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Porter's five forces - Coggle Diagram
Porter's five forces
Existing competition
(today)
At the centre of the five forces model is the rivalry that exists between the current players
The greater the number of players, the greater the rivalry and therefore a lower level of certainty exists
There are a number of specific aspects that define the interaction with the existing competition
Relative strength and skew of strength, of the players in the arena. Is it dominated by one or two, or are there a number of equally strong players?
The rate of growth or decline in the marketplace. This could be related to the angle of the curve in the lifecycle model
How easily are the varying products of different players differentiated? Are we dealing with a homogenous product or service or are there subtle differences that enable one product or service to be preferred to another?
The level of fixed costs that are required to enable a player to exist. This will affect minimum pricing levels.
The ease with which a player can or cannot exit the market. Divestment of high levels of investment or the potential for large redundancy costs will influence the level of potential fluidity
Supplier bargaining power
(Supply chain)
The term 'supplier' would include everything that is required to enable the production and delivery of a product or service
The bargaining power of the supplier will be influenced by:
Number of potential suppliers,
if there is only a small pool of suppliers and it is difficult to change supply, the supplier will hold the power. If there is a large pool of suppliers, then the supplier power is reduced
Reliance upon the production expertise
of a particular supplier or suppliers will place the power in the hands of those suppliers and they be more towards the price maker rather than the price taker end of the economic dynamic. It would be at its most extreme if there was no alternative supply available
If operating margins are low and supplier cost is a material percentage of ultimate sales price
then a relatively small change in supplier cost could affect the overall profitability of an organisation. A supplier will be aware of this and may be able to use it to there advantage when negotiating terms of trade
In a long and convoluted supply chain, the supplier themselves may be dependent upon one or more other suppliers
and this can lead to a complexity of power and control within the supply chain
Customer bargaining power
(supply chain)
Customers are those who buy directly from us and therefore fund our ongoing operation and organisation through their purchases
Unless they themselves are the end consumer they are likely to be in an equally pivotal position with the end consumer ultimately making the decision to fund the entire supply chain
The power of a customer is a mirrored reflection of the power of the supplier and will be influenced by
Number of potential buyers
, in a marketplace with many buyers, the customer bargaining power will be low. In a marketplace with only one or a very defined number of buyers, the bargaining power will be high. The concepts of the economics dynamic of supply and demand explain the rationale behind this
The bespoke nature of the customer requirement
. If a customer requires a specific design and delivery of a product or service then the customers bargaining power will be reduced as it is likely that they will have a limited number of potential sources, therefore placing the economic power in the hands of the supplier
The same ability to make rather than buy exists at this end of the supply chain
If a customer is in turn a supplier to the end customer, then their bargaining power will be restricted but also be influenced by the bargaining power of the end consumer
Potential new entrants
(marketplace dynamics)
In any market that is or appears to be profitable there is always the threat of new entrants
Barriers to entry
Economies of scale
: in any business based around volume of production or sale, a potential new entrant must have a degree of certainty that they can gain market share rapidly to enable the financial and operational viability of their business
Product differentiation
: existing players are there for a reason and have built their profile and reputation to enable them to survive within the marketplace. A potential new entrant would need to find a point of differentiation (USP) to enable them to compete successfully. If the product is currently patented by another competitor this will produce a further barrier to entry
Capital requirement
: the cost of entry will vary according to the level of production sophistication and technology required to enter the marketplace. Funds need to be readily available to commence the production or service
Customer persuasion
: customers who are satisfied with their current supplier will need a reason to change. In the case of a large and potentially complex structure such a change may be very difficult to deliver
Government policy
: legal restraints on competition. combined with consumer protection, may deter potential new entrants.
Organisational strength
: if the existing player or players are financially and commercially strong, then the potential retaliation from these players may deter new entrant because of their existing supplier and consumer relationships
Substitue products
(marketplace dynamics)
Direct alternative
This could occur if a supplier is able to find an alternative product that is attractive to either the imagination or the price point of the customer. Customers are only loyal to specific products as long as it suits their current and future needs
Different branding
This might enable a product that is similar or even identical to become a potential substitute for the customer