Porter’s Model of Competition

Contents

Porter’s five forces – Competitor analysis

Porter’s generic competitive strategies

Porter’s model of competition – Risks and Threats

Assessing the balance of power in a business situation

Porter’s competitive advantage

Porter’s five forces

Industry competitors

and extent of rivalry &

advantage

New entrants

Suppliers Buyers

Substitutes

The five forces model by

Michael Porter is used to

explore the environment

where a company or

products operate to

generate competitive

advantage

Five forces analysis looks

at five key areas mainly

the threat of entry, the

power of buyers, the

power of suppliers, the

threat of substitutes, and

competitive rivalry

(advantage)

Threat of new entrants

The easier it is for new companies to enter the market, greater are the chances of a fierce cut-throat competition. Factors that can limit the threat of new entrants are known as barriers to entry

Existing loyalty to major brands

Incentives for using a particular buyer (such as frequent shopper programs)

High fixed costs

Scarcity of resources

Government restrictions or legislation

Entry protection (patents, rights, etc.)

Economies of product differences

Brand equity

Switching costs or sunk costs

Capital requirements

Access to distribution

Absolute cost advantages

Learning curve advantages

Expected retaliation by incumbents

Competitive rivalry

Number of competitors

Rate of industry growth

Exit Barriers

Diversity of competitors

Intermittent industry

overcapacity

Fixed cost allocation per value

added

Informational complexity and

asymmetry

Level of advertising

expense

Competitive rivalry amongst companies sometimes extends to non-price dimensions as well like innovation and marketing amongst others

Influencing the power of five forces

Reducing the Bargaining Power of Suppliers

••

Reducing the Treat of New Entrants

••

Reducing the Competitive Rivalry between Existing Players

••

Reducing the Bargaining Power of Customers

••

Reducing the Threat of Substitutes

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