Premium Essay

Industry Analysis: the Five Forces

In: Business and Management

Submitted By bentto
Words 6813
Pages 28
Purdue extension
EC-722

Industry Analysis: The Five Forces
Cole Ehmke, Joan Fulton, and Jay Akridge Department of Agricultural Economics Kathleen Erickson, Erickson Communications Sally Linton Department of Food Science

Overview
Assessing Your Marketplace
The economic structure of an industry is not an accident. Its complexities are the result of long-term social trends and economic forces. But its effects on you as a business manager are immediate because it determines the competitive rules and strategies you are likely to use. Learning about that structure will provide essential insight for your business strategy. Michael Porter has identified five forces that are widely used to assess the structure of any industry. Porter’s five forces are the: • Bargaining power of suppliers, • Bargaining power of buyers, • Threat of new entrants, • Threat of substitutes, and • Rivalry among competitors. Together, the strength of the five forces determines the profit potential in an industry by influencing the prices, costs, and required investments of businesses—the elements of return on investment. Stronger forces are associated with a more challenging business environment. To identify the important structural features of your industry via the five forces, you conduct an industry analysis that answers the question, “What are the key factors for competitive success?”

Audience: Business managers seeking to assess the nature of their marketplace Content: Presents five forces that influence the profitability of an industry Outcome: Reader should understand the forces and be able to counter them with appropriate tactics

Using This Publication
This publication describes five forces that influence an industry. The publication includes a set of application questions that will help you evaluate the structure of the industry you are in or are considering…...

Similar Documents

Premium Essay

Five Forces Analysis of the Video Game Industry

...Five Forces Analysis of the Video Game Industry The five forces that drive industry competition, a model established by Michael Porter, are; threat of substitution, threat of new entrants, bargaining power of suppliers, bargaining power of buyers, and intensity of rivalry. The video game industry must deal with all five of these forces. The analysis of the strength of these five forces within the video game industry will help to draw a conclusion as to whether or not it is an attractive industry for Sony to be in. The threat of substitutes in the video game industry is relatively low. Most customers are looking for a console that they can play games on and there really isn’t much else to choose from. One could say that computer gaming, although still technically video games, is a potential substitute. Almost every household in America at least has one computer, so it is much easier for customers to just purchase games for their computer rather than buy a new console altogether. Computer gaming is not much of a threat to the video game industry because customers seek the different type of gaming experience that the consoles offer that a computer cannot, such as motion control for the Wii, and special controllers for the Xbox and the PlayStation 2. Clearly the threat of substitutes is not very large in the video game industry. The threat of new entrants in the video game industry is moderate. The three key players in the video game industry are Microsoft, Sony, and Nintendo....

Words: 339 - Pages: 2

Premium Essay

Five Forces Analysis of the Video Game Industry

...Five Forces Analysis of the Video Game Industry The video game industry is the economic sector involved with the development, marketing and sale of video and computer games. It includes video game consoles, game software, handheld devices, mobile games and online games. The video gaming industry has been growing exponentially in recent years with Sony, Microsoft and Nintendo competing for the higher profits in the market. This essay will analyze each of the five forces acting on the industry: threat of new entrants, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and the competitive rivalry among existing firms. Then it will be determined if the video game industry is still an attractive industry for Sony. The video game industry has high entry barriers because of its high research and development costs, and capital investment needed to start a business in the console industry. The cost required to develop and manufacture a product that could be a decent competitor in this market is too great for a non-established company in this industry. The technology that is needed to be successful is too advanced for new competitors to achieve. For this reason, the threat to Sony, Microsoft and Nintendo of new entrants, was not very high in 2008. Additionally, Sony’s PlayStation, Microsoft’s Xbox, and Nintendo’s gaming systems were very well established names in the industry. The prestige of these products was so strong that......

Words: 943 - Pages: 4

Premium Essay

Porter’s Five Forces Analysis for Airline Industry

...Porter’s Five Forces Analysis for Airline Industry Threat of entry The government imposes quite lot restrictions on the entrance of the airline industry. What’s more, the high cost and high early stages investment capital for purchasing airplanes are barriers of entry. Threat of substitutes The most threatening substitutes are traveling by trains and cars. Because of the high price of taking planes, many people choose to travel by trains or cars, especially short-distance trip. But it takes a long time for people to take trains or cars, so people tend to choose air when they will experience long-distance trip or when they want to save time. Therefore, the substitutes influence the industry a lot. Threat of powerful suppliers The government also imposes quite lot restrictions on suppliers. Therefore, there are not many companies have the rights to provide products for airline industry. Airline companies have few choices about suppliers, so the suppliers’ bargaining power is very strong. Threat of powerful buyers At most time, when people decided to travel by air, they do not have many choices, and it is very difficult for the buyers to unite to buy services. When sellers gives out the service standards and price, buyers have nothing to do but accept it. So the buyers’ bargaining power is quite weak. Threat of rivalry There are only several airlines in the market. In spite of most of them provide similar services, they share some differences in air routes. So, the......

Words: 257 - Pages: 2

Premium Essay

Www.Tempaperwarehouse.Com/Essay-on/Five-Forces-Analysis-of-the-Video/111414-Five Forces Analysis of the Video Game Industry

...JOURNAL ARTICLES 1. Welcome Welcome to Strategic Marketing Management. I hope you find this module a valuable learning experience. The challenges of providing superior customer value and gaining a competitive advantage have become crucial issues to a diverse range of companies. Delivering value and achieving a competitive advantage requires, among other things, a thorough understanding of markets, buyers and competition and an ability to match an organisation’s distinctive capabilities to external opportunities. This module contemplates the frameworks, concepts and processes in designing and implementing high performance marketing strategies. The module is designed around the marketing strategy process with a clear emphasis on analysis, design of marketing strategies and programmes, and implementation. The teaching and learning approach throughout this module is interactive. As a result of this, you are expected to contribute to the discussion of numerous strategic marketing issues. I will be happy to answer any questions you may have. Dr. Doug Young 2. Contact Details |Dr. Doug Young | |Room | 304 | |Telephone Number | 04......

Words: 5537 - Pages: 23

Premium Essay

The Five Forces Model / Cola Industry

...The Five Forces Model – Cola Industry GB 459 21 February 2013 The Five Forces Model – Cola Industry Soft drinks and ‘soda water’ have been around since the 1700’s. In 1835 the first bottled soda water was introduced in the US. In 1876, Root Beer was mass produced for public sale. The Soft Drink / Cola industry rapidly became a booming business. By 1920 the U.S. Census bureau reported more than 5000 bottlers existed. (Zmuda) In today’s modern world, the industry has only grown. In fact, competition is so fierce there are only a few key players strategizing for top positions in the industry. The sector is dominated by three major players, which together control nearly 80% of the global market. (Pepsico Inc.) Coca-Cola is king of the soft drink-empire and boasts a global market share of around 50%, followed by PepsiCo at about 21%, and Cadbury Schweppes (Dr Pepper and Seven Up) at 7%. (Prince) To better understand the cola industry, we will focus on Porter’s five forces affecting the industry. These five forces are potential competitors, rivalry among established companies, the bargaining power of buyers, the bargaining power of suppliers and substitute products. Potential Competitors New entrants are not a strong competitive pressure for the cola industry. There is a relatively new threat to the industry from companies that manufacture and sell soda making machines where consumers can make their own soda at home for less than half the cost of soda from one...

Words: 1140 - Pages: 5

Premium Essay

Five Force Analysis of Pc

...Five-Force Analysis of PC Industry: Rivalry: (High) There are five biggest PC manufacturers-Hewlett Packard, Dell, Lenovo and Acer and apple. None of them dominates the market. Therefore, the PC industry is not highly concentrated. The PC manufacturers focus on the reduction of cost rather than differentiations of the products. By 2011 PC manufacturers’ net profit margin was 5%(excluding apple). The low profit margin causes the intense competition among the PC manufacturers. The growth of the PC industry grows slowly, because the appearance of the tablets. This limitation of growth will lead to intense competition as well. Barrier to Entry (moderate): The Economies of scale is large. The fix cost spending on R&D, selling and marketing is high. Therefore, increasing the production of PCs will reduce per unit cost of the products. Furthermore, large economies of scale require intensive capital investment The PC industry has already entered the stage of maturity, meanwhile, the production differentiation is low and customers are more sensitive to the price. However, without minimum effective economies of scale, it is hard to lower cost. Thus, the price will be higher than its competitors. The big PC manufacturers have established strong relationship with it distributors, which make it difficult to access to the distribution channels. Buyer Power (weak to moderate): Home consumers represented the biggest segment of PC industries. They are sensitive to the price, but...

Words: 361 - Pages: 2

Premium Essay

Porter's Five Forces Analysis

...Janjigian SI 422 C1 Kirks 9/16/13 Class #4 – Understanding the Five Forces 1) For each of the Five Forces, the Porter article cites several factors that influence its "strength" (i.e., the amount of downward pressure it exerts on industry profits).  For each Force, pick one of these factors, and bring a NEW example from the business world to share in our class discussion. Buyers: In the oil industry, a few large companies control the supply of gasoline in the United States and have generate low buyer power within the industry. Companies like Exxon, BP, Shell, and Lukoil can limit supply and control prices without any complications because demand for their product is so high, there are no widely available substitutes, and their products are undifferentiated. Suppliers: The upstream suppliers in the oil industry, being OPEC, also have a large amount of supplier power because they exert a lot of control on the prices and quantity of oil that is bought by the major players within the industry. Substitutes: There are really no feasible replacements to gasoline in today’s economy. Electrics cars and cars that run on ethanol do exist and are becoming more popular, but gasoline and oil remain as the widespread standard for consumers. As a result of this, oil companies can maintain and manipulate their prices because there is no threat of them being replaced. New Entry: It is extremely costly to enter the oil industry as the major players have become so entrenched and......

Words: 616 - Pages: 3

Premium Essay

Five Forces Analysis in the Pc Industry

...Five Forces Analysis of PC Industry Threats of Entry The threats of new entrants in the PC industry are low in the U.S. market. The advanced technology is required to make and design PC. The US PC market was dominated by a few big names in year 2007, for example HP, Dell, Apple, and they have their own differentiate products. It is thus hard for new competitor to break into the established brand and customer loyalty. Each firm has contract or has built tight relationship with its suppliers that prevents others from entering the supply chain. The industry requires certain level of capital. Small firms lack the resources and capability of acquiring enough capital to compete with the existing large firms. The established distribution channels of either retail stores or outlet also somewhat prevents the small firms from entering. The bargaining powers of suppliers In the PC industry, the big suppliers such as Intel and Microsoft have a relatively large power over its differentiate products (microprocessor, Windows system) while the mass small firms that produce other simple components lack of bargaining power, and faces great competition in price and design. The Bargaining Power of Buyers Home and corporate users dominate the five categories of buyers on PC consumption. There are large amount of these buyers in the market that are price sensitive with low switching cost on the products, which raises the overall buyers’ power. Threat of substitutes The emergence of......

Words: 303 - Pages: 2

Premium Essay

Five Force Industry Analysis

...How to do a Five Force Analysis Step 1: You need to define the industry the company is in. This will help you establish who the players in the market are (rivals and substitutes). There is no right way to do this as an industry’s just help us conceptualize the market they don’t actually exist. A great way to do this is to draw a map of the industry players. Step 2: Go through the indicators for each of the 5 industry forces to establish whether it is a high or low threat to your industry. DO NOT DO THIS ON A COMPANY LEVEL. The five forces were meant only to analyze the industry you defined in step one. Be careful not to include any company specific information that may be in your case. Power of Buyers | Power of Suppliers | 1. Price Sensitivity * Product Cost vs. Total Cost * Product Differentiation * Impact on Quality/ Performance * Buyer Strategy * Buyer Profitability 2. Intrinsic Bargaining Strength * Buyer Concentration * Switching Costs * Volume of Purchases * Alternative Products * Buyer Information * Threat of Backward Integration | * Supplier Concentration * Supplier Volume * Substitute Inputs * Product Differentiation * Switching Costs * Buyer Information * Threat of Forward Integration * Pull-Through | Degree of Rivalry | Threat of Substitutes | Do structural conditions create potential for market power among firms in the industry? * Concentration and Balance of Competitors (usually as more......

Words: 527 - Pages: 3

Premium Essay

Five Force Analysis

...Five forces * Threat of new entrants * Bargaining power of suppliers (SUPPLIER POWER) * Rivalry among existing competitors (RIVALRY) * Bargaining power of customers (BUYER POWER) * Threat of substitutes Anomalies * Some anomalies occur due to a variety of reasons with regards to profit over time * Ex: Tobacco was not profitable in 2007 due to lawsuits but was much more profitable during 2008 What is 5 forces analysis? * A framework for analysing industryprofitability * NOT company profitability – that depends on competitive positioning How we evaluate these: * Opportunity threats * Company position vs competitors * Anticipate changes in the industry RIVALRY * Often the most visibly competitive force (price reduction, new product intros, additional services, etc…) * Threats to industry profits * Homogeneous products perfect subs * No buyer switching costs product choice drive by price comparison * Airlines: when there’s no buyer switching costs compete like crazy * Perishable products short shelf life encourages discounting * Everything travel related have a perishable inventory (hotels, cruise ships) * Infrequent, large volume sales transactions discounting to “smooth” sales * Excess industry capacity supply adjusts easily to increased demand * High fixed-to-variable cost ratio pressure to increase market * Many, similarly......

Words: 808 - Pages: 4

Premium Essay

Porter's Five Forces Analysis

...Five Forces Analysis Introduction (1) • Devised by Michael Porter • It a framework for the analysis of the structural factors that  shape competition within an industry • The five forces: • Determine the profitability of an industry • Assess how attractive and potentially profitable is an industry Introduction (2) • This is a framework for understanding an industry or an  organisation’s position with respect to the forces operating in  the microenvironment • It can be used to explain the performance of competitors in a  market • From the analysis a number of generic competitive strategies  can be derived • Cost leadership • Differentiation • Focus The five forces • The ability of firms to earn an good return depends on five  forces: namely the… • Threat of new entrants‐ the ability of new competitors to  enter the industry • Bargaining power of suppliers • Bargaining power of customers • Threat of substitute products • Degree of competitive rivalry The five forces framework Threat of Substitute Products Bargaining Power of Suppliers Intensity of rivalry within the industry Bargaining Power of Buyers (Customers) Threat of New Entrants The threat of new entrants Threat of new entrants • If new entrants move into an industry they will gain market  share, rivalry will accelerate and profits will decline • If it is difficult to enter an industry the position of existing  firms will be strengthened •......

Words: 1809 - Pages: 8

Premium Essay

Porter’s Five Forces Analysis of the Fast Food Industry

...Porter’s Five Forces Analysis of the Fast Food Industry Complete a Porter's Five Forces Analysis of the fast food industry and for each of the 4 generic strategies, identify one restaurant that you believe is employing that generic strategy. According to Hoover's Fast Food and Quickservice Restaurant Report, Fast food restaurants make up one of the largest food industry segments with more than 200,000 restaurants in the US. Fast food franchises are known for their low cost and high-speed products served to go as well as for a quick on-site consumption. Consumers are attracted to the idea of standardized menus and familiar meals in each location. Michael Porter’s model discussed below will help us identify five key competitive forces to analyze the fast food industry environment. The threat of entrants - High Entry barriers into the fast food industry seem to be low because of the relatively low capital requirements to start a new restaurant. New entrants are not in need to possess proprietary technology to be able to compete with already established restaurants or franchises. However, the fast food industry is dominated by globally recognized chains with high brand awareness and brand loyalty like McDonald’s, Burger King, KFC, Pizza Hut and etc. Established fast food restaurants have numerous advantages in product technologies, easy access to ingredients and supplies, favorable locations, successful marketing, and experience. While these disadvantages can seem as a......

Words: 637 - Pages: 3

Premium Essay

Five Forces Analysis for Surfstitch

...Industry Analysis (Porter’s five forces) Threat of new entrants Threat of new entrants is very high in online fashion retail industry as the following reasons: The industry has low barriers to entry. People who want to start the business do not have to own a large amount of capital or a physical store. People do not have to build their own brand or factory. One thing needs to do is contact to suppliers of products and then build your website to display products, and then you need to tie up with the express company to decide how to deliver your products to your customers. The last thing you need to do is tie up with online payment provider. The industry presents an upward trend. The money Australians spend online is projected to increase by about $10 billion within the next five years. (Metrics, 2016) More people would like to start in this industry, and no one would like to miss this huge opportunity. Threat of substitute products Threat of substitute products for online fashion retailer is low. The reasons are that: One main substitute for this industry is the physical store. However, there are an increasing number of people choose to shopping online. This is because shopping online can save your time, money and energy. What’s more, it is more convenience for consumers to compare products on the Internet. Under the help of smartphone and WIFI, people can do shopping online anytime, anywhere. The product’s quality actually is almost same as you buy from physical......

Words: 446 - Pages: 2

Premium Essay

Five Force Analysis

...Business Policy & Competitive Strategy Vivek Khanna TATA Motors This project is a part of the internal assessment for the subject Business Policy & Competitive Strategy. I have developed a Porter’s Five Forces analysis for the organization. I identified strategic strengths and weaknesses  and identified core competencies of the organization . The company that I have taken into account to analysis the Porter’s Five Forces is the Tata Motors. The Specific product that I will be taking into analysis is the NANO CAR. This segment has a great growth potential in developing countries , especially in a country like India. 1. Potential Entrants – Threat of new entrants 2. Buyers – Bargaining power of buyers 3. Substitutes – a. Threat of substitute products or services b. Rivalry among existing firms 4. Suppliers - Bargaining Power of Suppliers 5. Other Stakeholders – Relative Power of Union, Governments etc. A brief Information about the product : The Tata Nano is a rear-engine, four-passenger city car built by Tata Motors, aimed primarily at the Indian market. The car is very fuel efficient, achieving around 78mpg on the highway and around 92 in the city. It was first presented at the 9th annual Auto Expo on 10 January 2008, at Pragati Maidan in New Delhi, India. Nano had a commercial launch on March 23, 2009 and, a booking period from April 9 to April 25, generating more than 200,000 bookings for the car. The sales of the car will begin......

Words: 1990 - Pages: 8

Premium Essay

Wine Industry - Porter's Five Forces

...Porter’s Five Forces Wine Industry Contents 1. Bargaining power of buyers………………………………………………………………………….1 2. Bargaining power of suppliers………………………………………………………………………2 3. Rivalry between existing companies………………………………………………………….…4 4. Threat of new entrants………………………………………………………..……………………….5 5. Threat of substitutes…………………………………………………………………………………….6 6. References………………………………………………...……………………...…………………………8 1. Bargaining power of buyers The buyer’s power within the wine industry varies between different places in the world. There are for example strategic differences between Europe and the “New World”. The “New World” includes countries like the US, Australia, Chile and South Africa. In Europe there is a big competition between small private family wineries while there are in the “New World” only a few large companies that have a big market share. To give you an example of this Australia have four firms that at the moment have around 75 % of the market while in France there are around 230 000 wineries. The power of buyers seems to be higher in Europe compared to the “New World”, in Europe the consumers have a more sophisticated taste and are more price sensitive compared to the “New World”. In Europe wine is sold through many different supermarkets which provide a wide range of different wine sorts from a lot of different private labels. This can be one of the reasons why the power of the buyers seems to be a bit higher in Europe than in for...

Words: 2847 - Pages: 12