Porter's Five Forces model analyzes five competitive forces that shape industry competition: the threat of new entrants, the power of suppliers, the power of buyers, the threat of substitutes, and rivalry among existing competitors. The model is used to assess the profitability of an industry and the competitive strength of a company's position within it. Changes in the five forces can reshape industry structure and competition. Strategies should consider shaping industry forces, positioning the company, and exploiting changes in industry structure.

1. PORTERS’S FIVE FORCES

2. Agenda
•The
Five Competitive Forces That Shape Strategy
•Various Factors That Shape Strategy
•Changes in Industry Structure
Bargaining
power of
•Implications for Strategy
suppliers
•Competition and Values
Threat of
new
entrants
Rivalry
among
existing
competitors
Threat of
substitutes
Bargaining
power of
buyers

3. Supply side economics
eg. Intel
Threat of New Entrant
Depends on height of
entry barriers
Threat of New
Entrant
Demand Side benefits
of scale
eg. eBay, IBM
Customer switching
costs
eg. Telecom sector
Capital Requirements
eg. Oil drilling
Barriers to entry
Incumbency
advantages
independent of size
Unequal access to
distribution channels
eg. ITC
Restrictive government
policy

4. Power of suppliers
Switching costs
eg. Bottling plants
for Coke, Pepsi
Differentiated
products being
offered
eg. Pharmaceutical
companies
No. of
industries being
served
No substitute
eg. Labour
eg. software
Monopoly
eg. Microsoft
Suppliers
Supplier groupForward
integration
eg. Intel

5. Power of Buyers
Causes for price sensitivity
Few buyers, High
volumes
eg. Offshore drilling
machines
Cost of purchase
high
Threat of
backward
integration
Undifferentiated
offerings
eg. Services
eg. Beer companies
Low switching
costs
eg. Telecom sector
Little effect on
final product
Low profit making
product

6. Threat of Substitutes
Price
Performance
trade-off
Cost of
switching is low

7. Rivalries among existing competition
Large in
number, equal in
power and size
Exit barriers are
high
Slow growth in
industry
Offerings are
identical
Highly
committed
competition
High fixed costs
and low marginal
costs
Product is
perishable

8. Factors not Forces
Industry Growth Rate
Technology and Innovation
Government
Complementary Products and
Services

9. Changes in Industry Structure
Shifting threat of new entry
Changing Supplier or Buyer Power
Shifting threat of substitution
Shifting threat of new entry
New bases of rivalry

10. Implications for Strategy
Possiblities
Shaping
industry
structure
Re-dividing
profitability
Positioning
the company
Expanding
the profit
pool
Exploiting
industry
change
Defining the
industry

11. Competition and Value