Michael Porter created the “Porters Five Forces of Competitive Advantage” model in 1979. It is used to analyse several factors within the business world. Porters five forces can be applied to all natures of business, from furniture sales to cloud computing. Porters five forces allows a business to analyse the market before entering the market to see if it is worthwhile. Contrastingly, it also allows a business to analyse the impact of a new business entering into the same market in which they are operating. Porters five forces is broken down into:
- Threat of new entrants
- Bargaining power of buyers
- Bargaining power of suppliers
- Threat of substitute products
- Industrial Competitors
Each heading can be explained as the following:
Threat of new entrants:
How easy is it to break into the market? If it is easy to set-up and deploy your product or service a lot of micro-enterprises may enter. If economies of scale are not a factor, it would make it easier for other businesses to enter the market.
Bargaining power of buyers:
How easy is it for customers to drive prices down? How important is an individual customer to the business? Is it worthwhile for a consumer to swap services to a new company?
Bargaining power of suppliers:
Does the business have a lot of suppliers? Does the supplier have a unique selling point that they can use to fluctuate the prices?
Threat of substitute products:
Are there any similar products/services? How easy is it for a customer to switch to a similar product/service? How likely is it that a customer will switch to an alternative business?
How intense is the competition? Does the business have a unique selling point (USP) that makes them desirable for customers? How powerful and influential is the business compared to its competitors?
This is an extract of a report I made while obtaining a 1:1 in BSc (Hons) Software Development & Computer Networking at Cork Institute of Technology. This is intended for informational purposes and not to be used for plagiarism so don’t just change the words around.
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