Porter’s Model of Competition

Contents Porter’s five forces – Competitor analysisPorter’s generic competitive strategiesPorter’s model of competition – Risks and ThreatsAssessing the balance of power in a business situationPorter’s competitive advantage

Porter’s five forces Industry competitors and extent of rivalry & advantage New entrants SuppliersBuyers 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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