Question

A private lab introduced a generic medicinal product to reduce or eliminate coughs and cols. Explain how the Porter’s five forces model to can be used to analyse the firm’s competitive position.

Answer 1

The first step is to gather information related to the five forces of porter model and it includes -

1 Threat of new entry- amount of capital, licensing, product differentiation, sunk cost, economies of scale, brand reputation
2 Supplier power- number of suppliers, size of each supply, availability of substitute in terms of supplies.
3 Buyer power- Number of buyers, size of each order, price sensitivity, number of substitutes
4 Threat of substitutes- cost of switching to substitute, performance of substitute, numbers of substitutes available.
5 Rivalry among existing competitors- customer's loyalty, number of competitors, size of industry, scope of expansion and growth in industry, advertising cost.

The second step is to analyse each factor that is affecting the industry. This helps you to figure out the control between your company and the forces. For example if the consumers are price sensitive then the prices are to be competitive.

The final step is to formulate the strategies to have better control over the business. For example cost leadership strategy should be used if in the analysis it is found that economies of scale is difficult for the company to achieve or using strategy of product development if the market for cough is saturated.