Porters Five Forces

Question 1

what are Porter’s five forces?

Answer 1

• threat of new entrants
• threat of substitutes
• buyer power
• supplier power
• competitive rivalry

Question 2

what is threat of new entrants dependent on?

Answer 2

on the barriers to entry.

Question 3

what are the barriers to entry?

Answer 3

• capital requirements, e.g. airline needs planes
• EOS available to existing businesses? e.g. coke can produce over 2,000 cans a minuet
• legal restriction, e.g. pharmaceuticals
• product differentiation (brands), e.g. Google and a new search engine
• access to suppliers and distribution channels e.g. next day delivery
• expertise and know-how

Question 4

what does bargaining power of customers depend on?

Answer 4

Depends on:
Number of Customers
Volume of their order sizes
Number of firms supplying the product
Threat of Backward Integration
Cost of Switching

Question 5

what does threat from substitutes (from a different industry) depend on?

Answer 5

Extent to which Price & Performance of substitute matches industry product
Customer Loyalty
Switching Costs

Question 6

what does bargaining power of suppliers depend on ?

Answer 6

Depends on:
Uniqueness of Input supplied
Number and Size of firms supplying resource
Competition for Input from other industries
Cost of Switching to alternative sources

Question 7

what does the degree of competitive rivalry depend on?

Answer 7

Number of Competitors in the market
Market Size and Growth prospects
Product Differentiation and Brand Loyalty
Capacity Utilisation
Barriers to Exit

Question 8

evaluation of Porter’s five force model?

Answer 8

• Should be used at the broader level of whole industry, not smaller market levels
• Issue of defining industry
• Many companies operate in more than one industry
  Static (at a point in time)
• Not so good for long term planning
  Best combined with other more dynamic models – e.g. PEST
• Brainstorming tool
• Should be taken in context of broader discussion, not as a stand alone source of recommendation