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Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organisation. This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation’s current competitive position, and the strength of a position that an organisation may look to move into. Strategic analysts often use Porter’s five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes. Porter’s five forces of competitive position analysis: The five forces are: 1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another. 2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the: number of buyers in the market; importance of each individual buyer to the organisation; and cost to the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate terms. 3. Competitive rivalry. The main driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness. 4. Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of customers switching to alternatives in response to price increases. This reduces both the power of suppliers and the attractiveness of the market. 5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate. Arguably, regulation, taxation and trade policies make government a sixth force for many industries. What benefits does Porter’s Five Forces analysis provide?Five forces analysis helps organisations to understand the factors affecting profitability in a specific industry, and can help to inform decisions relating to: whether to enter a specific industry; whether to increase capacity in a specific industry; and developing competitive strategies.
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What are the 5 competitive forces that affect your company's profitability?Porter's five forces is an amazing tool enabling organizations to evaluate the profitability of a market or industry. It is based on five forces that affect attractiveness: competitive rivalry, supplier power, buyer power, threat of substitution and threat of new entry.
What are the five forces that drive competition in an industry?The Five Forces. Threat of New Entrants. The threat of new entrants into an industry can force current players to keep prices down and spend more to retain customers. ... . Bargaining Power of Suppliers. ... . Bargaining Power of Buyers. ... . Threat of Substitute Products. ... . Rivalry Among Existing Competitors.. What are some of the five forces driving industry competition that are affecting the profitability of Kroger?Kroger Porter Five Forces Analysis. Threat of New Entrants.. Threat of Substitutes.. Bargaining Power of Customers.. Bargaining Power of Suppliers.. Competitive Rivalry.. How does competition affect profitability?Negative product price changes of competitors weaken the positive relationship between firm profitability (compared with its past profitability) and the prioritization of growth relative to efficiency increase.
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