Porter's Five Forces Model and Three Generic Strategies

959 Words Jul 19th, 2013 4 Pages
Porter's Five Forces Model

Porter's Five Competitive Forces model is a framework made by Michael Porter that is used by businesses when thinking about business strategy and the impact of Information technology. This model can help a business decide whether to, enter an industry or expand your business in the industry you are already working on. The five forces in the model are the following: 1. Buyer Power 2. Supplier Power 3. Threat of substitute products or services 4. Threat of new entrants 5. Rivalry among existing companies

Buyer Power
The more choices of suppliers that a consumer can choose from, the higher the buyer power is and vice versa. Suppliers want to lower buyer power as much as possible while
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There are two main ways of achieving this within a Cost Leadership strategy: * Increasing profits by reducing costs, while charging industry-average prices. * Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.
The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low cost producers who may undercut your prices and therefore block your attempts to increase market share.
You therefore need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have: * Access to the capital needed to invest in technology that will bring costs down. * Very efficient logistics. * A low cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors.
The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to

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