Strategic Analysis: Porter's Five Forces Framework
{"Image DocumentName": "Strategic Analysis: Porter\u2019s Five Forces Framework", "Image ImageDescription": "Threat of New Entrants. First focus for analysis. Intensity of Rivalry. Bargaining Power of Suppliers. Bargaining Power of Customers. LOS: Discuss the principles of strategic analysis of an industry. Pages Analysis of the competitive environment with an emphasis on the implications of the environment for corporate strategy is known as strategic analysis. Michael Porter\u2019s five forces framework is the classic starting point for strategic analysis. Porter focused on five determinants of the intensity of competition in an industry: \u2022 The threat of substitute products, which can negatively affect demand if customers choose other ways of satisfying their needs. For example, consumers may trade down from premium beers to discount brands during recessions. Low-priced brands may be close substitutes for premium brands, which, when consumer budgets are constrained, reduces the ability of premium brands to maintain or increase prices. \u2022 The bargaining power of customers, which can affect the intensity of competition by exerting influence on suppliers regarding prices (and possibly other factors, such as product quality). For example, auto parts companies generally sell to a small number of auto manufacturers, which allows those customers, the auto manufacturers, to be tough negotiators when it comes to setting prices. \u2022 The bargaining power of suppliers, which may be able to raise prices or restrict the supply of key inputs to a company. For example, workers at a heavily unionized company may have greater bargaining power as suppliers of labor than workers at a comparable nonunionized company. Suppliers of scarce or limited parts or elements often possess significant pricing power. \u2022 The threat of new entrants to the industry, which depends on barriers to entry, or how difficult it would be for new competitors to enter the industry. Industries that are easy to enter will generally be more competitive than industries with high barriers to entry. \u2022 The intensity of rivalry among incumbent companies (i.e., the current companies in the industry), which is a function of the industry\u2019s competitive structure. Industries that are fragmented among many small competitors, have high fixed costs, provide undifferentiated (commodity-like) products, or have high exit barriers usually experience more intense rivalry than industries without these characteristics. Threat of Substitute Products.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}