In fact, there are so many different business strategy tools, which aim at improving business situations and achieving positive results within the chosen activity. However, to my mind, Porter’s five forces analysis is considered to be one of the most effecting and developing strategies among the others.
Michael Porter developed this clear and concrete model in 1979 and amazed everyone with its overall industry profitability. The ideas, offered by Porter have lots of advantages because all of them are based on human abilities to earn some kind of return on the investment that is much better than the already known average of the same industry sector.
So, the major components of Porter’s five forces are (1) threat of possible mobility, (2) threat of substitute products, (3) existed supplier power, (4) buyer power, and, finally, (5) expected industry rivalry. All these forces have their own peculiarities, which will be investigated in this paper.
The first force, presented by Michael Porter, is threat of substitutes. The main idea lies in the fact that customers can make various decisions and change their minds as for the use of your products. This is why even your constant consumers may choose your competitors’ products in order to find out some kind of profit.
This kind of threat is possible when, at the same time, lots of substitutes are available for people. Sometimes, competitors are eager to present the same products at lower prices in order to attract the attention of your consumers. Even more, your competitors may provide people with products and services, which are of better quality than yours. (Porter’s Five Forces Model, 2009)
It is necessary to admit that these threats of substitutes may be presented in different forms, and people can hardly differentiate what concrete reason put under a threat their business.
For example, the development of a new diet is promoted by means of TV and other type of media. This promotion admits that the use of chicken is harmful for humans. This is why it is better to use lamb as the major dish. Even these words and such advertising may create some threat to the industries, connected to chickens.
In order to be ready to overcome this threat, it is possible to (1) remember that close connection to customers will be always beneficial (awareness about their preferences, desires, and abilities); (2) develop new brands and attract customers with fresh ideas, which have not been introduced by the competitors; and (3) make advertising available to all people, so that customer may discuss it, analyze, and make necessary decisions.
Another significant threat that has to be taken into consideration is threat of mobility or, in other words, threat of new entrants. This kind of threat has all chances to weaken the power of the chosen organization. When the product is not differentiated or the requirements, which are necessary to start a new business, become less, the threat of mobility becomes more and more evident. (Porter’s Five Forces Model, 2009) Also, low switching costs and easy access to inputs may cause threat of mobility.
So, to conduct the analysis of the threat of mobility, it is necessary to concentrate on the barriers for entering and developing and analyze the possible reactions from new competitors’ sides. “Barriers to entry are the costs and/or legal requirements needed to enter a market.
There barriers protect the companies already in business by being a hurdle to those trying to enter the market.” (Ehmke et al. 7) I cannot but mention a few words about the uniqueness of each barrier: each situation and its circumstances require a new barrier with its own peculiarities and time limitations. After a deep analysis of this particular threat is over, it is high time to think about the ways, which may help to overcome this threat and take the desirable leading positions again.
To create several alliances and enhance own brand image is not a bad idea to begin with. With the help of these steps, an organization demonstrates its desire to develop and cooperate in order to provide the customers with the best products only. Such cooperation cannot but be mentioned by competitors and consumers, and will be properly considered. Of course, it is possible to set such prices, which may earn positive profits in order to prevent this threat of mobility one more time.
Bargaining power of buyers is another force that concentrates on buyers and their abilities to control sellers’ prices. With the help of this very force, it is possible to analyze how consumers may unite in order to buy lots of products simultaneously and spend less money. This impact on industry and its productivity cannot but be mentioned by those, who try to analyze the market situation and achieve certain improvements.
So, power of buyers becomes more considerable when these buyers unite and start buying lots of goods, or when one buyer wants to buy as many goods and spend less money because of sales. If shopping cost is low and buyers feel any changes within prices, this bargaining power of buyers increases considerably within a short period of time. Without any doubts, there is some kind of connection between a consumer and a seller.
However, if a buyer is regarded to have more economic power, seller’s opportunities to gain recognition and achieve the necessary profit will be decreased. So, when a seller knows that a buyer is more powerful during cooperating with another buyer, a wise seller starts thinking about the ways of how to attract consumer’s attention to buy something alone. For example, two car companies start their cooperation in order to present a new model.
They buy lots of details together and spend less money; however, the profit, they achieve, turns out to be very significant. In this case, power of buyers takes a considerable place and provides buyers with a chance to control the situation and choose the seller. In order to reduce such kind of power, it is better to increase buyers’ loyalty by means of selling the goods directly to customers.
It is high time to talk about one more significant force, Porter admitted in his research. It is supplier power that distinguishes how strong the position of sellers may be. Supplies prices should be controlled, and this bargaining power of suppliers allows them to control this kind of price. “When suppliers have more control over supplies and its prices that segment is less attractive. It is best way to make win-win relations with suppliers.
It’s good idea to have multi-sources of supply.” (Porter’s Five Forces Model, 2009) So, it is necessary to be rather careful with the factors, which may influence the power of suppliers and even increase it: suppliers have all chances to buy products and services to your customers. The example of such power may be the case if a manufacturer opens own retail outlet and start completing against. In this case, manufacturer gets more possibilities to achieve really high profit and take the leading position.
From time to time, its turns out to be rather difficult to switch to another suppliers. In this case, the power of suppliers has all changes to make a negative impact on further development of the organization. However, it is quite possible to take certain measures to overcome the difficulties, caused by this supplier power.
First of all, it is possible to provide customers with in-time delivery in order to prove that your services are effective and reliable. Secondly, it is possible to use information about consumers’ needs and their preferences in order to present more and more captivating products. And, finally, it is necessary to use new technologies only, as lots of people want to use high-tech to be modern and interesting to other people.
Finally, Porter presents useful information about industry rivalry and separates it as one more force that may influence the development of a certain industry. According to Porter, this force is all about the intensive competitions between numerous marketing competitors. The major point is that intensity of rivalry usually depends on (1) number of competitors, (2) competitors’ capabilities, and (3) the presence of a leader in the competition.
As any other threat in this Porter’s model, industry rivalry has its own factors in order to be increased. This is why growing of industry, low switching costs, and equal competitors positively influence industry rivalry and the presence of a concrete market leader during these competitions cause less rivalry. It is possible to use plenty of tactics in order to reduce the threat of rivals.
Decreasing of prices, underlining the significance of the product or services, improving the quality of the products – these and many other tactics will help to take the necessary steps to achieve good results and win the competition in a short period of time.
For example, if two companies are going to compete, the presence of leader, even if he/she does not belong to any of the companies, will decrease the power of industry rivalry. This leader will control the situation and does not allow breaking rules and using of some measures to achieve the best results only.
So, in general, Porter’s five forces model turns out to be a very powerful tools to comprehend how power may be controlled in business. With the help of this model, it becomes easier to find out the strengths and weaknesses of the competitors, concentrate all attention in order to win the competition, and present the best product to consumers. Those managers, who are eager to develop and growth, will certainly find this model as the most reliable one, as it touches upon numerous details, which are so important in competitions.
In our modern quickly developing world, it is necessary to use various means to create, develop, and earn some profit from something. The essence of the Porter’s five forces model is to help young managers to make proper decisions and develop really powerful company. The analysis of each force separately helps to realize where and why it is necessary to pay attention more, and which services it is better to demonstrate and which ones are better to hide.
Ehmke, Cole, Fulton, Joan, and Akridge, Jay. Industry Analysis: The Five Forces. Agricultural Innovation & Commercialization Center. 4 Jul. 2009,
“Porter’s Five Forces Model.” Your Academic Encyclopedia. 2009. 4 Jul. 2009.