Porter’s Five Forces Model Essay Example for Free

porters Five Forces Model EssayPorters five forces molding helps in accessing where the agent lies in a business situation. Porters Model is real(a)ly a business strategy withall that helps in analyzing the attractiveness in an industry structure. It let you access occurrent strength of your warring position and the strength of the position that you argon planning to attain. Porters Model is considered an important classify of planning tool set.When youre clear about where the power lies, you earth-closet take advantage of your strengths and nooky improve the weaknesses and mickle compete efficiently and effectively. Porters model of competitive forces assumes that in that respect argon 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 new entrants3. Intense rivalry among be players4. dicker power of suppliers5. Bargaini ng power of Buyers1. Threat of substitute productsThreat of substitute products means how considerably your customers underside transformation to your competitors product. Threat of substitute is lofty when* There are many substitute products available* Customer can easily find the product or service that youre offering at the same or less price* Quality of the competitors product is better* Substitute product is by a conjunction earning high 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 thusly discussion section 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 new entrantsA new entry of a competito r into your market also weakens your power. Threat of new entry depends upon entry and belong barriers. Threat of new entry is high when* chapiter requirements to start the business are less* Few economies of scale are in place* Customers can easily switch (low switching bell)* Your key technology is not hard to acquire or isnt protected well* Your product is not differentiatedThere is variation in attractiveness of element depending upon entry and entrust barriers. That segment is more attractive which has high entry barriers and low exit barriers. virtually 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 vex in and fight it out.When these barriers are low then firms easily enter and exit the industry, profit is low. The worst condition is when entry barriers are low and exit barriers are high then i n good times firms enter and it become very difficult 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 number 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 colossal production and reduction in prices These situations confine the reasons for advertising wars, price wars, modifications, ultimately costs increase and it is difficult to compete.4. Bargaining power of suppliersBargaining reason of supplier means how strong is the position of a seller. How much your supplier have control all over increasing the Price ofsupplies. Suppliers are more powerful when* Suppliers are concentrated and well organized* a f ew substitutes available to supplies* Their product is most 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 relation 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 organise together in ordering large volumes. Buyers have more bargaining power when* Few buyers chasing too many goods* Buyer purchases in bulk quantities* Product is not differentiated* Buyers cost of switching to a competitors product is low* Shopping cost is low* Buyers are price excellent* Credible Threat of integrationBuyers bargaining power may be lower 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 model provides useful commentary for SWOT Analysis and is considered as a strong tool for industry competitive analysis.