Assignment 2 BP

Question no: 1
What are the porter's five forces?

The five forces are:
1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the:
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.
2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the:
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.
3. Competitive rivalry. The main driver is the number and capability of competitors in the market. Many
competitors, offering undifferentiated products and services, will reduce market attractiveness.
4. Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of
customers switching to alternatives in response to price increases. This reduces both the power of
suppliers and the attractiveness of the market.
5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless
incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital
requirements or government policies, then profitability will decline to a competitive rate.
Question no: 2
How porter's approach to industry analysis?
Every person in business usually does a lot of research and makes a lot of plans before starting a business.
One of the most important among such aspects is to conduct an industry analysis. It can provide the
entrepreneur with an idea regarding the growth of his products or services and the amount of competition
he has to face from others. Michael Porter’s Five Forces is one such tool which can be used to evaluate
the five important factors regarding the growth of the industry. It helps the entrepreneur to get to know
about the environment surrounding the industry and the necessary steps to be taken to get success in this
market.
1. Power of Supplier
It is the power which lay in the hands of suppliers to increase or decrease the prices of certain
commodities. It depends on a large number of factors like the number of suppliers present in the market,
the quality of the products and if they stand out from the quality of other suppliers, etc. If the number of
suppliers in that particular sector is less, then the power of the suppliers tend to increase. Then the
entrepreneur has to take into account the idea of alternative suppliers, but that may be difficult due to
budget constraints.
2. Power of Buyer
Buyers love to bargain and are more often successful in reducing the prices of products in the market. It
also depends on a large number of factors like the number of buyers, size order, the demand of new
products among buyers, prices of other alternative products and quality of the products. If the number of
buyers is less, they have more control over the prices.
3. Competition with Others

It is one of the most important factors in the Porter analysis. In the industry market, the number of
competitors, as well as their potential, has a major impact. If a newly launched product has a lot of
competition, then it might be a problem as the buyers will have a lot of options for purchasing. But this is
not the case if there are fewer options in the market.
To get the upper hand in a competitive market, a firm opts for several methods to increase their profit-
 Changing the prices according to the competition
 Improving the quality of the products to attract more buyers
 Innovatively using channels of distribution to grab a new area
 Using the relationship with customers to good effect by satisfying their demands
4. Threat of Getting Substituted

Often customers may find an alternative way to fulfil their demands and they no longer have the necessity
to buy these products or services. This can prove to be a major threat to the company. More the number of
substitute products available in the market, lesser is the demand for the products. The threat of getting
substituted can not only cause an impact on the prices of the products but can also raise the question of
sustainability in some cases.
5. Threat Due to New Entry

Not only there is the threat of the direct rivals, but there is also the threat of new firms entering into the
picture and causing a major craze in the market. This can harm the sales of products and weaken your
position in the market. Free entry markets tend to suffer more in such situations and thus the need for a
few entry barriers are a necessity to reduce competition with new firms.
Countering the Five Forces
A strategy can be made to counter Porter’s 5 forces model on three levels-
 Corporate level
 Business unit level
 Departmental level
The business unit level acts as an immediate context to industry rivalry. Porter came up with three generic
strategies - cost leadership, differentiation and focused on gaining an advantage over the rivals. With the
help of a proper generic strategy, firms can enjoy a position where they can use their strengths to good
effect and combat against the effects of five competitive forces on them.

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Question no: 1

What are the porter's five forces?

3. Competition with Others

4. Threat of Getting Substituted

5. Threat Due to New Entry

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