What is Porter’s Five Force Model?
The analysis of Porter’s Five force model
a) The threat of New entrants: When any new entrant comes into the market the competition gets high. This threat is totally dependent upon the barriers that exist in the market. The barriers in this entry are economies of scale, huge capital required for the investment, and accessibility in the industrial distribution channel, the switching cost of the customer is high.
b) The threat of Substitutes: If substitutes of the products are available in the market it ultimately lowers the attractiveness and profits because it is easily available at lower prices. The threat is a substitute is dependent upon various factors such as buyer is willing to buy the substitute or not. The price of the substitute, and the cost that is associated with switching to a substitute.
c) Bargaining power of supplier: The partners in a business that supply goods and other raw materials to the industry. The success of the business is dependent upon the cost of raw materials and goods that are purchased from the supplier. There is the bargaining power of suppliers also but if it is high, there will be chances that the company is not so attractive. This power of the supplier is high are some conditions such as if the number of buyers is more and the suppliers are very few. If there are various homogenous products in the market but it is of very high value.
d) Bargaining power of buyer: Here the buyer is more dominating. Buyers are the one who enhances the demand for the products. The bargaining power of buyers is high when there are few buyers in the market, the products are standardized.
e) Rivalry: The rivalry among business partners occurs according to the following points: If the competition is very high, and similar kinds of competitors are available in the market the rivalry will go up. If equal size competitors are available the rivalry goes down. If exit barriers in the organization are high, it gives rise to rivalry.