Question

Please write (type) about how should organizations analyze their businesses using Porter's 5 Forces Model?

Answer 1

Porter’s five force model has identified different forces in the business environment that affect the organizations. Hence, it is the organization that should analyze the market using the model and take strategic initiatives to gain competitive advantage and positioning in the market. These analysis should take place as follows:

1. Bargaining power of the buyers

Organization operates business activities by offering products and services to the target audience. So, the audience should be assessed on the basis of their elasticity of demand, presence of substitutes and their ability to switch from one product to another product. It decides the bargaining power of buyers and organization should use it to identify the nest pricing and advertising strategy in the market.

2. Bargaining power of suppliers

Here, the organization should analyze the number of suppliers available and their ability to manipulate the pricing. On the basis of it, the organization can enter into a long term contract with the suppliers to prevent any risk of shortage. Uniqueness of the product and services to be delivered, is also considered when deciding the bargaining power of the suppliers.

3. Threat of substitutes

It makes the organization to decide upon the type of pricing strategy to be followed by the organization. If there are close substitutes, then the pricing strategy should be to put the substitutes at bay to hold the market position. Besides, the organization needs to be evolving to counter the threats from the substitutes.

4. Threat from the new entrants

New firms also enter the business environment and try to capture the market share of the existing organizations. In this regard, the organization has to continuous scan the market and identify the threats posed by the new entrants. By doing such preparations, organization can change the product line, build strategic tie ups and bring change management to safeguard their market presence.

5. Competitive rivalry

It explains the number of firms present in the business domain and they are competing with each other. The degree of competition gives indication to approach the target audience on the basis of unique services, new product offering and competitive pricing.

Above forces help the organization to analyze business and make strategy.