Michael Porter Analysis (Five Forces Model)
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Transcript of Michael Porter Analysis (Five Forces Model)
8/9/2019 Michael Porter Analysis (Five Forces Model)
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michael porter analysis
(fve orces model)
8/9/2019 Michael Porter Analysis (Five Forces Model)
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INTRODUCTION
An industry consists o a roup o companieso!erin products or services" #hich are similar andsu$stitutes or each other% &trateists analy'ecompetitive orces #ithin an industry to identiy
opportunities and threats acin a frm% A model oranaly'in the industry environment is developed $yichael % *orter" stratey% This model is +no#n asan authority on competitive stratey% This model is
+no#n as fve orces model and it helps manaersto identiy and analy'e the competitive orces in anindustry environment%
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Porter’s FiveForces Model
Threat of NewEntrants
BargainingPower ofSuppliers
Rivalry amongEistingFirms
Threat ofSu!stitutes
BargainingPower ofBuyers
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(,) Threat o Ne# ntrants
ntry o potential competitors to an industryis a threat to the possi$ility o esta$lishedplayers% in any industry" ne# entrants $rinin ne# capacity" su$stantial resources and
aressiveness to ain mar+et share% itincludes ollo#in -
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(a)conomies o scale -
.irms reali'e economies o scale as theoutput o manuacturin units increases%
They manuacture oods at a lo#er averae
cost compared to other manuacturers #ithlo#er levels o output% These economies oscale act as a $arrier aainst frms #hichconsider enterin an industry #ith a smallermanuacturin capacity%
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($) *roduct di!erentiation -
.irms di!erentiate their products $yesta$lishin $rand identifcation andcustomer loyalty% /rand identifcation and
customer loyalty can $e $uilt throuhadvertisin" customer service" productdi!erences" or frst mover advantae%
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(c) Capital re0uirements -
A frm need capital not only or advertisinand R1D and $ut also or customer credit"inventories" and to a$sor$ start2up losses%
3ue capital re0uirements limit the num$ero players in industries such as computermanuacturin and mineral e4traction%
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(d) Cost advantaes -
e4istin frms in an industry sometime en5oyadvantaes that are not ne# entrants% theseadvantaes similarly" proprietary
technoloy" access to the $est sources ora# materials" assets purchased at lo#erprices" overnment su$sidies and avora$lelocations etc%
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(e) Access to distri$ution channel -
&mall frm oten fnd it di6cult to ac0uireshel space or distri$ution o their products$ecause lare retailers oten ivepreerence to esta$lished frms% Theesta$lished frms are prepared to pay oradvertisement needed to create customer
demand%
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() 7overnment policy -
The overnment can limit entry into anindustry throuh licensin re0uirements" airand #ater pollution standards and saety
reulations% The mandatory re0uirement oe8uent treatment plant in suar mill" sotdrin+ unit" mil+ processin units and plasticmanuacturin units has escalated the cost
o production in India% This has restricted theentry o potential competitors%
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(9) /arainin *o#er o &uppliers
The $arainin po#er o suppliersdetermines the company:s profta$ility #henthe suppliers are a$le to orce the price thatthe $uyer must pay% &uppliers are po#erul
under the ollo#in circumstances -
;hen the product that they sell has e#
su$stitutes and is important to thepurchasin company or $uyer%
#hen no sinle industry is a ma5orcustomer or the suppliers%
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#hen products in the industry aredi!erentiated to such an e4tent that theyare not easily su$stituta$le and it is costlyor a $uyer to s#itch rom one supplier toanother%
A purchasin frm $uys a small 0uantity oa supplier<s oods and services it isunimportant to the supplier%
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(=) The /arainin *o#er o /uyers
/uyers vie#ed as a threat #hen they orcethe companies to chare lo# prices ordemand hiher 0uality and $etter service
#ith their $arainin po#er% /uyers can $evie#ed as a #ea+" i they ive the companythe opportunity to raise price and ma+emore profts% Accordin to porter the $uyers
are po#erul in the ollo#in circumstances%
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The suppliers are more in num$er $ut the $uyersare e#%
The $uyers $uy in lare 0uantity%
ore num$er o alternative suppliers and theirproducts are not standardi'ed and undi!erentiated%
The cost o chanin suppliers is not much%
The suppliers depend on the $uyer or a larepercentae o their total orders%
The purchase item is not important to the fnal0uality or price o $uyer:s product%
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(>) threat o su$stitute -
&u$stitutes are those products" #hich satisysimilar needs thouh appear to $e di!erent%Co!ee" tea an &ot drin+s" all serves the
consumer:s need or rereshment% Due tothe e4istence o su$stitutes such as tea andsot drin+s" the prices chared $y companiesin the co!ee industry are restricted% I co!ee
prices are hi+ed" consumers have option os#itchin over to tea or sot drin+s" #hich
are its su$stitutes%
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A su$stitute is a potential threat to the
company:s product% The e4istence o asu$stitute limits the price #hich can $echared or a product and thereore theprofta$ility o the company%
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(?) Rivalry amon 4istin .irms
;hen the intensity o rivalry is #ea+ amonesta$lished players #ithin an industry"companies can raise prices and earn reaterprofts% I the rivalry is stron amon otherplayers" price competition and price #ar mayresult and it #ill reduce the proft marin% The intensity o rivalry amon esta$lished
players is mainly due to three reasons- Industry competitive structure
Demand conditions
The heiht o e4it $arriers in the industry%
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Thankyou