Porter's 5 Forces Business Examples In Industry Pdf
In the world of business, there are several models and frameworks used by executives to understand and analyze their industry. One such popular framework is Porter's Five Forces. Developed by Michael E. Porter in 1979, it is a strategic tool used to identify the competitive environment of any industry and how it affects a company's profitability.
Porter's Five Forces is based on the idea that there are five forces that shape the competition in an industry. These forces are; the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or services, and the intensity of competitive rivalry. In this article, we will discuss Porter's Five Forces with real-life business examples to provide a better understanding of how it works in various industries.
Threat of New Entrants
The threat of new entrants refers to the possibility of new competitors entering the market and disrupting the existing competition. The higher the threat, the more challenging it is for established companies to maintain their market share and profitability. For example, the food industry has a relatively low threat of new entrants due to high barriers to entry such as government regulations and economies of scale. However, the software industry has a higher threat of new entrants due to lower barriers to entry and a large pool of talented software developers.
Bargaining Power of Suppliers
The bargaining power of suppliers refers to the influence that suppliers have over the price and quality of goods or services they provide to companies. A high bargaining power of suppliers can limit a company's profitability and increase their costs. For example, the airline industry has a high bargaining power of suppliers due to the limited number of aircraft manufacturers, which allows them to dictate prices and terms. In contrast, the retail industry has a lower bargaining power of suppliers due to the large number of suppliers available.
Bargaining Power of Buyers
The bargaining power of buyers refers to the influence customers have over the price and quality of products or services they purchase. The higher the bargaining power, the more challenging it is for companies to set prices and maintain profitability. For example, the automotive industry has a high bargaining power of buyers due to the availability of information on prices and the wide range of offers from competitors. In contrast, the healthcare industry has a lower bargaining power of buyers due to the high degree of specialization and the lack of transparency in pricing.
Threat of Substitute Products or Services
The threat of substitute products or services refers to the possibility of customers switching to alternative products or services that offer similar benefits. The higher the threat, the more challenging it is for companies to retain their customers and maintain profitability. For example, the soft drink industry faces a high threat of substitute products such as juice and water. In contrast, the pharmaceutical industry has a lower threat of substitute products due to the unique nature of drugs and the high cost of research and development.
Intensity of Competitive Rivalry
The intensity of competitive rivalry refers to the degree of competition among existing players in an industry. The higher the intensity, the more challenging it is for companies to maintain their market share and profitability. For example, the retail industry faces intense competition due to the large number of players and the ease of entry. In contrast, the aircraft manufacturing industry has a lower intensity of competitive rivalry due to the relatively small number of players and the high barriers to entry.
Conclusion
In conclusion, Porter's Five Forces is a valuable framework to analyze the competitive environment of any industry. By understanding the five forces and how they affect a company's profitability, executives can make informed decisions and develop effective strategies. It is essential to note that the level of threat and intensity of competitive rivalry can change due to shifts in market conditions, regulatory changes, and advancements in technology.
Therefore, companies must regularly evaluate the five forces to remain competitive and adapt to changing market conditions promptly.
