Porter Five Forces of Competition (PowerPoint PPTX)

The COMPETITIVE INTENSITY of an industry is determined by five/six forces of competition

Porters five/six forces consist of HORIZONTAL and VERTICAL sources of competition

Barriers to entry protect established firms from the THREAT OF NEW ENTRANTS

The price customers are willing to pay depends, in part, on the THREAT OF SUBSTITUTES

BUYER/SUPPLIER POWER depends on the buyers price sensitivity and its relative bargaining power

For most industries RIVALRY between established firms is the major determinant for competition and general level of profitability

COMPLEMENTS increase the value of the product to its buyers

Example: Characteristics of an industry with a very HIGH COMPETITIVE intensity

Example: Characteristics of an industry with a LOW COMPETITIVE intensity

Understanding the barriers to entry is crucial for evaluating the competitive dynamics within any industry. High capital requirements, economies of scale, and absolute cost advantages can deter new entrants, safeguarding the market position of established firms. Product differentiation and government-imposed barriers further fortify these defenses, making it challenging for new players to gain a foothold. Retaliation from existing firms, through aggressive pricing or litigation, can also serve as a significant deterrent.

Buyer and supplier power significantly influence market conditions. Buyers' price sensitivity and the relative bargaining power of suppliers determine the pricing strategies and profit margins within an industry. Factors such as the cost of products relative to total cost, product differentiation, and competition among buyers play a pivotal role in shaping buyer power. Similarly, suppliers' ability to influence prices and terms of supply can impact the overall competitive intensity.

Complements can enhance the value proposition of a product, creating additional demand and increasing profitability. The presence of complements, such as gasoline for cars, can significantly affect a buyer's purchasing decision. Industries with strong complements often see higher customer loyalty and increased sales, as the combined value of complementary products offers a more compelling proposition to buyers.