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There are five forces in Porter’s Five force model. These forces are written below:
- Threat of New entrant: 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 is required for the investment, and accessibility in the industry distribution channel, the switching cost of customer is high.
- Threat of Substitutes: If substitutes of the products are available in the market it ultimately lowers down the attractiveness and profits because it is easily available in the lower prices. The threat is 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 substitute.
- Bargaining power of supplier: The partners in business that supply goods and other raw material to the industry. The success of the business is dependent upon the cost of raw materials and goods that is purchased from the supplier. There is a bargaining power of supplier also but if it is high, there will be chances that company is not so attractive. This power of the supplier is high is some conditions such as if the number of buyers are more and the suppliers are very few. If there are various homogenous products in the market but it is of very high value.
- Bargaining power of buyer: Here the buyer is more dominating. Buyers are the one who enhances the demand of the products. The bargaining power of buyer is high when there are few buyers in the market, the products are standardized.
- Rivalry: The rivalry among business partner 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 is go down. If exit barriers in the organization is high, it give rise to rivalry.