Porter’s Five Competitiveness Analysis Model

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Keywords: competitiveness analysis

Porter's five forces model

Threat of new entrants. The addition of new competitors will inevitably break the market balance and trigger the competitive response of existing competitors, which will inevitably require the deployment of new resources for competition, thus reducing profits.

Threat of substitutes. The existence of substitutes for your products and services in the market means that the price of your products and services will be limited.

The bargaining power of the buyer. If buyers have bargaining power, they will certainly take advantage of it. This will reduce your profits and, as a result, impact profitability.

The bargaining power of suppliers. In contrast to buyers, suppliers will try to raise prices, which will also affect your profitability.

The competitiveness of existing competitors. Competition can lead to investments in marketing, research and development or price cuts, which can also reduce your profits.

The relationship between Porter’s five forces model and general strategies

The five forces in the industry general strategies

Cost leadership strategy product differentiation strategy concentration strategy

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Barriers to entry: The ability to bargain to prevent the entry of potential rivals. Cultivate customer loyalty to dampen the confidence of potential entrants. Establish core capabilities to prevent the entry of potential rivals through a centralized strategy.

Buyers’ bargaining power Having the ability to offer lower prices to large buyers. Because the range of choices is small, the negotiating power of large buyers is weakened. Without a range of choices, large buyers lose their negotiating power

The supplier’s bargaining power is better Suppress the bargaining power of large sellers and better pass on the supplier's price increase to customers. Low purchase volume means the supplier's bargaining power is high, but companies that focus on differentiation can better pass on the supplier's price increase. Pass on the threat of substitutes

The threat of substitutes can be defended by using low prices. Customers are accustomed to a unique product or service, thus reducing the threat of substitutes. Special products and core capabilities can prevent the threat of substitutes

Competition among rivals in the industry can lead to better price competition. Brand loyalty can make customers ignore your competitors. Competitors cannot meet the needs of concentrated and differentiated customers. Competitors

Enterprise Competition among people is the most important of the five forces. Only those strategies that are more advantageous than those of competitors are likely to be successful. To this end, the company must establish its own core competitive advantages in terms of market, price, quality, output, functions, services, R&D, etc.

The factors that affect competition among enterprises in the industry include: industry increase, fixed (storage) costs/cyclical overproduction of added value, product differences, trademark exclusiveness, switching costs, concentration and balance, information complexity, Competitor diversity, company risks, exit barriers, etc. New Entrants

Enterprises must remain vigilant against new market entrants. Their presence will cause the enterprise to respond accordingly, and this will inevitably require the company to invest corresponding resources.

Factors that affect the entry of potential new competitors include: economic scale, differences in specialty products, trademark proprietary rights, capital requirements, distribution channels, absolute cost advantages, government policies, and expected counterattacks from companies in the industry. Buyers

When users are concentrated, large-scale or purchase in large quantities, their bargaining power will become a major factor affecting the intensity of industry competition.

The factors that determine buyer power are: buyer concentration relative to enterprise concentration, number of buyers, buyer switching costs relative to enterprise switching costs, buyer information, backward integration capabilities, substitutes, overcoming Crisis capabilities, price/volume purchased, product differentiation, brand exclusivity, quality/performance impact, buyer profits, decision maker incentives. Substitute Products

In many industries, companies compete directly or indirectly with companies in other industries that produce substitute products. The existence of substitutes sets an upper limit on the price of the product. When the product price exceeds this upper limit, users will switch to other substitute products.

The factors that determine the threat of substitution include: the relative price performance of substitutes, switching costs, and customers' tendency to use substitutes. Suppliers

The bargaining power of suppliers will affect the degree of competition in the industry, especially when the degree of monopoly of suppliers is relatively high, there are few substitutes for raw materials, or the conversion costs of switching to other raw materials are relatively high. in this way.

The factors that determine the power of suppliers include: differences in inputs, switching costs between suppliers and enterprises in the industry, the current status of inputs into substitutes, the degree of supplier concentration, and the importance of batch size to suppliers. Costs related to the total purchase volume of the industry, the impact of inputs on costs and features, the threat of forward integration versus backward integration of companies in the industry, etc.

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