Porter's Five Forces
Reading 32 – The Five Competitive Forces That Share Strategy
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Date: April 6, 2013
Porter’s Five Forces Forces | Description | Notes | Threat of New Entrants | - Likelihood of new entrants emerging to alter the competitive landscape- Depend on size of barriers to entry- Higher the barrier, weaker the threat, and greater the pricing power of existing participants | - Econ of scale- product differences an brand identify that will deter customers from switching- switching cost that product user will incur if switch- capital requirement to construct facilities and other infrastructure req. to entry industry- Access to distribution channels, if existing distributors are at or near capacity and may not be willing to take on new entrant’s product- Gov’t policy that may req. licensing- Cost/quality advantage may be enjoyed by existing firm that may take time for new entrants to achieve | Threat of Substitutes | - Do currently avail. Alternative products put a ceiling on the price buyers are willing to pay for the industry’s current products- This force concerns not only existing potential substitutes, but also those that could become avail. In the future | - Can substitute products really do the job that current products do? (is it a true substitute in every aspect?)- Likelihood of current buyers switching if given a viable alternative. - Switching cost incurred by buyer | Bargaining Power of Buyers | - Strength of the negotiating power of the buyers of the firm’s or industry’s output, and what is the impact of the distribution of the value-added by the industry? | - Bargaining Leverage: Relates closely to factors affecting the other forces. Low switching costs and readily avail. Sub. Give the buyers leverage and help to strength this force for buyers- Buyer’s Price Sensitivity: Depend on qualitative factors such as, brand, product differences, quality and performance. Also, quantitative such as price relative to
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Date: April 6, 2013
Porter’s Five Forces Forces | Description | Notes | Threat of New Entrants | - Likelihood of new entrants emerging to alter the competitive landscape- Depend on size of barriers to entry- Higher the barrier, weaker the threat, and greater the pricing power of existing participants | - Econ of scale- product differences an brand identify that will deter customers from switching- switching cost that product user will incur if switch- capital requirement to construct facilities and other infrastructure req. to entry industry- Access to distribution channels, if existing distributors are at or near capacity and may not be willing to take on new entrant’s product- Gov’t policy that may req. licensing- Cost/quality advantage may be enjoyed by existing firm that may take time for new entrants to achieve | Threat of Substitutes | - Do currently avail. Alternative products put a ceiling on the price buyers are willing to pay for the industry’s current products- This force concerns not only existing potential substitutes, but also those that could become avail. In the future | - Can substitute products really do the job that current products do? (is it a true substitute in every aspect?)- Likelihood of current buyers switching if given a viable alternative. - Switching cost incurred by buyer | Bargaining Power of Buyers | - Strength of the negotiating power of the buyers of the firm’s or industry’s output, and what is the impact of the distribution of the value-added by the industry? | - Bargaining Leverage: Relates closely to factors affecting the other forces. Low switching costs and readily avail. Sub. Give the buyers leverage and help to strength this force for buyers- Buyer’s Price Sensitivity: Depend on qualitative factors such as, brand, product differences, quality and performance. Also, quantitative such as price relative to