Porte's Five Forces Model

Industry
Rivalry
Bargaining power of
suppliers
Bargaining power of
buyers
Threat of entry
Threat of
susbtitutes
Complementary
Product

Bargaining Power of Buyers
• Buyers demand low price and high quality product.
• Buyers gain increasing bargaining power during following
condition:-
Large number of suppliers
Low switching cost
Undifferentiated product
Backward Integration

1) Bargaining Power of Buyers-Example
Best example can be of Automobiles companies because of
following reasons:-
• They have low stitching cost.
• They can easily make there own raw material because they
are financially strong.
• Backward Integration

2) Bargaining Power of Suppliers
• Supplier demand high price and low quality product.
• Bargaining power of supplier affects the intensity of competition in an
industry.
• Supplier gain increasing bargaining power under following conditions:-
Few suppliers
High switching cost
Differentiated/Unique product
Forward Integration

2) Bargaining Power of Suppliers-
Example
Best example can be of Personal Computer makers because
of following reasons:-
• Limited number of suppliers
• High quality/ Unique product.
• High switching cost between AMD and INTEL
• Forward Integration

3)Threat Of Substitute
• In many industries, firm are in close competition with
producers of substitute products in other industries.
• The force is threatening when buyer can easily find substitute
product with attractive price or better quality and when buyers
can switch from one product to another with low cost.

3)Threat Of Substitute- Example
• Coke producer competing with Pepsi
• HP producer competing with DELL
• Sugar producer competing with artificial sweeteners

4)Threat Of new entry
Whenever new firms can easily enter a particular industry, the intensity of
competitiveness among firm increase.
Following are the barrier to entry:-
• Large capital requirement.
• Lack of experience
• Need to gain technology
• Need to gain economies of scale.
• Strong customer loyalty
• Lack of access to raw material

5) Competitive Rivalry
Rivalry among competing firms is usually the most powerful of the five competitive forces.
Following are the condition that causes high rivalry among competing firm:-
• When number of competition increases.
• Firms are of same size and capabilities.
• Demand for industry product decrease.
• Consumers can easily switch
• Product is perishable
• Undifferentiated product.
• Strong price war

5) Competitive Rivalry- Example
•Fast food restaurant industry MC Donald's face strong
competition because the fast food industry is
saturated.

6) Complementary Product
• Porter’s sixth force are companies that sell goods or services that
are compatibles with goods produced.
• Complementary product offer more value to the consumer
together that apart.

Porte's Five Forces Model

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Porte's Five Forces Model