Porter’s Five Forces Model Essay Example for Free

Porters Five Forces Model EssayPorters five forces model helps in accessing where the power lies in a cable situation. Porters Model is actually a business strategy tool that helps in analyzing the attractiveness in an industry structure. It let you access veritable strength of your competitory position and the strength of the position that you argon planning to attain. Porters Model is considered an important part of planning tool set.When youre clear approximately where the power lies, you can take advantage of your strengths and can improve the weaknesses and can compete efficiently and effectively. Porters model of competitive forces assumes that on that point are five competitive forces that identifies the competitive power in a business situation. These five competitive forces identified by the Michael Porter are1. Threat of substitute products2. Threat of reinvigorated entrants3. Intense rivalry among existing players4. Bargaining power of suppliers5. Bargaining pow er of Buyers1. Threat of substitute productsThreat of substitute products means how easily your customers can fox to your competitors product. Threat of substitute is utmost when* There are many substitute products available* Customer can easily find the product or benefit that youre offering at the same or less price* Quality of the competitors product is better* Substitute product is by a friendship earning amply profits so can reduce prices to the lowest level. In the above mentioned situations, Customer can easily switch to substitute products. So substitutes are a threat to your company. When there are actual and potential substitute products available then piece is unattractive. Profits and prices are effected by substitutes so, there is need to closely monitor price trends. In substitute industries, if competition rises or technology modernizes then prices and profits decline.2. Threat of mod entrantsA new entry of a competitor into your foodstuff also weakens your p ower. Threat of new entry depends upon entry and discharge barriers. Threat of new entry is high when* superior requirements to start the business are less* Few economies of scale are in place* Customers can easily switch (low switching cost)* Your key technology is not hard to acquire or isnt protected well* Your product is not differentiatedThere is variation in attractiveness of segment depending upon entry and exit barriers. That segment is much attractive which has high entry barriers and low exit barriers. Some new firms enter into industry and low performing companies leave the market easily. When both entry and exit barriers are high then profit margin is also high but companies face more risk because poor performance companies stay in and fight it out.When these barriers are low then firms easily enter and exit the industry, profit is low. The worst nail down is when entry barriers are low and exit barriers are high then in good times firms enter and it become very diff icult to exit in bad times.3. Industry RivalryIndustry rivalry mean the intensity of competition among the existing competitors in the market. Intensity of rivalry depends on the moment of competitors and their capabilities. Industry rivalry is high when * There are number of small or equal competitors and less when theres a clear market leader.* Customers have low switching costs* Industry is growing* Exit barriers are high and rivals stay and compete* Fixed cost are high resulting huge production and reduction in prices These situations make the reasons for advertising wars, price wars, modifications, ultimately costs increase and it is difficult to compete.4. Bargaining power of suppliersBargaining designer of supplier means how strong is the position of a seller. How much your supplier have control over increasing the Price ofsupplies. Suppliers are more correctly when* Suppliers are concentrated and well organized* a few substitutes available to supplies* Their product is mo st effective or unique* Switching cost, from one suppliers to another, is high* You are not an important customer to SupplierWhen suppliers have more control over supplies and its prices that segment is less attractive. It is best way to make win-win sex act with suppliers. Its good idea to have multi-sources of supply.5. Bargaining power of BuyersBargaining Power of Buyers means, How much control the buyers have to drive down your products price, Can they utilisation together in ordering large volumes. Buyers have more bargaining power when* Few buyers chasing too many goods* Buyer purchases in bulk quantities* reaping is not differentiated* Buyers cost of switching to a competitors product is low* Shopping cost is low* Buyers are price nice* Credible Threat of integrationBuyers bargaining power may be lowered down by offering differentiated product. If youre serving a few but huge quantity ordering buyers, then they have the power to dictate you. Michael Porters five forces mo del provides useful arousal for SWOT Analysis and is considered as a strong tool for industry competitive analysis.