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Porters 5 Forces Model

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Porter's 5 Forces Model

The Porter's 5 Forces Model is a strategic framework used to analyze the level
of competition within an industry. It examines the threats and opportunities
that can impact a business's profitability and competitive position.

by
Va
Vishal kumar Mahto
Threat of New Entrants
Industry Barriers
1
Existing players may have advantages like economies of scale, brand loyalty, or
intellectual property that make it difficult for new firms to enter the market.

Regulation
2
Government policies and industry regulations can create significant barriers to
entry, protecting incumbent businesses.

Customer Switching Costs


3
If it's expensive or inconvenient for customers to switch to a new provider, that
discourages new competitors from entering.
Bargaining Power of Suppliers

1 Supply Scarcity 2 Supplier Concentration


If suppliers have a limited number of A small number of large, dominant
providers to choose from, they can suppliers have more leverage over the
demand higher prices and less favorable industry.
terms.

3 Switching Costs 4 Supplier Integration


If it's costly or difficult for a business to Suppliers that can integrate downstream
switch suppliers, the suppliers have more and compete directly with their customers
bargaining power. have significant power.
Bargaining Power of Buyers
Price Sensitivity Buyer Concentration Buyer Integration

If buyers are very price- When there are a small Buyers that can integrate
sensitive, they have more number of large buyers, they upstream and produce the
leverage to demand lower can exert significant influence product themselves reduce
prices and better terms. over suppliers. the industry's bargaining
power.
Threat of Substitute Products
Product Differentiation Switching Costs
If a product is highly differentiated and If it's expensive or difficult for customers to
customers are loyal, substitute products are switch to a substitute, the threat is lower.
less of a threat.

Relative Pricing Quality Differences


Substitute products that are significantly Substitute products that are comparable in
lower in price pose a greater threat to the quality and functionality are more likely to be
industry. adopted.
Rivalry Among Existing Competitors

Market Growth Fixed Costs Product Exit Barriers


Differentiation
Slow-growing Industries with high High exit barriers, like
markets tend to have fixed costs incentivize When products are specialized assets,
more intense rivalry companies to undifferentiated, keep companies
as companies fight for maximize capacity companies compete competing in a
limited market share. utilization, leading to primarily on price, declining industry.
price wars. intensifying rivalry.
Conclusion
The Porter's 5 Forces Model provides a comprehensive framework for analyzing
the competitive dynamics and profitability of an industry. By understanding
these five forces, businesses can develop effective strategies to navigate their
competitive landscape and capitalize on emerging opportunities.

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