1. Group G
Group Member ID
Kazi Tanvirul Islam B040006
S.M. Zayed Siraj B040016
Jannatul Ferdows B040017
Md. Tajmilur Rahman B040036
Umme Kulsum B020050
2. Porter five forces model
1. Risk of entry by potential competitors
2. Rivalry among Established Companies
3. The Bargaining Power of Buyers
4. The Bargaining Power of Suppliers
5. Threat of Substitutes
3. Risk of entry by potential competitors
Companies that are not currently competing in an industry but have the capability to do so if
they choose are potential competitors. Incumbent companies are those already operating in
an industry, try to discourage the potential competitors from entering the industry.
Whether potential companies will come into market or not that depend on barriers to entry.
Barriers to entry are the factors that make it costly for companies to entry an industry.
The following are barriers to entry:-
a) Brand loyalty:- Brand loyalty is when consumers have particular preference for products from
firms that are already established. Not switch one brand to another.
b) Absolute Cost Advantage:- Superior production process.
Control of particular inputs required for production.
Access to cheaper funds.
c) Economic of Scale:- Economies of scale occurs when a firms expands its outputs to make unit
costs fall. Produce more cost is low.
d) Switch cost:- Switching costs that cost customer's their time, energy, and money to stop using
those products from an established company to use products from new entrants is considered
high switching cost.
e) Government regulation:
4. Rivalry among Established Companies
The extent of rivalry among established companies is a function of three factors:-
a) Industry Competitive Structure
Fragmented- restaurant, Health club.
Consolidated- aerospace, automobiles.
b) Demand conditions; growing demand is opportunities and declining demand is threat.
c) Height of exit barriers;
Investment in plant and equipment that have no alternative uses and can not be sold
off.
High fixed cost of exit.
Emotional attachment to an industry.
Economic dependence on the industry as there is no diversification.
5. The Bargaining Power of Buyers
Buyers are the most powerful in the following circumstances:-
a) When the supply industry is composed of many small companies and buyer are few in
number and large.
b) When the buyers purchases large quantities.
c) When the supply industry depends on buyers for a large percentage of its total orders.
d) When the buyer can switch orders between supply companies at low cost, thereby playing
off companies against each other to force down prices.
e) When it economically feasible for the buyers to purchase the input from several companies
at once.
f) When the buyers can use the threat to supply their own needs through vertical integration as
a device for down prices.
6. The Bargaining Power of Suppliers
Suppliers are the most powerful in the following circumstances:-
a) When the product that supplier sell has few substitute and important to the company.
b) When the company’s industry is not important customer to the suppliers.
c) When suppliers respective product is differentiated to such an extent that it is costly for a
company to switch from one suppliers to another.
d) When, to rise price, suppliers can use the threat of vertically integrating forward into the
industry and computing directly with the company.
e) When buying companies cannot use the threat of vertically integrating backward and
supplying their own need as a means of reducing input prices.
7. Threat of Substitutes
• All firms in and industry compete with other industries offering substitute products or services.
Steel producers are in competition with aluminum producers. Sugar producers are in competition
with the firms which are introducing sugar-free products. The competitive force of closely-related
substitute products impact sellers in several ways.
• First, the presence of readily available and competitively priced substitutes places a ceiling on the
prices companies in and industry can afford to charge without giving customers an incentive to
switch to substitutes and thus eroding their own market position.
• Another determinant of whether substitutes are a strong or weak competitive force is whether it is
difficult or costly for customers to switch to substitutes to substitutes. Typical switching costs
include, the cost of purchasing additional equipment, employees retraining costs, the time and
costs to test the quality for technical help needed to make the changeover.
• As a rule, the lower the price of substitutes and the higher the quality and performance of
substitutes, the more intense are the competitive pressures posed by substitute products.
