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Porters 5 forces model - Coggle Diagram
Porters 5 forces model
- framework for analysing the nature of competition on within an industry
- helps to understand & assess industry profitability & attractiveness
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Industry Profitability
Low
- strong supplier
- strong customers (buyers)
- low entry barriers
- many opportunities for substitutes
- intense rivalry
High
- weak suppliers
- weak consumers
- high entry barriers
- few opportunities for subs
- less rivalry
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Competitive rivalry
-No of competitors in market
- high in industry with many current & potential competitors
- most intense in slow growth/declining markets
- product differentiation & brand loyalty
- high customer loyalty = less tense in competition
- less degree of product differentiation = greater intensity of price competition
- power of buyers and availability of substitutes
- buyers are strong and/or if close substitutes are available = more intense competitive rivalry
- existence of spare capacity will increase intensity of competition
- cost structure of the industry
- fixed cost area, high % of cost - profit will depend on outcome
- intense comp over market shares
- difficult/expensive to exit an industry firms will remain - intense comp
Reduce threat
- large businesses buying up rivalry through vertical integration
- continuously introducing new products
- heavily advertise to maintain market share
Threat of new entrants
- gain market share = intense rivalry
- position of existing firms is stronger if there are barriers to entering the markets
- if barriers to entry are low= high threat of new entrants
Examples
- economies of scale
- vertical integration (selling same products in the same market)
- brand loyalty
- access to the best technologies
- expertise and reputation
reduce threat
- heavily advertise to build strong brands
Industries
Easy
- hair salons
- dog walkers
- tutors
- printing companies
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Advantages
- allows businesses to understand the competitiveness of a market & make their own decisions about there competitiveness
- allows new entrants to see how profitability a new market would be
- good to identify SWOT
Disadvantages
-over simplifies strategy
- focusses too much o current industry