Porter's five Forces
Porter's Five Forces is a model of analysis
that helps to explain why different industries are able to sustain different
levels of profitability. This model was originally published in Porter's book,
"Competitive Strategy: Techniques for Analyzing Industries and
Competitors" in 1980. The model is widely used, worldwide, to analyze the
industry structure of a company as well as its corporate strategy.
1.
Competition
in the Industry
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, dictates the power of a company. Suppliers and buyers seek out a
company's competition if they are unable to receive a suitable deal.
2.
Potential
of New Entrants into an Industry
A company's power is also affected by the
force of new entrants into its market. The less money and time it costs for a
competitor to enter a company's market and be an effective competitor, the more
a company's position may be significantly weakened.
3.
Power
of Suppliers
This force addresses how easily suppliers
can drive up the price of goods and services. It is affected by the number of
suppliers of key aspects of a good or service, how unique these aspects are and
how much it would cost a company to switch from one supplier to another. The
fewer number of suppliers, and the more a company depends upon a supplier, the
more power a supplier holds.
4.
Power
of Customers
This specifically deals with the ability
customers have to drive prices down. It is affected by how many buyers, or
customers, a company has, how significant each customer is and how much it
would cost a customer to switch from one company to another. The smaller and
more powerful a client base, the more power it holds.
5.
Threat
of Substitutes
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