Five Forces Model for Competition Analysis
Five Forces Model for Competition Analysis
Porter 's five forces analysis is a framework for industry analysis and business strategy development. Three of Porter 's five forces refer to competition from external sources: threat of substitute products, the threat of established rivals, and the threat of new entrants. The remainders are internal threats: the bargaining power of suppliers and the bargaining power of customers. This analysis is based on the Structure-Conduct-Performance paradigm in industrial organizational economics. It helps businesses become more profitable to helping governments stabilize industries.
Based on case study, The Butler Lumber Company, I would like to analyze its business by using these techniques in order to see the firm’s structure, obstruction and the overall industry profitability.
1. Threats of new entrants
Profitable markets that yield high returns will attract new firms. This causes the new entrants, which eventually will decrease profitability for all firms in the industry. But the barrier to entry to this business is Capital requirements. This business need high fix assets. Moreover, the economics of scales is the factor that must have for retail business. And the butler company had an advantage in term of location. It was located in the growing suburb of large city in Pacific Northwest. Base on these reasons above, the butler lumber company has no threats of new entrance.
2. Threats of substitute product
The existence of products outside can make the customers switch to alternatives. As typical products of lumber are the plywood, moldings, sash and door products which have less number of substitute products available in the market. These are made from wood which is a limited resource. Thus, the buyers cannot switch to buy the similar products.
3. Competitive rivalry
The competitive rivalry is the major determinant of the competitiveness of the industry. The butler lumber has a Powerful competitive strategy, cost
Porter 's five forces analysis is a framework for industry analysis and business strategy development. Three of Porter 's five forces refer to competition from external sources: threat of substitute products, the threat of established rivals, and the threat of new entrants. The remainders are internal threats: the bargaining power of suppliers and the bargaining power of customers. This analysis is based on the Structure-Conduct-Performance paradigm in industrial organizational economics. It helps businesses become more profitable to helping governments stabilize industries.
Based on case study, The Butler Lumber Company, I would like to analyze its business by using these techniques in order to see the firm’s structure, obstruction and the overall industry profitability.
1. Threats of new entrants
Profitable markets that yield high returns will attract new firms. This causes the new entrants, which eventually will decrease profitability for all firms in the industry. But the barrier to entry to this business is Capital requirements. This business need high fix assets. Moreover, the economics of scales is the factor that must have for retail business. And the butler company had an advantage in term of location. It was located in the growing suburb of large city in Pacific Northwest. Base on these reasons above, the butler lumber company has no threats of new entrance.
2. Threats of substitute product
The existence of products outside can make the customers switch to alternatives. As typical products of lumber are the plywood, moldings, sash and door products which have less number of substitute products available in the market. These are made from wood which is a limited resource. Thus, the buyers cannot switch to buy the similar products.
3. Competitive rivalry
The competitive rivalry is the major determinant of the competitiveness of the industry. The butler lumber has a Powerful competitive strategy, cost
References: http://www.logisticafe.com/2009/07/5-force-model/ http://en.wikipedia.org/wiki/Porter_five_forces_analysis