Porter`s 5 forces

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Porter’s Five Forces – Competitor Analysis
Michael Porter’s five forces is a model used to explore the environment in which a product or company operates to generate competitive advantage.
Porter’s Five forces analysis looks at five key areas mainly the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry (advantage).
Michael Porter’s Five Forces: New Entrants
Suppliers Industry competitors and extent of rivalry & advantage Buyers Substitutes
Overview of Porter’s Five Forces
The Porter’s Five Forces model is an “outside looking in” business unit strategy tool that is used to make an analysis of the attractiveness or value of an industry structure.
The Competitive
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If the cost of switching is low, then this poses to be a serious threat. Here are a few factors that can affect the threat of substitutes:
• Buyer propensity to substitute
• Relative price performance of substitutes
• Buyer switching costs
• Perceived level of product differentiation
• Fad and fashion
• Technology change and product innovation
The main issue is the similarity of substitutes. For example, if the price of coffee rises substantially, a coffee drinker is likely to switch over to a beverage like tea because the products are so similar.
• If substitutes are similar, then it can be viewed in the same light as a new entrant.
• Consider technology substitutes (who would have thought that MP3 technology would replace tape & CD’s?)
Michael Porter’s Factor 5) Competitive Rivalry
And last but not least, this describes the intensity of competition between existing firms in an industry. Highly competitive industries generally earn low returns because the cost of competition is high. A highly competitive market might result from:
• Many players of about the same size, no dominant firm.
• Little differentiation between competitors products and services.
• A mature industry with very little growth.
• Companies can only grow by stealing customers away from competitors.
For many industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals
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