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Porter's 5 Force Analysis: Competitive Advantage of Nations - Part of The Environmental Analysis Process
Porter's 5 Force Analysis: Competitive Advantage of Nations - Part of The Environmental Analysis Process
F o rc e A n a l y s i s
MICRO ENVIRONMENT
Customers
Suppliers
Competitors
Marketing Intermediaries MACRO ENVIRONMENT
Political
Legal
Social
Cultural
Economic
Porter Five Force Analysis
Porter five forces model of competitive analysis is widely used
approach for developing strategies in many industries.
Threat
Of
New Entry
Competitive
Rivalry Number and Size of firms
Industry Size and trends
Fixed Variable cost bases
Product/Service ranges
Differentiation, Strategy
Example; -
In telecommunication industry firms are lowering their prices
to increase consumer call ratio by minimizing per minute
profit margin but increasing overall company revenues.
Porter Five Force Analysis
Threat
Of Entry ease / barriers
New Entry Geographical factors
Incumbents resistance
New entrant Strategy
Routes to Market
Potential entry of new competitors is also the factor to intense
the competition in the industry. Larger the pool of new entrants
result in more changes of intense competition. Barriers to entry,
however can restrict the firms from entering the market, more
number of entry barriers will make it difficult for the new
entrants to exploit the opportunity of new market.
Porter Five Force Analysis
Buyers
Power Buyers Choice
Buyers Size/Number
Change Cost/Frequency
Volumes
Product/Service Importance
Consumers are the final user of the products, performance of the
companies totally depend upon the consumers. Bargaining
power of consumers is more especially when they are huge in
number and consumers purchase in large quantity. Rivals firms
offer discounts, warranty and services to switch the consumer
from one brand to another in same industry.
Porter Five Force Analysis
Threat
Of Alternative Price/Quality
Substitution Market Distribution Changes
Fashion and Trends
Legislative effects
Example;- The manufacturers of eyeglasses and contact lenses
are facing mounting competitive pressures from growing
consumer interest in laser surgery. Newspaper feel competitive
force of the general public turning to cable news channels for
late-breaking news and using Internet sources to get
information about sports results, stock quotes, and job
opportunities.
Porter Five Force Analysis
Suppliers
Power Brand Reputation
Geographical Coverage
Product/Service Level Quality
Relationship with Customers
Bidding Process/Capabilities
Bargaining power of supplier effect the intensity of competition
especially if there are huge number of supplier, less availability
of raw material and the cost of switching supplier or raw
material is high. These attributes in the industry gives power to
the supplier to enforce term and conditions on manufacturers
and charge high cost of raw material.
Porter Five Force Analysis
- Advantages -
The Five force Analysis allows determining the attractiveness of an
industry. It provides insights on profitability.
It can reveal insights about potential future of the industry.
With knowledge of the competitive forces, organizations can improve their
competitive positions.
- Criticism -
Porters Model of Five Competitive Forces has been subject to much critic.
Its main weakness results from the historical context in which it was
developed.
The model is best applicable for analysis of simple market structures.
The model is based on the idea of competition.
Porter Five Force Analysis
References :-
Marketing Strategy ,David Mercer- Edition 1,
[The Challenge of External Environment]
Principles of Marketing, Philip Kotler, Veronica
Wong, John Saunders, Gary Armstrong – Edition 4,
Publisher ; Pearson Education Limited.
Thank you
!
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