Five; five forces framework (Porter)
5 important questions on Five; five forces framework (Porter)
Explain the extent rivalry between competitors of the five forces framework
Competitive rivalry is a measure of the extent of competition among existing firms.
Competitive rivals are organisations aiming at the same customer groups and with similar products and services (i.e. Not substitutes).
- For example the European airline industry, Air France and British Airways are rivals; high-speed trains are a substitute. Five factors tend to define the extent of rivalry in an industry or market;
- Competitor concentration and balance
- Industry growth rate
- High fixed costs
- High exit barriers
- Low differentiation
Explain the threat of entry of the five forces framework
The threat of new entrants is the risk a new competitor creates for current companies within an industry.
The greater the threat of entry, the worse it is for incumbents in an industry. An attractive industry has high barriers to entry that reduce the threat of new competitors. Barriers to entry are the factors that need to be overcome by new entrants if they are to compete in an industry. Four important entry barriers are:
- Scale and experience
- Access to supply or distribution channels
- Capital requirements
- Legislation or government action
Explain the threat of substitutes of the five forces framework
The threat of substitutes is the availability of other products that a customer could purchase from outside an industry.
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Explain the power of buyers of the five forces framework
Buyer power is likely to be high when some of the following four conditions prevail;
- Concentrated buyers
- Low switching costs
- Buyer competition threat
- font-sizeLow buyer profits and impact on quality
Explain the power of suppliers of the five forces framework
The supplier power is likely to be high when there are;
- Concentrated suppliers
- High switching costs
- Supplier competition threat
- Differentiated products
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