porter five forces Essay

Submitted By Heidi-Han
Words: 434
Pages: 2

This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porters five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organizations current competitive position, and the strength of a position that an organization may look to move into. Strategic analysts often use Porters five forces to understand whether new products or services are potentially profitable. 1. Supplier power.An assessment of how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each essential input uniqueness of their product or service relative size and strength of the supplier and cost of switching from one supplier to another. If the supplier forces up the price paid for inputs, profits will be reduced. It follows that the more powerful the customer (buyer), the lower the price that can be achieved by buying from them. 2. Buyer power.An assessment of how easy it is for buyers to drive prices down. This is driven by the number of buyers in the market importance of each individual buyer to the organization and cost to the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate terms. Powerful customersare able to exert pressure to drive down prices, or increase the required quality for the same price, and therefore reduce profits in an industry. 3. Competitive rivalry. The main driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness. If there is intense rivalry in an industry, it will encourage businesses to engage in Price wars (competitive price reductions), Investment in…