Porters 5 Forces
Porter’s 5 Forces Analysis- Need to include one consistant example-The conclusions/improvements that can be drawn from Porter’s 5 Forces-Every force should have a fancy quote and reference
Introduction
Developed by Michael E. Porter, “Porters 5 Forces” have shaped a generation of academic research and business practice. Intense forces lead to less attractive returns on investment as can be seen in the airline textile and hotel industries. Benign forces exist in industries such as software, soft drinks and toiletries leading to greater potential for return. Industry structure grows out of a set of economic and technical characteristics that determine the strength of each competitive force.
Threat of Entry
New entrants bring new capacity and desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete
New entrant diversifying from other markets, particularly dangerous as seen by Pepsi in the bottled water industry as they have the revenue to offset expenses, as Apple did when it entered the music distribution business.
If threat is high, incumbents must hold down prices or boost investment to deter new competitors as seen in coffee retailing where stores such as Gloria Jeans and Starbucks must invest in modernising stores ad menus due to low entry barriers
It is the threat of entry, not whether it actually occurs, that holds down profitability
Barriers To entry
-Supply-Side Economies of Scale: Producing at larger volumes =Lower costs, ex intel
-Demand-side Benefits: Willingness to buy increases with others patronising the company, trust larger companies for a crucial product
-Capital Requirements: Large initial investments
-Incumbency advantages: Regardless of size, incumbents may have cost r quality advantages not available. Proprietary technology, raw material access
-Access to distribution: The more limited the wholesale or retail channels are ad the more existing competitors have tied them up,
Introduction
Developed by Michael E. Porter, “Porters 5 Forces” have shaped a generation of academic research and business practice. Intense forces lead to less attractive returns on investment as can be seen in the airline textile and hotel industries. Benign forces exist in industries such as software, soft drinks and toiletries leading to greater potential for return. Industry structure grows out of a set of economic and technical characteristics that determine the strength of each competitive force.
Threat of Entry
New entrants bring new capacity and desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete
New entrant diversifying from other markets, particularly dangerous as seen by Pepsi in the bottled water industry as they have the revenue to offset expenses, as Apple did when it entered the music distribution business.
If threat is high, incumbents must hold down prices or boost investment to deter new competitors as seen in coffee retailing where stores such as Gloria Jeans and Starbucks must invest in modernising stores ad menus due to low entry barriers
It is the threat of entry, not whether it actually occurs, that holds down profitability
Barriers To entry
-Supply-Side Economies of Scale: Producing at larger volumes =Lower costs, ex intel
-Demand-side Benefits: Willingness to buy increases with others patronising the company, trust larger companies for a crucial product
-Capital Requirements: Large initial investments
-Incumbency advantages: Regardless of size, incumbents may have cost r quality advantages not available. Proprietary technology, raw material access
-Access to distribution: The more limited the wholesale or retail channels are ad the more existing competitors have tied them up,