Question

Let’s say you work for McDonald’s and you applied Porter’s Five-Forces Model to study the fast-food industry. Rank the five forces as to relative importance for strategic planning at McDonald’

Answer 1

Solution:

Porter's five forces are,

1. Bargaining power of suppliers
2. Bargaining power of buyers
3. The threat of new entrants
4. Threat of substitutions
5. Competitive Rivalry.

These are the five forces of Porter's model. We will rank these forces as per their relative importance to the strategic planning at McDonald's.

Ranking in order of high to low importance. (Highest important force explained first)

• Competitive Rivalry:
  This is the most important force for strategic planning at McDonald's because the competition in the food industry is very high and failure to attract crowd would result in customers shifting to the competitors. The cost of switching to rivals is low to moderate for most of the consumers and hence this will be the most important factor McDonald's would want to consider in their strategic planning.
  
• The Threat of Substitution:
  There will always be new and innovative food products that will come into the market. Hence, McDonald's will have to understand the threat because of the substitution of products such as Pizza, Subway, Healthy Diets meals, etc. Hence, McDonald's has to consider this element as one of its crucial parameters to base their strategic planning.
  
• Bargaining power of buyers:
  The buyers have significant bargaining power because of their low to moderate cost of switching to the rivals and hence the company should focus on the buyers and their bargaining power as well in their strategic planning.
  
• Bargaining power of suppliers:
  The suppliers do have a little bargaining power because of the strong brand name of McDonald's and hence McDonald's will not be so worried about the switching of suppliers because there will be many suppliers who would want to work with McDonald's and leverage their brand name.
  
• The threat of new entrants:
  McDonald's would be least worried about the threat of new entrants because the organization is extremely huge and the new entrants may not harm the sales of the company to a great extent. Hence, this will be the least of their priorities.

Hence, this is how we rank Porter's five forces as relative to the strategic planning of McDonald's.