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Five Forces Model Assignment-1

The document discusses Michael Porter's five forces model for analyzing industry competition and profitability. The five forces are: competition in the industry; potential of new entrants; power of suppliers; power of customers; and threat of substitutes. Understanding how these forces impact an industry allows companies to adjust their strategy to improve profits. The document then provides more details on each of the five forces.

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Saqib Ali
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396 views

Five Forces Model Assignment-1

The document discusses Michael Porter's five forces model for analyzing industry competition and profitability. The five forces are: competition in the industry; potential of new entrants; power of suppliers; power of customers; and threat of substitutes. Understanding how these forces impact an industry allows companies to adjust their strategy to improve profits. The document then provides more details on each of the five forces.

Uploaded by

Saqib Ali
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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PRINCIPLE OF MANAGEMENT

FIVE FORCES MODEL


ASSIGNMENT #1

PRESENTED TO:
PRESENTED BY:
SAP ID-
COURSE: M.COM
Five Forces Model
Five Forces Model is a model that identifies and analyzes five competitive forces
that shape every industry and helps determine an industry's weaknesses and
strengths. Understanding Five Forces and how they apply to an industry can
enable a company to adjust its business strategy to better use its resources to
generate higher earnings. Porter identified five forces that play a part in shaping
every market and industry in the world. The five forces are frequently used to
measure competition intensity, attractiveness, and profitability of an industry or
market.

● Competition in the industry


● Potential of new entrants into the industry
● Power of suppliers
● Power of customers
● Threat of substitute products

COMPETITION IN THE INDUSTRY:


Firstly we will discuss competitors and their ability to undercut 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 able to offer a better deal or lower
prices. On other hand when competitive rivalry is low, a company has greater
power to charge higher prices and set the terms of deals to achieve higher sales
and profits.

POTENTIAL OF NEW ENTRANTS INTO THE INDUSTRY:


A company power is also affected by the force of new entrants into its market.
The less time and money it costs for a competitor to enter a company's market
and be an effective competitor, the more an established company's position could
be significantly weakened. An industry with strong barriers to entry is ideal for
existing companies within that industry since the company would be able to
charge higher prices and negotiate better terms.

POWER OF SUPPLIERS:
The fewer suppliers to an industry, the more a company would depend on a
supplier. As a result, the supplier has more power and can drive up input costs
and push for other advantages in trade. On the other hand, when there are many
suppliers or low switching costs between rival suppliers, a company can keep its
input costs lower and enhance its profits.

POWER OF CUSTOMERS:
Its important to know how many buyers or customers a company has, how
significant each customer is, and how much it would cost a company to find new
customers or markets for its output. A smaller and more powerful client
base means that each customer has more power to negotiate for lower prices and
better deals. A company that has many, smaller, independent customers will have
an easier time charging higher prices to increase profitability.

THREAT OF SUBSTITUTES:
Companies that produce goods or services for which there are no close
substitutes will have more power to increase prices. When close substitutes are
available, customers will have the option to forgo buying a company's product,
and a company's power can be weekend.

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