Porters five forces model

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Defination of Porter’s five forces model Porter’s five forces model is an analysis tool that uses five forces to determine the profitability of an industry and shape a firm’s competitive strategy It is a framework that classifies and analyzes the most important forces affecting the intensity of competition in an industry and its profitability level. Understanding the tool Five forces model was created by M. Porter in 1979 to understand how five key competitive forces are affecting an industry. The five forces identified are: These forces determine an industry structure and the level of competition in that industry. The stronger competitive forces in the industry are the less profitable it is. An industry with…show more content…
For example, iTunes was created to complement iPod and added value for both products. As a result, both iTunes and iPod sales increased, increasing Apple’s profits. How to perform the analysis? We now understand that Porter’s five forces framework is used to analyze industry’s competitive forces and to shape organization’s strategy according to the results of the analysis. But how to use this tool? We have identified the following steps: Step 1. Gather the information on each of the five forces Step 2. Analyze the results and display them on a diagram Step 3. Formulate strategies based on the conclusions Step 1. Gather the information on each of the five forces. What managers should do during this step is to gather information about their industry and to check it against each of the factors (such as “number of competitors in the industry”) influencing the force. We have already identified the most important factors in the table below. Threat of new entry Supplier power Buyer power Amount of capital required Retaliation by existing companies Legal barriers (patents, copyrights, etc.) Brand reputation Product differentiation Access to suppliers and distributors Economies of scale Sunk
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