Week 4: Clear- Porter's 5 Forces

 Porter’s 5 Forces

Porter’s 5 Forces are crucial to understanding the interplay between firms in an industry and also formulating strategic moves in order to succeed as a company in a competitive market. Also known as “Industry and Competitive Analysis,” its’ purpose is just as it name describes: it is used to analyze the competition in an industry (our rivals) and come up with a strategy to differentiate our product from theirs. Or at least, the way the consumer sees it. Michael Porter, of Harvard Business School, came up with this model in 1979.

1.       The intensity of rivalry among existing competitors

·         Customer loyalty

·         Number of competitors

·         Switching costs

2.       The threat of new entrants

·         Time and cost of entry

·         Economies of scale

·         Barriers to entry

·         Cost advantage

3.       The threat of substitute goods or services

·         Substitute performance

·         Cost of change

4.       The bargaining power of buyers

·         Number of customers

·         Difference between competitors

·         Price sensitivity

·         Ability to substitute

5.       The bargaining power of suppliers

·         Number of suppliers

·         Uniqueness of service

·         Your ability to substitute

These 5 factors illuminates an industry’s fundamental attractiveness to consumers, exposes the underlying drives of average industry profitability, and provides insight into how profitability will evolve in the future. A firm (or potential firm) can evaluate these five factors to determine their chances or how difficult it will be for them to survive in their respective industry.

The website below explains Porter’s 5 forces in simple terms and gives a good example to tie it all together.

http://www.mindtools.com/pages/article/newTMC_08.htm

This YouTube video is amusing and also explains Porter's 5 forces!