porters 5 force model
TRANSCRIPT
PREPARED BY:Karan goyal52m.Com 2nd year
pORTER’s FIVE FORCES MODEL
*OutlineMichael e. porter
Introduction to 5 force model
Structure of 5 force model
Coca cola : study on 5 force model
Strenghts
*MICHAEL E. PORTER
Alma mater : Princeton University Harvard Business School
Michael Eugene Porter (born May 23, 1947) is an American academic known for his theories on economics, business strategy, and social causes.
He received an MBA with high distinction in 1971 from Harvard Business School
*INTRODUCTION
The Five Forces model of Porter is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value...) of an industry structure.
It captures the key elements of industry competition.
BuyersSuppliers
Substituteproducts
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Bargaining powerof suppliers
Bargaining powerof buyers
Threat ofsubstitutes
PORTER’s FIVE FORCES MODEL
Threat of New
EntrantsThreat of New
Entrants
PORTER’s FIVE FORCES MODEL
Threat of New Entrants
Barriers to Entry
Government Policy
Expected Retaliation
Product Differentiation
Capital Requirements
Customer Switching Costs
Access to Distribution Channels
Bargaining Power of Suppliers
Threat of New
EntrantsThreat of New
Entrants
PORTER’s FIVE FORCES MODEL
Bargaining Power of Suppliers
Suppliers exert power in the industry by:
* Threatening to raiseprices or to reduce quality
Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
Suppliers are likely to be powerful if:
Supplier industry is dominated by a few firmsSuppliers’ products have few substitutes
Buyer is not an important customer to supplier
Suppliers’ product is an important input to buyers’ product
Suppliers’ products are differentiated
Suppliers’ products have high switching costs
Bargaining Power of Buyers
Threat of New
EntrantsThreat of New
Entrants
Bargaining Power of Suppliers
PORTER’s FIVE FORCES MODEL
Bargaining Power of Buyers
Buyers compete with the supplying industry
by:
* Bargaining down prices
* Forcing higher quality
* Playing firms off ofeach other
Buyer groups are likely to be powerful if:Buyers are concentrated
Purchase accounts for a significant fraction of supplier’s sales
Products are undifferentiated
Buyers face few switching costs
Buyer presents a credible threat of backward integrationBuyer has full information
Threat of Substitute Products
Threat of New
EntrantsThreat of New
Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
PORTER’s FIVE FORCES MODEL
Threat of Substitute Products
Products with similar function limit the prices firms can charge
Keys to evaluate substitute products:Products with improving price/performance tradeoffs relative to present industry products
Example:
Electronic security systems in place of security guards
Fax machines in place of overnight mail delivery
Threat of Substitute Products
Threat of New
EntrantsThreat of New
Entrants
Rivalry Among Competing Firms in
Industry
Bargaining Power of Buyers
Bargaining Power of Suppliers
PORTER’s FIVE FORCES MODEL
Rivalry Among Existing CompetitorsIntense rivalry often plays out in the following ways:
Using price competition
Staging advertising battles
Making new product introductionsIncreasing consumer warranties or service
Occurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but may be costly to smaller competitors
Coca-Cola is a carbonated soft drink company.
The Coca-Cola company of Atlanta, Georgia originally intended as a
patent medicine, it was invented by John Pemberton.
*PRODUCTS
*Coca cola
Traditional competition: Prices of Pepsi, local brandsMarket share Promotional actions of competition
New entrants:New “look-a-like” manufacturers
Substitute products: Fashionable new drinks, milk drinks, coffee, beer, ...
*Coca-colaSuppliers:
Price and availability of ingredients on world marketQuality 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
*Strengths of five forces model:
The model is strong tool for competitive analysis at industry level.
It provides useful input for performing a SWOT analysis.
References :
*Azhar kazmi ; strategic management, mcgraw-hill publicatioin.
*www.mindtools.com/ porter five force model
*http://en.wikipedia.org/wiki/Michael_porter_5_force_model
