Porters Forces

Michael Porter’s competitive forces is a great tool used to analyze the structure of the competitive industry environment. It is used to identify a company’s opportunities and threats. Industries where their opportunities outweigh their threats is considered to be an inviting industry. The competitive forces are the risk of entry by potential competitors, the intensity of rivalry among established companies within an industry, the bargaining power of buyers, the bargaining power of suppliers, the closeness of substitute to an industry’s product, and the power of complement providers (Porter did not recognize this sixth force). (Charles W. L. Hill, 2016)

The risk of entry by potential competitors: An industry is more inviting when the chances of potential competitors are low. Industries must enforce barriers of entry so competitors are not able to easily mimic what the industry is offering to their consumers. Examples of barriers of entry are economic of sale, brand loyalty, absolute cost advantage, customer switching cost, and government regulations. An example of potential competitors is  (Charles W. L. Hill, 2016)

: Rivalries among companies can be a huge threat to a company’s success. These rivalries often cause companies to lower their prices and raise their cost.  The main factors that have an impact on intensity of rivalry among established companies within an industry are industry competitive structure, demand conditions, cost conditions, and height of exit barriers in the industry. An example of competitive rivalry is Amazon stores like Wal-Mart and Target. These stores have improved their online presents to compete with Amazon recently. Wal-Mart has even dedicated a side of their stores to online pick-ups  (Charles W. L. Hill, 2016)

The bargaining power of buyers: An industry is more inviting when the bargaining power of buyers are low. The more powerful the buyer the more of a threat they are to an industry. Factors that can make a buyer powerful are substitutes are available, buyer purchases comprise substantial portion of seller sales, buyer purchases product in high volume, buyer switching costs are low, buyer is financially stable to purchase from multiple companies, and buyers threaten to independently produce product. An example of bargaining power of buyers is when companies like Wal-Mart and Target can negotiate for pricing with companies like Tide because they purchase and sell so much of Tide’s product.

The bargaining power of suppliers: Suppliers can threaten the profitability of an industry by increasing the price and decreasing the quality of their product. Factors that make a supplier powerful are supplier’s product has few substitutes, suppliers are not affect by the purchases of a company, companies would experience a high switching cost if the reach out to a different supplier, suppliers threaten to enter their consumer’s industry, and companies cannot threaten to enter their supplier’s industry. An example of bargaining power of suppliers is Intel there are few substitute to the quality of Intel’s processor leaving Intel to dominate the market for processor chips.  (Charles W. L. Hill, 2016)