of having high buyer power through a whole range of strengths. Their brand identity gives them bargaining leverage when they need supplies. Suppliers would find Tesco or Virgin Money attractive to supply for because they own a large per cent of the market share in their industries, Tesco dominating with 30.4%. By supplying to a market leader, it could open doors to other contacts who want to use their product, and because Tesco supermarket has already proven their successfulness, it would be true to say that the bank will expand too. This gives the chance to supplier to supply more to Tesco as the company grows, increasing their profits. Moreover they have the power of economies of scale. The Tesco business model states that “to continually increase the size of its operations, realise greater economies of scale and reflect them back into lower prices and or higher quality to generate greater sales and more economies of scale” (Reading, 2004:page no). The banks ‘father’-( Tesco supermarket) already has economies of scale and this had been passed onto the bank by arranging cheaper deals with existing suppliers, ultimately having more machinery and software will allow more sales to be made and increasing their revenue further. Thus, it becomes a want to supply for Tesco Bank, leaving the bank with all the power to bargain for lower prices.

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