Five Force Model on Diamond Industry
Assignment FIVE FORCE MODEL
Introduction
Michael Porter (1980) has identifies five forces that determine the intrinsic long run attractiveness of a market or a market segment in other words the competitive structure of an industry can be analysed using Porter's five forces. Attractiveness in this context refers to the overall industry profitability. The overall industry attractiveness does not imply that every firm in the industry will return same profitability. Firms are able to apply their core competences, business model or network to achieve a profit above the industry average.
The five forces of Porter’s model are as follows:
1. Threat Of Intense Segment Rivalry:
This measures the degree of competition between existing firms. The higher the degree of rivalry the more difficult it is for existing firms to generate high profits. Rivalry will be higher if:
• There are a large number of similar sized firms (rather than a few dominant firms) all competing with each other for customers.
• The costs of leaving the industry are high e.g. because of high levels of investment. This means that existing firms will fight hard to survive because they cannot easily transfer their resources elsewhere.
• The level of capacity utilisation. If there are high levels of capacity being underutilised the existing firms will be very competitive to try and win sales to boost their own demand.
• The market is shrinking so firms are fighting for their share of falling sales.
• There is little brand loyalty so customer is likely to switch easily between products.
2. Threat Of New Entrants :
The extent to which barriers to entry exist. The more difficult it is for other firms to enter a market the more likely it is that existing firms can make relatively high profits.
The likelihood of entering a market would be lower if:
• The entry costs are high e.g. if heavy investment is required in
Introduction
Michael Porter (1980) has identifies five forces that determine the intrinsic long run attractiveness of a market or a market segment in other words the competitive structure of an industry can be analysed using Porter's five forces. Attractiveness in this context refers to the overall industry profitability. The overall industry attractiveness does not imply that every firm in the industry will return same profitability. Firms are able to apply their core competences, business model or network to achieve a profit above the industry average.
The five forces of Porter’s model are as follows:
1. Threat Of Intense Segment Rivalry:
This measures the degree of competition between existing firms. The higher the degree of rivalry the more difficult it is for existing firms to generate high profits. Rivalry will be higher if:
• There are a large number of similar sized firms (rather than a few dominant firms) all competing with each other for customers.
• The costs of leaving the industry are high e.g. because of high levels of investment. This means that existing firms will fight hard to survive because they cannot easily transfer their resources elsewhere.
• The level of capacity utilisation. If there are high levels of capacity being underutilised the existing firms will be very competitive to try and win sales to boost their own demand.
• The market is shrinking so firms are fighting for their share of falling sales.
• There is little brand loyalty so customer is likely to switch easily between products.
2. Threat Of New Entrants :
The extent to which barriers to entry exist. The more difficult it is for other firms to enter a market the more likely it is that existing firms can make relatively high profits.
The likelihood of entering a market would be lower if:
• The entry costs are high e.g. if heavy investment is required in
Bibliography: Kotler P., Keller K.L, Brady M., Goodman M., Hansen T. (2009). Marketing Management.ISBN 978-0-273-71856-7., pp.861 Kotler, Philip and Pfoertsch, Waldemar (2006). B2B Brand Management, ISBN 3-540-25360-2. http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_11.htm http://www.diamondne.ws/2011/05/09/indian-diamonds-gems-and-jewellery-industry-back-on-the-shining-trail/ http://www.scribd.com/doc/37667620/Pestal-Analysis-and-Porters-Five-Force-Model-on-Diamond-Industry www.wikipedia.com