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Porter’s 5 forces

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In companies, there are several types of management models that are adapted to their objectives and the organization , and these types of models are of great importance to achieve levels that are considered to be of excellence. One of these models is known by the name of Porter’s 5 forces, which are responsible for executing a good analysis on the role of a company in the sector.

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What are Porter’s 5 forces?

Porter’s Five Forces is a model whose main function is to be able to identify and analyze five competitive forces that condition the industry and that help define its strengths and weaknesses .

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  • Definition
  • Origin of Porter’s 5 forces
  • What are Porter’s 5 forces for?
  • How to do it
  • Review
  • Importance of Porter’s 5 Forces
  • Examples

Definition

Porter’s 5 Forces is a business analysis model that helps explain why different industries have the great ability to establish different levels of profitability. This type of model then analyzes a certain sector based on the 5 forces through analysis and identification , this makes it possible for the company to get to know its competition well and deal with the situation in the best possible way. This theory is based on the concept that there are 5 forces that determine the competitive intensity and attractiveness of a market .

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Origin of Porter’s 5 forces

The 5 Forces of Porter’s Competitive Position Analysis were developed in 1979 by Michael E. Porter, a fellow at the Harvard Business School , as a simple framework for assessing and evaluating the strength and competitive position of a business organization. .

What are Porter’s 5 forces for?

This type of analysis is used to be able to find the different opportunities and at the same time the threats that companies that are already positioned in the field of industry may face and act in the same way in those that are just starting out. It is a means with which it is possible to determine its capabilities and obtain profits .

Porter’s 5 Forces help identify where power resides in a business situation, which is very useful both to understand the strength of the competitive position as well as the strength of a position to which an organization may seek to move.

How to do it

In order to use this model, it is necessary to look for the opportunities that the company has and also identify all the possible threats that may affect it in some way. Then, the model indicates that 5 basic competitive forces should be studied, which are:

  • Intensity of current competition: here it is important to be able to analyze the way in which competitors act within the industry and it is very important because with it it is possible to know if the rivals are relevant or not. It is essential to make an analysis on the number of competitors , the growth rate has industry, the obstacles that make a company does not move, the barriers to exit and differentiation of products .
  • Potential competitors : in this stage the companies that are trying to enter the competition in the field of industry are analyzed and this will mainly depend on the entry barriers which are entry difficulties for new companies.
  • Substitute products : in this phase, the services and goods that satisfy the needs of customers are studied . As more products emerge, the degree of attractiveness of the industry will fall.
  • Substitution threat : The existence of nearby substitute products in a market increases the probability that customers will decide on other alternatives in response to price increases. This reduces both the power of providers and the attractiveness of the market .
  • Threats of new entries : Profitable markets attract new entrants, and this reduces profitability . Unless holders have strong and lasting barriers, for example patents , economies of scale, or government policies , then profitability will decline at a competitive rate.

Review

Porter’s 5 forces have several weak points. The first is related to its composition . Being a static model , it provides an overview of the industry in general at some point in the past . This can be useful to inform short-term strategy , but trends such as globalization and rapid technological advances were not taken into account when it was formulated.

The other weak point is that many people use Porter’s 5 forces in a way that was never intended. The most common mistake is trying to apply Porter’s 5 forces to a specific company rather than to an industry as a whole . Porter ‘s 5 forces provide information to clarify the strategic discussions , but they are not a tool analyzes a company in private .

Importance of Porter’s 5 Forces

Porter’s 5 forces analysis is an important tool to help you understand the forces that are part of the competition within a given sector . It is also useful in helping companies adjust their strategy to suit their competitive environment, thereby enhancing their potential profit . Today’s business strategists and marketing teams often use this tool to assess how current trends will affect an industry, which can help them assess whether a particular market is worth entering .

Examples

Starbucks Porter’s 5 forces

  • Threat from new companies : such as McDonald’s, Costa and Dunkin Donuts.
  • Clients : they have excellent bargaining power and have many offers available to them in addition to having a large number of users worldwide.
  • Substitute Products Threat : this aspect is critical for the company as many other companies develop coffee, water, energy drinks, soft drinks, etc.
  • Bargaining Power of Suppliers : Your suppliers are actually few and small. They also have good communication with grain suppliers since it is only harvested in some regions of the planet.
  • Market rivalry : in developed countries the competition is much greater taking into account the saturation of the markets.

5 forces of Bimbo

  • Threats from startups : You may have competitors who are a threat but always study the products that are already positioned to improve them.
  • Bargaining power with customers : Your customers have no power against the company and large-scale buyers have very low power against them.
  • Bargaining power with suppliers and sellers : the company has the largest share in the market and can go anywhere by placing the product in the hands of consumers, which makes it easy to position itself and negotiate low prices to benefit.
  • Substitute Product Threats : In this case there may be some competitors who substitute them mainly in baked goods and made products.
  • Rivalry between competitors : they are market leaders, which makes their products stand out more and more every day.

5 forces of Coca Cola

  • Bargaining power with suppliers : most of the ingredients of your drinks must be negotiated but at the same time they do not exercise bargaining power in setting prices.
  • Bargaining power with buyers : its buyers have bargaining power since the main source of the company is the industry market and the profit margins are noted in the purchasing power.
  • Threats from startups : Many factors make it difficult for these startups to enter this type of market primarily because of brand and customer loyalty.
  • Substitute Product Threats : There are many substitutes on the market, but the brand equity and wide availability of the company’s products are unmatched.
  • Rivalry within the industry : This type of rivalry can be classified as a type of duopoly between the company and Pepsi.

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