5 Forces Analysis Of The Environment
The five forces model of analysis was developed by Michael Porter to analyze the competitive environment in which a product or company works.
There are five forces that act on any product/ brand/ company:
1. The threat of entry: competitors can enter from any industry, channel, function, form or marketing activity. How best can the company take care of the threat of new entrants?
2. Supplier power: what is the power of suppliers in this industry? How will their actions affect costs, supplies and developments? If there are a few suppliers, power is in their favour and cost of switching may be prohibitive; vice versa for a situation with lots of suppliers. There may be too many buyers from too few suppliers.
3. Buyer power: there may be few buyers for the product, which could mean that they would drive down prices and dictate business terms. What is their effect on the business? If there are many buyers, sellers could decide not to supply to a few, because other buyers will step in.
4. Threat of substitutes: can another substitute the product? Tea for coffee; email for fax? What is the likely possibility of this and what is its impact?
5. Competitive rivalry: all the four forces may come together to produce this force. All the resources at a company's disposal may be put in to maintain market shares and sales. How intense is competitive action, can it be countered?
There are five forces that act on any product/ brand/ company:
1. The threat of entry: competitors can enter from any industry, channel, function, form or marketing activity. How best can the company take care of the threat of new entrants?
2. Supplier power: what is the power of suppliers in this industry? How will their actions affect costs, supplies and developments? If there are a few suppliers, power is in their favour and cost of switching may be prohibitive; vice versa for a situation with lots of suppliers. There may be too many buyers from too few suppliers.
3. Buyer power: there may be few buyers for the product, which could mean that they would drive down prices and dictate business terms. What is their effect on the business? If there are many buyers, sellers could decide not to supply to a few, because other buyers will step in.
4. Threat of substitutes: can another substitute the product? Tea for coffee; email for fax? What is the likely possibility of this and what is its impact?
5. Competitive rivalry: all the four forces may come together to produce this force. All the resources at a company's disposal may be put in to maintain market shares and sales. How intense is competitive action, can it be countered?
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