Porter's Five Forces Model and Three Generic Strategies Essay Example
Porter's Five Forces Model
Porter's Five Competitive Forces model is a framework made by Michael Porter that is used by businesses when thinking about business strategy and the impact of Information technology. This model can help a business decide whether to, enter an industry or expand your business in the industry you are already working on. The five forces in the model are the following: 1. Buyer Power 2. Supplier Power 3. Threat of substitute products or services 4. Threat of new entrants 5. Rivalry among existing companies
Buyer Power
The more choices of suppliers that a consumer can choose from, the higher the buyer power is and vice versa. Suppliers want to lower buyer power as much as possible while consumers want it to increase. One of the ways to keep buyer power low is to use loyalty programs, which reward loyal customers with special bonuses or offers.
Supplier Power
The supplier power is high when buyers have few choices to choose from, and it is low when there are many choices to choose from. As a producer, you want the supplier power to be high.
Threat of Substitute Products or Services
This is level is high when there are many different alternatives to choose from. As a producer, you want little or substitutes or services to block you from gaining profits. A monopoly is not that common in a business so to keep customers from going to your competitors you create an advantage through switching costs. These are costs, not necessarily money that keeps customers wanting to stay with your company and reluctant to switch to another service. This differs from loyalty programs in that a company may have a whole profile unique to yourself, but if you switch to another company you would have to start the process over again.
Threat of New Entrants
This level is high when it is easy to enter a market, and low and when it is hard to enter one.
Rivalry
This level is high when competition is tough and cutthroat and low
Porter's Five Competitive Forces model is a framework made by Michael Porter that is used by businesses when thinking about business strategy and the impact of Information technology. This model can help a business decide whether to, enter an industry or expand your business in the industry you are already working on. The five forces in the model are the following: 1. Buyer Power 2. Supplier Power 3. Threat of substitute products or services 4. Threat of new entrants 5. Rivalry among existing companies
Buyer Power
The more choices of suppliers that a consumer can choose from, the higher the buyer power is and vice versa. Suppliers want to lower buyer power as much as possible while consumers want it to increase. One of the ways to keep buyer power low is to use loyalty programs, which reward loyal customers with special bonuses or offers.
Supplier Power
The supplier power is high when buyers have few choices to choose from, and it is low when there are many choices to choose from. As a producer, you want the supplier power to be high.
Threat of Substitute Products or Services
This is level is high when there are many different alternatives to choose from. As a producer, you want little or substitutes or services to block you from gaining profits. A monopoly is not that common in a business so to keep customers from going to your competitors you create an advantage through switching costs. These are costs, not necessarily money that keeps customers wanting to stay with your company and reluctant to switch to another service. This differs from loyalty programs in that a company may have a whole profile unique to yourself, but if you switch to another company you would have to start the process over again.
Threat of New Entrants
This level is high when it is easy to enter a market, and low and when it is hard to enter one.
Rivalry
This level is high when competition is tough and cutthroat and low