Porter s five forces analysis - Wikipedia, Porter's five forces example essay

Porter's five forces example essay

Ford Motor Company’s Five Forces analysis shows that competitive rivalry or competition is the most significant external force in the automotive industry environment. The following are the intensities of the five forces in influencing Ford’s business:

It is every strategist’s job to evaluate company’s competitive position in the industry and to identify what strengths or weakness can be exploited to strengthen that position. The tool is very useful in formulating firm’s strategy as it reveals how powerful each of the five key forces is in a particular industry.

Michael Porter’s five forces model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should based on an understanding of industry structures and the way they change.

4.  Threat of New Entrants: breaking into the automotive industry would require a substantial amount of capital to finance the startup costs. However, the resources are relatively easy to gain access to and distribute and regulations are not severely restrictive. However, the dominance of bigger names in the automotive industry keeps the threat low. Overall, the threat is low. 

Published in 1979 when Porter was an associate professor at Harvard Business School, Porter's framework maintains that the attractiveness of a market segment is determined by five competitive forces:

Considering these five forces, Apple must focus its attention on competitive rivalry and the bargaining power of buyers. The analysis supports Apple’s current position of continuous innovation. The firm effectively addresses the five forces in its external environment, although much of its effort is to strengthen its position against competitors and to keep attracting customers to Apple products.

The five forces Porter includes in his analysis comprise threats from new entrants to an industry, rivalry from existing firms in the industry, the threat of substitution from outside the industry, and the respective power of buyers and sellers. Let’s look at each in turn.

So how do we as marketers assess the level of competitive intensity in our industry? Well Porter believes there are five factors, or five forces acting upon your organisation that will determine this (hence the name!)

The importance of this force is the number of competitors and their ability to threaten a company. The larger the number of competitors, along with the number of equivalent products and services they offer, the lesser the power of a company. Suppliers and buyers seek out a company's competition if they are unable to receive a suitable deal. When competitive rivalry is low, a company has greater power to do what it wants to do to achieve higher sales and profits.

Industry structure changes over time, and is not static. Over time, buyers or suppliers can become more or less powerful. Technological or managerial innovations can make new entry or substitution more or less likely. Changes in regulation can change the intensity of rivalry, or affect barriers to entry. Choices by competition, such as new pricing or distribution approaches, can also affect the path of industry competition.  

It’s a strategic tool designed to give a global overview, rather than a detailed business analysis technique. It helps review the strengths of a market position, based on five key forces.

The bargaining power of buyers:  it represents the extent to which the buyers can influence the prices of the goods or services. When there is a large number of buyers, the costs of switching to competition and the customer loyalty are both low. Buyers can go with the business that meets their needs at the lowest cost. On the other hand, when the number of buyers is small, they can push the prices of the goods or services down because the business cannot easily find new customers.

Michael Porter's famous Five Forces of Competitive Position model provides a simple perspective for assessing and analysing the competitive strength and position of a corporation or business organization.  A free Five Forces diagram in MSWord is available here . ( Porter's Five Forces diagram pdf here. )

This is useful, because, when you understand the forces in your environment or industry that can affect your profitability, you'll be able to adjust your strategy accordingly. For example, you could take fair advantage of a strong position or improve a weak one, and avoid taking wrong steps in future.

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  I. Rivalry In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences.

And of course, if the opposite is true for any of these factors, buyer bargaining power is low. For example, low buyer concentration, high switching costs, no threat of backward integration , less price sensitivity, uneducated consumers , consumers that purchase specialized products, and the absence of substitute products all indicate that buyer power is low.

Originally developed by Harvard Business School's Michael E. Porter in 1979, the five forces model looks at five specific factors that help determine whether or not a business can be profitable, based on other businesses in the industry.

Profitable industries that yield high returns will attract new firms. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult by incumbents , abnormal profitability will fall towards zero ( perfect competition ), which is the minimum level of profitability required to keep an industry in business.

Download the External Analysis whitepaper to gain an advantage over competitors by overcoming obstacles and preparing to react to external forces, such as it being a buyer’s market.

Every market or industry is different. Take any selection of industries and you should be able to find differences between them in terms of:

Porter's five forces example essay

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porter's five forces example essay
porter's five forces example essay

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