...PORTER’S FIVE FORCES MODEL Porter’s five forces is a framework developed by economist Michael E. Porter to analyze level of competition within an industry and business strategy development. Further, it determines the probability and attractiveness of a market or market segment. In 1979, Porter was an associate professor at Harvard Business School, the Porter’s framework maintains that the attractiveness of a market segment is determined by five competitive forces namely: 1. Threats of potential new entrants 2. Bargaining power of buyers 3. Bargaining power of suppliers 4. Threats of substitute products 5. Rivalry among competitors 1. Threats of potential new entrants The threat of new entrants is usually based on the market entry barriers, which can be said to provide obstacles for newcomers to gain a foothold in any given industry. These barriers can take many different forms. Briefly, it can be said that entry barriers exist whenever it is difficult or not economically feasible for an outsider to copy or imitate the existing player’s competitive capabilities. Common forms of entry barriers are depicted below: * Economies of scale * Capital requirement of entry * Access to supplies and distribution channels * Customer or supplier loyalty * Lack of experience in industry * Legal restrains such as trade barriers 2. Bargaining Power Of Buyers Important determinants of buyer power are the size and the concentration...
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...Porter’s Five forces and SWOT analysis on Breadtalk in Singapore Introduction BreadTalk Group Limited is a bakery in Singapore and was founded in the year 2000, like any other business Breadtalk is in regular pressure to improve their levels of performance and efficiency, with this in mind, this essay shall give a comprehensive study of diverse aspects that have made it possible for Breadtalk to stay gainful despite the critical business environment. This shall be achieved by performing a comprehensive Strength, weakness, Opportunity and Threat (SWOT) analysis and Porters Five forces analysis. SWOT analysis Strength The concept of Breadtalk is exclusive and inventive and this differentiates the brand from usual bakeries in the market. Breadtalk has standardized the design across all branches and is widely recognized for its attractive and eye-catching layout. Breadtalk vends a large range of buns, bread, pastries and cakes which is a very unique concept from the traditional bakeries in the market; every retail channel of Breadtalk presents about 40 to 60 special items day by day. (Ball, 2012) The Breadtalk group has a chain of approx 40 retail outlets island-wide in Singapore, it has existence in countries like Kuwait, Oman, Jordan, Saudi Arabia, India and Bahrain and thus it has captured strong market interest, which has helped in increasing its brand awareness. Weakness Breadtalk products are priced slightly higher than the products of other bakers, which might...
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...Introduction: In 1979, Harvard Business Review published “How Competitive Forces Shape Strategy” by a young economist and associate professor, Michael E. Porter. It was his first HBR article, and it started a revolution in the strategy field. In subsequent decades, Porter has brought his signature economic rigor to the study of competitive strategy for corporations, regions, nations, and, more recently, health care and philanthropy. “Porter’s five forces” have shaped a generation of academic research and business practice. With prodding and assistance from Harvard Business School Professor Jan ‘ Rivkin and longtime colleague Joan Magretta, Porter here reaffirms, up-dates, and extends the classic work. He also ad-dresses common misunderstandings, provides practical guidance for users of the framework, and offers a deeper view of its implications for strategy today. In essence, the job of the strategist is to understand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among today’s direct competitors. Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry. As different from one another as industries might appear on the surface, the underlying...
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...Porter’s Five Forces Model Porter’s Five Forces is an economic model used to characterise industries and markets, and combine to make up the business environment. Porter explains that by studying the structure and underlying dynamics between these forces, Nokia can discover opportunities for improving their marketing strategies, along with determining the industry attractiveness, competitiveness and long-run industry profitability. These five forces are also known as "competitive forces". Michael Porter has identified five forces that are widely used to assess the structure of any industry, along with evaluating what drives competition. Porter’s five forces are: 1. Existing Competitive Rivalry 2. Potential New Entrants 3. Threat of Substitutes 4. Bargaining Power of Suppliers 5. Bargaining Power of Customers Existing Competitive Rivalry The most common and direct threat to a business or organisation is through their rivals and competitors. This usually occurs in a market that sells the same product or offers similar facilities and services, to a population of the same customer base. Overall, general markets are known and seen to be more competitive. The more firms that will operate in the markets the easier it will be for the customers to shop around. Even a minority of firms can dominate a market, for example, supermarkets; even they can cause intense competition. For example, “some forms of competition, such as price competition, are highly unstable...
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...The five Forces Competing for profits The term competence is not about to beat your enemy with a profit. But compete for a profit is more complicated than it seems. Is not just compete with your enemy but with other participants involved as customers, who jostle for good quality products at a good price. Compete with suppliers who prefer to be paid better and deliver fewer products and compete with producers who could replace at any time. The Porter's Five Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit. Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations. These five forcers, the intensity of rivalry among existing competitors, the bargaining power of buyers (the industry’s customers), the bargaining power of suppliers, the threat of substitutes, and the threat of new entrants determine the industry’s structure. Before Porter, the prevailing framework for sizing...
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...What is it? Framework/theory Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organisation. This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation’s current competitive position, and the strength of a position that an organisation may look to move into. Strategic analysts often use Porter’s five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes. Porter’s five forces of competitive position analysis: The five forces are: 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. 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 organisation; and cost...
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...community there was a need for industries to protect themselves against competition from other industries and achieve competitive advantage. (Kippenberger, 1996) Competitive advantage is like achieving a better place than competitors. The industries can achieve competitive advantage by proper formulation and analysis of their strategies. Michael Porter (1979) developed five forces model for strategy analysis and formulation. These forces analyze the opportunities available and threats to the industries. Thus the analysis helps the managers gain a better understanding of the strategies that are useful for industries to achieve their goals. (Kippenberger, 1996) Question: What is the model? Porter’s Competitive Forces Model is for strategy analysis. The model represents five major external forces that can affect a company’s profitability and competitive advantage. Threats of entry, Powerful suppliers, Powerful buyers, Substitute products and Jockeying for position are the five forces that constitute this model. The analysis of these five forces is highly significant in strategy formulation and evaluation of firm’s strategic position. (Porter, 1979) Threat of entry refers to the entry of new competitors/industries that affect the work of existing industries in the same field. So...
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...Porter's 5 Forces Analysis • Threat of New Entrants. Because the biotech industry is filled with lots of small companies trying to hit the jackpot, the barriers to enter this industry are enough to scare away all but the serious companies. Biotech firms require huge amounts of funding to finance their large R&D budgets. Having ample cash is one of the biggest barriers, so when interest rates are low, or the equity markets are receptive to initial public offerings, the barriers are lower. Specialization also creates barriers. For instance, knowledge about cancer and heart disease is quite high, whereas a company focusing on something more obscure would likely have a low threat of new entrants because there are very few experts in this field. • Power of Suppliers. Biotech companies are unique because most of their value is driven by intellectual property. The nature of their business does not force them, unlike other industries, to rely on suppliers. Scientific tools, materials, computers and testing equipment is highly specialized, but the likelihood of these companies invading on their line of business is not very high. One snag is that marketing alliances have often proved to be problematic. Small biotech firms don't have the distribution capabilities to promote their new drugs, so they are forced to license their drugs to other suppliers. • Power of Buyers. The bargaining power of customers has different levels in the biotech arena. For example, a company that sells...
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...Porter's Five Forces Model Applied to the Movie Rental Industry Tarleton State University Porter’s Five Forces Model Applied to the Movie Rental Industry Alex Boogren CIS-450 Holland Reviewed by: Kelsey Stone 2/18/2013 Porter’s Five Forces Model Applied to the Movie Rental Industry The movie rental industry has undergone a massive overhaul throughout the past decade in the way that they do business. Consumers now have the freedom to choose multiple different ways to rent their movies, whether it is from an online streaming service such as Amazon Prime, a movie rental kiosk like Redbox, or an old fashioned brick and mortar store. Because of this, I believe that the movie rental industry would be interesting to evaluate using the Porter’s Five Forces Model. Buyer power in the movie rental industry is extremely high right now. This means that consumers have many choices when deciding on where to rent movies from. Buyer power in this industry was relatively low until technology allowed for online streaming and automated kiosks to rent movies from. Since buyer power is high, competition is fierce in this industry at the moment. High buyer power lowers the attractiveness of entering the movie rental industry. The next force that will be evaluated is supplier power. Supplier power in the movie rental industry is considered high. High supplier power means that there are only a few places for a movie rental business to acquire their movies from. It...
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...Porter’s Five Forces model The five forces model of analysis was developed by Michael Porter to analyze the competitive environment in which a product or company works. It identifies the five most common threats faced by firms in their local competitive environments and the conditions under which these threats are more or less likely to be present; these forces are the threat of entry, threat of rivalry, threat of substitutes, threat of buyers and the threat of suppliers. These threats increases a firm's costs, decreases a firm's revenues, or in other words they reduces a firm's performance. Industry Structure This model analyzes industry structure and by definition an industry is a group of firms that market products which are close substitutes for each other. Guardian Life Limited offers services such as Individual Benefit Plan and Employee Benefit Plan. The individual benefit plan includes benefits such as Critical Illness Plans, Traditional Insurance Plans, Universal Life & Equity Linked Plans, Interest Sensitive Plans, and other Plans. Also the Employee benefit plan includes: Group Life Insurance, Group Health Insurance, and Pension Administration. We will now state how the 5 forces model applies to Guardian Life Limited. Threat of Entry One reason why new entrants pose threat is that they bring additional production capacity. Unless the demand for a good or service is increasing, additional capacity holds consumers’ costs down, resulting in less revenue and lower...
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...Industry Analysis Example (Porter’s Five Forces and Complementors) Wal-Mart Here is a very brief example of an Industry Analysis for the Cases using Wal-Mart, specifically Wal-Mart’s competition in the consumer retail industry and not in the industries where it competes. Remember, that you are concerned with where Wal-Mart is positioned in the industry relative to the respective industry forces. • Potential Competitors: Medium pressure o Grocers could potentially enter into the retail side. o Entry barriers are relatively high, as Wal-Mart has an outstanding distribution systems, locations, brand name, and financial capital to fend off competitors. o Wal-mart often has an absolute cost advantage over other competitors. • Rivalry Among Established Companies: Medium Pressure o Currently, there are three main incumbent companies that exist in the same market as Wal-Mart: Sears, K Mart, and Target. Target is the strongest of the three in relation to retail. o Target has experienced tremendous growth in their domestic markets and have defined their niche quite effectively. o Sears and K-Mart seem to be drifting and have not challenged K-Mart in sometime. o Mature industry life cycle. • The Bargaining Power of Buyers: Low pressure o The individual buyer has little to no pressure on Wal-Mart. o Consumer advocate groups have complained about Wal-Mart’s pricing techniques...
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...IBM and Porter’s Five Competitive Forces Alexis DiOrrio September 21, 2015 Wilmington University History and Financial Analysis IBM or International Business Machines is a well-known American Computer manufacturer, founded by Thomas J. Watson (Bellis, 2015). They are also known as the “Big Blue” after the color of its logo. The company has manufactured everything from mainframes to personal computers and has been extremely successful selling business computers (Bellis, 2015). What started the beginning of IBM’s history, was on June 16, 1911 when three successful companies merged together; The Tabulating Machine Company, The International Time Recording Company, and The Computing Scale Company of America. These three companies joined together and formed one company, The Computing Tabulating Recording Company. In 1924, Watson changed the company’s name to what we know today as IBM (Bellis, 2015). IBM began manufacturing calculators in the 1930s, using the technology of their own punch card processing equipment. The financed the invention of the Mark 1 Computer with Harvard University in 1944. By 1953, IBM was ready to produce their own computers, which began with the IBM 701 EDPM, which was their first commercially successful general-purpose computer (Bellis, 2015). In 1980, Bill Gates agreed to create an operating system for IBM’s computer for the home consumer. Once IBM had now stepped into the home consumer market it sparked the computer revolution. Below...
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...Johnson is deciding whether to switch career and become a farmer – he's always loved the countryside, and wants to switch to a career where he's his own boss. He creates the following Five Forces Analysis as he thinks the situation through: Figure 2 - Porter's Five Forces Example - Buying a Farm This worries him: The threat of new entry is quite high: if anyone looks as if they're making a sustained profit, new competitors can come into the industry easily, reducing profits. Competitive rivalry is extremely high: if someone raises prices, they'll be quickly undercut. Intense competition puts strong downward pressure on prices. Buyer Power is strong, again implying strong downward pressure on prices. There is some threat of substitution. Unless he is able to find some way of changing this situation, this looks like a very tough industry to survive in. Maybe he'll need to specialize in a sector of the market that's protected from some of these forces, or find a related business that's in a stronger position. Key Points: Porter's Five Forces Analysis is an important tool for assessing the potential for profitability in an industry. With a little adaptation, it is also useful as a way of assessing the balance of power in more general situations. It works by looking at the strength of five important forces that affect competition: Supplier Power: The power of suppliers to drive up the prices of your inputs. Buyer Power: The power of your customers to drive down your...
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...Porter's 5 forces model is a powerful way of analysing the competitive forces that shapes every industry in general. This was developed by Michael E. Porter of Havard Business School in 1979. This tool helps you to identify whether a new product, investment, services or business have the potential to be profitable. The 5 competative forces that are taken into consideration are: Competition in the Industry Potential of new entrant into Industry Power of Suppliers Power of Customers Threat to substitute products Lets discuss each of these points in detail: Competition in the Industry: This describes the competition between the existing firms in an industry. Greater the competitive riverly (companies providing equally good products or services) lesser are the profit margin. The price of the product/services is the single most defining factor that influences the customer's buy decision. Hence to maintain low cost, companies consistently has to make manufacturing improvements to keep the business competitive. This requires additional capital expenditure which tends to eat up company's earning. On the other hand if no one else can provide products/ services the way you do you have a monopoly. Lets try to explore these points in more detail. Look at the current senario, the small car market in India is very competitive with players like Maruti Suzuki, Tata Motors, Huyndai etc. which was preety much dominated by Maruti. But with launch of Nano the 1 lakh car the...
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...Q: using Porter’s 5 forces model, identify the competitive pressures facing McDonald’s. How can the company surmount these pressures? Using Porter’s five forces model – the first force that can affect McDonalds is buyer power. Since there are no switching costs for a customer to leave McDonalds and go else where, McDonald’s has to do things that will keep the customers coming back. They keep competitive prices and have added a value menu for those customers that make their decisions based on price. In the recent years with the market crash and the unemployment rate at an all time high the value menu has likely kept customers from giving up fast food, sometimes what’s on the value menu is cheaper than cooking a meal and definitely cheaper than going to a restaurant to eat. They also add to their menus based on changing customer tastes. They have added several salads and grilled sandwiches because the country is taking more importance in the calories and the healthiness of what they are eating. The second force that may affect McDonald’s is Supplier Power. Given their massive size, McDonald’s can take advantage of lower prices due to economies of scale. The power lies less with the supplier and more with McDonalds. Because McDonald’s is so large, the suppliers don’t have much power to drive up the prices of materials because they want to keep McDonalds as a customer, and they know the suppliers’ competitors would love to gain McDonalds as a customer. Losing a customer as...
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