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Porter's 5 Forces: Segment

Porter's 5 Forces model identifies 5 competitive forces that shape an industry: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products, and the intensity of rivalry among existing competitors. The model can be applied to any industry to understand the competitive landscape and help determine a company's weaknesses and strengths within that industry.

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865 views4 pages

Porter's 5 Forces: Segment

Porter's 5 Forces model identifies 5 competitive forces that shape an industry: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products, and the intensity of rivalry among existing competitors. The model can be applied to any industry to understand the competitive landscape and help determine a company's weaknesses and strengths within that industry.

Uploaded by

Marissa Grutas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Porter's 5 Forces

 The model of the Five Competitive Forces was developed by Michael E. Porter.

 Porter's Five Forces is a model that identifies and analyzes five competitive
forces that shape every industry and helps determine an industry's weaknesses
and strengths.

 Porter's model can be applied to any segment of the economy to understand the


level of competition within the industry and enhance a company's long-term
profitability.

Porter's 5 Forces
Bargaining power of buyers. 
Buyers mainly influence the profitability of existing companies in the industry through their
ability to lower prices and requirements to provide higher product or service quality.

-number of buyers in the market

-importance of each individual buyer


to the organization

-and cost to the buyer of switching


from one supplier to another.

If a business has just a few powerful buyers, they are often able to dictate terms.

Bargaining power of suppliers. 


Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to
their buyers. This directly affects the buying firms’ profits because it has to pay more for
materials. 

-number of suppliers of each essential


input
- uniqueness of their product or service;
- relative size and strength of the
supplier
- and cost of switching from one supplier
to another.
The threat of new entrants

This force considers how easy or difficult it is for competitors to join the marketplace.
The easier it is for a new competitor to gain entry, the greater the risk is of an
established business's market share being depleted. Barriers to entry include absolute
cost advantages, access to inputs, economies of scale and strong brand identity.

The threat of substitute products or services

This force studies how easy it is for consumers to switch from a business's product or
service to that of a competitor. It examines the number of competitors, how their prices
and quality compare to the business being examined, and how much of a profit those
competitors are earning, which would determine if they can lower their costs even more.
The threat of substitutes is informed by switching costs, both immediate and long-term,
as well as consumers' inclination to change.

Rivalry among existing competitors.


This force examines how intense the competition is in the marketplace. It considers the number
of existing competitors and what each one can do.
Rivalry competition is high when there are just a few businesses selling a product or service,
when the industry is growing and when consumers can easily switch to a competitor's offering
for little cost. When rivalry competition is high, advertising and price wars ensue, which can hurt
a business's bottom line.
Using the tool
 Step 1. Gather the information on each of the five forces
 Step 2. Analyze the results and display them on a diagram
 Step 3. Formulate strategies based on the conclusions

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