Porter’s five forces Section 1: Define Porter’s 5 forcesMichael E Porter is a Harvard University professor who creates the five forces model in 1979 for modern business strategy.
He published and describes the five forces on competition book. The five forces are competition in the industry, the potential of new entrants into the industry, power of suppliers, the power of customers and threat of substitute products. This model is useful for the identification and analyzes the shape of every industry and determines the weakness and strategy of the industries. Porter’s established ideas are more useful to measure competition intensity, attractiveness, and profitability of an industry of the modern market. (Investopedia, 2017) Competition in the industry: Competition for the same product producing company can create the threat of profit the company. Large numbers of the competitor have the same kind of product and services at that time more offer comes out. Suppliers and buyers are looking for suitable deals of products and services.
When competitive rivalry is low where the company has greater power to do to achieve the label of profit. (Porter, 2008) Potential of new entrants into the industry: New Company comes with new vision and mission with applying full efforts that kind of industries put more pressure on prices, cost of the existing company and affect the profit of the company. (Porter, 2008)Power of costumes: Costumes always looking for good product and services on as much as possible low cost. It’s indicating the opposite of suppliers’ behavior. (Porter, 2008) Power of suppliers: This force is looking for how to increase the prices of the goods and services.
It is the critical part to balance price the goods and flow of costumes. (Porter, 2008).Threats of the substitutes: This force threats the buyers can switch from one existing goods and services to another with little cost. Substitute’s products can attract the costumers with attractive prices or better quality of the goods and services. (Porter, 2008)Section 2: The five competitive forces that shape strategy Tom Stewart is an interviewer who is an editor and managing director of the Harvard Business Review and Michael Porter is interviewee who is the professor at Harvard University and head of the Institute for strategy and competitiveness. Michael Porter describes his five competitive forces that how to apply all kinds of industries. Those companies or services provider who can balance and control those porter’s five forces they can make a profit and survives long-term business. High-rank manager of the company should aware the market scenario base on the threat of new entrants and the threat of substitute products or services.
Bargaining power of suppliers and bargaining power of buyers also directly affect the company’s profit. Where rivalry among existing competitors can create the stronger forces then others, those forces determine the profitability of the industry and are the most important to look at when forming a strategy. (Harvard Business Review, 2008) New entrants bring new capacity and a desire to gain existing market share and put the pressure on prices, cost and the rate of investment to the company. Power of suppliers can capture more value by themselves by charging higher prices, limiting the quality of services, or shifting costs to industry participants that ultimately drive the company Profitability down. Costumers are powerful for company because without costumer company cannot survive longer. (Harvard Business Review, 2008) The consumer is looking for down prices and better quality. Where substitute goods and services flocculate the business profit for example airlines business directly affect the substitute option like a driving car, train and ship transportation.
Rivalries among competitors depend on the intensity and then the basis on which they complete. Rivalries can destruction the profit of the company which moves solely towards the prices. (Harvard Business Review, 2008) Section 2 Topic Briefing – Porter’s Five Forces Model of Industry CompetitionIn that second video explain Porter five forces based on industrial competition. Company profit is different base on size of product, structure, distribution channel, customer needs and wants, product lifecycle and the substitute product.
The airline company has low profit compare to Soft Drinks Company because airlines have very intensive competitor rivalry, weak barriers to new entry, the supplier of aircraft & equipment are powerful. Another most important reason for the low profit of Airline Company has cost is high but not flexible and customers have lots of substitute options like rail, car, ship etc. (tutor2u, n.d)By contrast, soft drinks company like Coca-Cola and Pepsi customers and suppliers have more strength. They have millions of regular customers and more than thousand of retail distributors one of whom has much influence over the business.
Pepsi and Coca-cola are high awareness and loyalty and also customer less desire for substitutes. There is a high barrier to entry because of the new company unable to think dominated by coca cola and Pepsi. (tutor2u, n.d)Porter five points help to determine the profit of the company.
Who have week suppliers, week customers, high entry barrier, few opportunities for the substitute and little rivalry that types of the company have high profit for example pharmaceutical company, oil and gas Exploration, Nike Company (tutor2u, n.d)Section 4: conclusion and summary Porter’s five forces is a simple but powerful for understanding the competitiveness of business environment. It is also help to identifying strategy’s potential profitability of the business organization. Porter’ five forces help to analyze the strength and weakness of position and advantage from strong part and can improve the weakness of the company and avoid taking wrong step in the future.
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