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PORTERS FIVE FORCES MODEL
PREPARED BY:RAJESH PATELNISHANT AGRAWAL
MANISH NASHA
SHIVENDRA UPPADHYACHAINIKA SWOMI
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INTRODUCTION
The Five Forces model of Porter is an outside-inbusiness unit strategy tool that is used to make ananalysis of the attractiveness (value...) of an industry
structure.
It captures the keyelements ofindustrycompetition.
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BuyersSuppliers
Substituteproducts
Potential
entrants
Industry competitors
Rivalry among
existing firms
Threat of
new entrants
Bargaining power
of suppliers
Bargaining power
of buyers
Threat of
substitutes
PORTERS FIVE FORCES MODEL
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Bargaining
Power of
Suppliers
Bargaining
Power of
Suppliers
Threat of
New
Entrants
Threat of New
Entrants
Threat of New
Entrants
PORTERS FIVE FORCES MODEL
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BARGAINING POWER OF SUPPLIERSBARGAINING POWER OF SUPPLIERS
Suppliers exert
power in the
industry by:
Suppliers exert
power in the
industry by:
* Threatening to raise* Threatening to raise
prices or to reduce
quality
prices or to reduce
qualityPowerful suppliers
can squeeze
industry
profitability if firmsare unable to
recover cost
increases
Powerful suppliers
can squeeze
industry
profitability if firmsare unable to
recover cost
increases
Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:
Supplier industry is dominated by a fewSupplier industry is dominated by a fewfirmsfirms
Suppliers products have few substitutesSuppliers products have few substitutes
Buyer is not an important customer toBuyer is not an important customer tosuppliersupplier
Suppliers product is an important input toSuppliers product is an important input tobuyers productbuyers product
Suppliers products are differentiatedSuppliers products are differentiated
Suppliers products have high switchingSuppliers products have high switchingcostscosts
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Bargaining
Power of
Buyers
Bargaining
Power of
Buyers
Threat of
New
Entrants
Threat of New
Entrants
Threat of New
Entrants
Bargaining
Power of
Suppliers
Bargaining
Power of
Suppliers
PORTERS FIVE FORCES MODEL
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Power ofBuyersBuyers high when
* Customers are concentratedconcentrated, largelarge orbuy in volumebuy in volume .
* The products being purchased arestandardstandardorundifferentiatedundifferentiatedmaking it
easy to switcheasy to switch to other suppliers.
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Some examples for bargaining
power of buyer when its high
Sam American choice was 25% cheaper then
tide and also has name and quality of wallmart
when the demand of product
is decreasing in the market but supplier is
having a huge stock in there hand.
Ambuja cement add. Says that I am proud to be
associated with Hyderabad airporthere they are signify that the
biggest project of India is using my product
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When the bargaining power of
buyer effects
When the customer/buyer moves to or threat tomove backward.
When present prestige of the buyer adds brand
value of the seller
When the number of buyer is low
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Threat of
Substitute
Products
Threat of
Substitute
Products
Threat ofNew
Entrants
Threat of New
Entrants
Threat of New
Entrants
Bargaining
Power of
Buyers
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Bargaining
Power of
Suppliers
PORTERS FIVE FORCES MODEL
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THREAT OF SUBSTITUTE PRODUCTSTHREAT OF SUBSTITUTE PRODUCTS
Products withsimilarfunction limitthe pricesfirms cancharge
Products withsimilarfunction limitthe pricesfirms cancharge
Keys to evaluate substitute products:Keys to evaluate substitute products:
ProductsProducts withwith improvingimprovingprice/performanceprice/performance tradeoffstradeoffsrelativerelative toto presentpresent industryindustryproductsproducts
Example:Example:
Electronic security systems in placeElectronic security systems in placeof security guardsof security guards
Fax machines in place of overnightFax machines in place of overnightmail deliverymail delivery
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COCA-COLA
Traditional competition:
Prices of Pepsi, local brands
Market share
Promotional actions of competition
New entrants:
New look-a-like manufacturers
Substitute products:
Fashionable new drinks, milk drinks, coffee, beer, ...
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COCA-COLA
Suppliers:
Price and availability of ingredients on world market
Quality speed safety, traceability, flexibility of supply
chain
Buyers/consumers:
High as a result of intense competition both among
branded and unbranded products.
Combined purchase power of shops, bars, supermarkets
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COMPETITIVE ADVANTAGE The Competitive Advantage model of Porter learns that
competitive strategy is about taking offensive or defensiveaction to create a defendable position in an industry, in orderto cope successfully with competitive forces.
Companies can combat the pressure of the five forces andcreate competitive advantages.
There are 2 basics types ofCompetitive Advantage : Cost leadership (lowcost)
Differentiation
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STRENGTHS OF FIVE FORCES
MODEL:
The model is strong tool for competitive analysis atindustry level.
It provides useful input for performing a SWOTanalysis.
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LIMITATIONS Inside-out strategy is ignored (core competence)
It does not cope with synergies and interdependencieswithin the portfolio of large corporations (parenting
advantage)
The environments which are characterized by rapid,systemic and radical change require more flexible, dynamicor emergent approaches to strategy formulation (disruptiveinnovation)
Sometimes it may be possible to create completely newmarkets instead of selecting from existing ones (blue ocean
strategy)
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THANKS..