Porter’s five forces model

The Five Forces model is a framework developed by Michael Porter, a well-known economist and business strategist, to analyze the competitive forces in an industry. The five forces are:

1. Threat of new entrants: This force looks at the ease with which new firms can enter the industry and compete with existing firms. Factors that can increase the threat of new entrants include high barriers to entry, such as high capital requirements or government regulations, and the presence of strong brand recognition or customer loyalty among existing firms.
2. Threat of substitutes: This force looks at the availability of substitutes for the products or services offered in the industry. Substitutes can come from outside the industry and can be either cheaper or more convenient for consumers. For example, in the airline industry, the threat of substitutes would include other forms of transportation such as trains or buses.
3. Bargaining power of buyers: This force looks at the ability of buyers (customers) to negotiate prices or terms with firms in the industry. Factors that can increase the bargaining power of buyers include the presence of many buyers relative to the number of sellers, the importance of the product or service to the buyer, and the presence of substitute products.
4. Bargaining power of suppliers: This force looks at the ability of suppliers (companies that provide inputs to the industry) to negotiate prices or terms with firms in the industry. Factors that can increase the bargaining power of suppliers include the presence of few suppliers relative to the number of buyers, the importance of the inputs to the industry, and the availability of substitutes for the inputs.
5. Rivalry among existing competitors: This force looks at the intensity of competition among firms within the industry. Factors that can increase rivalry include high fixed costs, high exit barriers, and a large number of firms.

Here are a few examples of how the Five Forces model can be applied to different industries:

• In the fast food industry, the threat of new entrants is low due to high capital requirements and the need for strong brand recognition. The threat of substitutes is high, as there are many alternatives to fast food such as grocery stores or cooking at home. The bargaining power of buyers is relatively low, as there are many fast food options available and consumers may not be willing to pay more for their meals. The bargaining power of suppliers is also low, as there are many companies that can supply ingredients such as meat or vegetables. Rivalry among existing competitors is high, as there are many fast food chains vying for market share.
• In the pharmaceutical industry, the threat of new entrants is low due to the high barriers to entry such as the need for research and development and regulatory approvals. The threat of substitutes is low, as there are often few alternatives to prescription drugs. The bargaining power of buyers is relatively low, as consumers often rely on the advice of their doctors when choosing medications. The bargaining power of suppliers is also low, as there are many companies that can supply raw materials or intermediates. Rivalry among existing competitors is high, as there are many pharmaceutical companies competing for market share.