PORTER’S FIVE FORCES AND GENERIC STRATEGIES

-Prepared by:Rohit Dobaria

Vikas SuraniViral Jani

Tina MittalJigar Modi

Janak Nayak

Porter’s Five Forces

Introduction

Developed by Michael E. Porter, 1980.

Identified five competitive forces that shape every industry and market.

These forces determine the intensity of competition and hence profitability and attractiveness of industry.

1. Bargaining power of Suppliers Suppliers : All sources needed to

provide goods or services.

When is the Bargaining power high?

2. Bargaining power of Customers It determines how much customers can

impose pressure on margins and volumes.

When is the bargaining power high?

3. Threat of New Entrants

Higher the competition, easier for other companies to enter.

New entries depend on the barriers to entry.

4. Threat of Substitutes

Substitutes : Alternative products with lower prices of better performance parameters for the same purpose.

Can reduce potential sales volume for existing players.

What are the factors determining the Threat of Substitutes?

5. Competitive Rivalry

Describes the intensity of competition between existing players.

High competitiveness -> Pressure on prices, margins -> reduced profitability for every company

When is the competition high?

Limitations

The model assumes a classic perfect market.

Best applicable for analysis of simple market structures.

The model assumes relatively static market structures.

GENERIC STRATEGY

1. COST LEADERSHIP2. DIFFERENTIATION3. FOCUS STRATEGY

1.Cost leadershipThe low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost.

2. Differentiation Allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The differentiating organization will incur additional costs in creating their competitive advantage.

3. Focus StrategyAlso known as Niche Strategy

Stuck in the middle If you select one or more approaches,

and then fail to achieve them, that your organization gets stuck in the middle without a competitive advantage

Thank You