Porter's 5 forces - Centurion University
Transcript of Porter's 5 forces - Centurion University
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Michael Porter’sFive Forces Five Forces Five Forces Five Forces
ModelModel
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Michael Porter …
“An industry’s profit potential is largely determined by the is largely determined by the intensity of competitive intensity of competitive rivalryrivalry within that industry.”
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Porter’s Five Forces
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Portfolio Analysis …… Strategy at the time (1970s) was focused on two dimensionstwo dimensionswas focused on two dimensionstwo dimensionsof the portfolio grids …
… Industry AttractivenessIndustry Attractiveness… Competitive PositionCompetitive Position
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Where was Where was Michael Porter Michael Porter Michael Porter Michael Porter coming from?coming from?
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School of Economics …… at Harvard …
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Structural reasons why …… some industries were profitable* Firm concentration
* Established cost advantages* Established cost advantages* Product differentiation
* Economies of scale
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Structural reasons …
… all represented barriers to barriers to entryentry in certain industries, entryentry in certain industries, thus allowing those industries to be more more profitableprofitable than others.
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Porters Five Forces …* Threat of EntryEntry
* Bargaining Power of SuppliersSuppliers* Bargaining Power of BuyersBuyers* Development of SubstituteSubstitute
ProductsProducts or Services* RivalryRivalry among Competitors
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Barriers to EntryEntry …… large capital requirementscapital requirements or the
need to gain economies of scaleeconomies of scalequickly. quickly.
… strong customer loyaltycustomer loyalty or strong brand preferencesbrand preferences..
… lack of adequate distributiondistributionchannels or access to raw materialsraw materials.
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Power of Suppliers Suppliers …… high when
* A small number of dominant, highly dominant, highly concentrated suppliersconcentrated suppliers exists.concentrated suppliersconcentrated suppliers exists.
* Few good substituteFew good substitute raw materials or suppliers are available.
* The cost of switchingcost of switching raw materials or suppliers is high.
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Power of Buyers Buyers …… high when
* Customers are concentratedconcentrated, largelarge or buy in volumebuy in volume .buy in volumebuy in volume .
* The products being purchased are standard standard or undifferentiatedundifferentiated making it easy to switcheasy to switch to other suppliers.
* Customers’ purchases represent a major portionmajor portion of the sellers’ total revenue.
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Substitute Substitute products …… competitive strength high when* The relative pricerelative price of substitute
products declinesdeclines .products declinesdeclines .
* Consumers’ switching costs declineswitching costs decline.
* Competitors plan to increase market increase market penetrationpenetration or production capacityproduction capacity.
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Rivalry Rivalry among competitors… intensity increases as
* The numbernumber of competitors increasesincreasesor they become equal in sizeequal in size.or they become equal in sizeequal in size.
* Demand for the industry’s products declinesdeclines or industry growth slowsindustry growth slows.
* Fixed costsFixed costs or barriers to leavingbarriers to leaving the industry are highhigh.
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SummarySummary …As rivalry among competing firms intensifiesintensifies, industry firms intensifiesintensifies, industry profits declinedecline, in some cases to the point where an industry becomes inherently inherently unattractiveunattractive.
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Porter’s five force model
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Analysis5 Forces Analysis
Rivalry among the competitor •Reliance Retail, Aditya Birla Group , Vishal Retail’s, Bharti and Walmart, etc
Threat of entrants • FDI policy not favorable for international players. • Domestic conglomerates looking to start retail chains. •International players looking to foray India.
Bargaining power of supplier •The bargaining power of suppliers varies depending
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Bargaining power of supplier •The bargaining power of suppliers varies depending upon the target segment.•The unorganised sector has a dominant position.• There are few players who have a slight edge over others on account of being established players and enjoying brand distinction.
Bargaining power of buyers • Consumers are price sensitive..•Availability of more choice.
Threat of substitutes •Unorganized retail
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