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  • Porter's 5 Force Analysis: Competitive Advantage of Nations - Part of The Environmental Analysis Process

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    Porter's 5 Forces analysis is a framework for industry competition analysis and business strategy development. It draws attention to five key forces that determine the competitive intensity and attractiveness of a market. These forces include the threat of new entry, power of buyers, power of suppliers, threat of substitution, and competitive rivalry within an industry. According to Porter, understanding these forces can help determine an industry's weaknesses and strengths.

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    Porter's 5 Forces analysis is a framework for industry competition analysis and business strategy development. It draws attention to five key forces that determine the competitive intensity and attractiveness of a market. These forces include the threat of new entry, power of buyers, power of suppliers, threat of substitution, and competitive rivalry within an industry. According to Porter, understanding these forces can help determine an industry's weaknesses and strengths.

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    27 views10 pages

    Porter's 5 Force Analysis: Competitive Advantage of Nations - Part of The Environmental Analysis Process

    Uploaded by

    vibinwales
    Porter's 5 Forces analysis is a framework for industry competition analysis and business strategy development. It draws attention to five key forces that determine the competitive intensity and attractiveness of a market. These forces include the threat of new entry, power of buyers, power of suppliers, threat of substitution, and competitive rivalry within an industry. According to Porter, understanding these forces can help determine an industry's weaknesses and strengths.

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    of 10

    P o r t e r ’s 5

    F o rc e A n a l y s i s

    competitive advantage of nations – part of the environmental


    analysis process
    Marketing Environment
    “the external actors and forces that affect the company’s ability to develop and
    maintain successful transactions and relationship with its target customers”
    (Kotler 1994)

    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

    Supplier Competitive Buyers


    Power Rivalry Power

    [According to porter, the


    nature of competitiveness
    Threat
    in a given industry can be
    Of
    viewed as a composite of
    Substitution
    five forces]
    Porter Five Force Analysis

    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
    !
    Questions

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