2.4: 5 Forces Model - Application
Analyzing each force in Porter's Five Forces model provides insights into a company's competitive strategy and its ability to navigate industry challenges and opportunities.
Here's a step-by-step guide on how to conduct a Five Forces analysis:
- Analyze Rivalry among Existing Competitors:
- Assess the number and strength of competitors.
- Consider factors such as market concentration, industry growth, differentiation, and exit barriers.
- Evaluate the Threat of New Entrants:
- Examine barriers to entry, such as economies of scale, brand loyalty, capital requirements, and government regulations.
- Assess the likelihood of new companies entering the market.
- Assess the Bargaining Power of Buyers:
- Evaluate factors like the volume of purchases, standardization of products, and the importance of each buyer to the business.
- Determine the impact buyers can have on prices and terms.
- Evaluate the Bargaining Power of Suppliers:
- Assess factors such as the number of available suppliers, the uniqueness of their products, and the importance of each supplier to the industry.
- Consider the impact of supplier power on costs and terms.
- Analyze the Threat of Substitute Products or Services:
- Identify potential substitutes and assess their availability, quality, and prices.
- Consider factors that might drive customers to choose alternatives.