Kirt- Porter 5 Force Model (2)

7/28/2019 Kirt- Porter 5 Force Model (2)

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PORTERs FIVE FORCEs MODEL

PREPARED BY:KIRT RAJ PHAGNA

RAHUL KUMAR

CHANDAN JHA

MANISH JHA


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INTRODUCTION

The Five Forces model of Porter is an outside-inbusiness unit strategytool that is used to makean analysis of the attractiveness (value...) of anindustry structure.

Michael Porter developed Five Forces model toknow about different forces that impact on acompanys ability to compete

It captures the key elements of industry

competition.


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PORTERS FIVE FORCE MODEL


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Threat of New Entrants

Barriers to

Entry

Government Policy

Technology

Product Differentiation

Capital Requirements

Access to Distribution Channels


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Bargaining Power of Suppliers

Suppliers exert

power in the

industry by:

*Threatening to raise

prices or to reducequality

Powerful suppliers

can squeeze

industry

profitability if firmsare unable to

recover cost

increases

Suppliers are likely to be powerful if:

Supplier industry is dominated by a fewfirms

Suppliers products have few substitutes

Buyer is not an important customer tosupplier

Suppliers product is an important inputto buyers product

Suppliers products are differentiated

Suppliers products have highswitching costs


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Bargaining Power of Buyers

Buyers compete with

the supplying industry

by:

* Bargaining down prices

* Forcing higher quality

* Playing firms off of

each other

Buyer groups are likely to be powerful if:

Buyers are concentrated

Purchase accounts for a significant fractionof suppliers sales

Products are undifferentiated

Buyers face few switching costs

Buyer presents a credible threat of

backward integrationBuyer has full information


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Threat of Substitute Products

Products withsimilar

function limitthe pricesfirms cancharge

Keys to evaluate substitute products:

Products with improvingprice/performance tradeoffsrelative to present industry

products

Example:

Electronic security systems in placeof security guards

Fax machines in place of overnightmail delivery


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Rivalry Among Existing Competitors

Intense rivalry often plays out in the followingways:

Using price competition

Staging advertising battles

Making new product introductions

Increasing consumer warranties or service

Occurs when a firm is pressured or sees an

opportunityPrice competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but may

be costly to smaller competitors

v


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Strengths of five forces

model:

The model is strong tool for competitiveanalysis at industry level.

It provides useful input for performing aSWOT analysis.


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8

AirlineIndustry


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THREAT OF NEW ENTRANTS

Saturated MarketBrand Name& Recognition

THREAT OF SUBSTITUTES

Time,MoneyPersonal References & convenience

POWER OF SUPPLIERS

DominatedBoeing&AirbusNot much of difference.

POWER OF BUYERS

Low bargainingConsider Service of airline too.

RIVARLY AMONG EXISTING FIRMS WITHIN AN INDUSTRY

High competitionCutthroat competitionLow Profitability


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Competitive Analysis of TATA Nano using Porter Five forces


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Threat of new entrants is influenced by -

Factors Tata NANO

Advantages

Threat of new

entrants

Entry Deterring Price Yes, The Price is Rs

130,000.

Low

Retaliation by TATA in

case of competition

Yes, because of large

resources.

Low

High Entry Costs Yes , TATA spent Rs17oo* crore as initial

investment + 4 years

on research

Medium because ofreverse engineering

process and

availability of

resources.

Experience HIGH because of itsparent

experience(TATA

Motor)

Low

Other Cost

advantages

Yes** Low

Overall

Rating: LOW


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Bargaining Power of Buyers is influenced by -

Factors Tata NANOAdvantages Buyer Power

Differentiation Price , Durability ,

Brand equity

Low

Concentration Large number ofconsumers Low

Profitability Easy Availability of

loans

Low

Quality

Car has passed thefull frontal crash and

side impact crash

Passed Govt. Test

of emission,noise

and vibration

Low

Overall

Rating: LOW


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Bargaining Power of Suppliers is influenced by -

Factors Supplier Power

Concentration High Low

Switching Costs Low Low

Organization/cartel No Low

Diversification ofsupplier products No Low

Overall

Rating: LOW


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Threat of Substitute product is influenced by -

Factors Threat of

substitute

Availability Same category -

NO

low

Other Category

substitutes

Yes, but, minimal

extent e,g. Highend bikes and

other car models

like Reva,Alto

Medium

Time Lag in

availability of same

category product

High Low

Quality of

substitute

Quality influences

the customer.

Low in short term

Overall

Rating: LOW


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Rivalry among Existing competitors is influenced by -

Factors Rivalry amongexisting

competitors

Brand Image Brand equity

influences the

customer

Low among same

category

No.of Competitos Negligible in short

term

low

Size of payoff Depends on

Volume

Low

Switching costs Medium as

customers can

switch to other

products

Medium

Origin of

competitors

Diverse High

Overall

Rating: Medium


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THANKYOU

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Documents

Kirt- Porter 5 Force Model (2)