Question

What are the five competitive forces that affect prices and profitability in an industry?

Answer 1

The competitive forces that affected prices and profitability in an industry as follows below.

1) THREAT OF NEW ENTRANTS ;

New entrants are always a powerful source of competition. The new entrants will bring new product range and they increase competitive forces . New entrants also place a limit on prices and affects profitability of existing players. The bigger the new entrant , the more severe will be the competition.

2). BARGAINING POWER OF CUSTOMER ;

This is another forces that influences the competitive condition of an industry. This force become heavier depending upon the possibilities of buyers forming into the groups or cartels . Quite often industrial product users comes together and put pressure on producer regarding price , quality and delivery.

3) BARGAINING POWER OF SUPPLIERS;

Quite often suppliers too exercise considerable bargaining power.the power of suppliers is likely to be high when

A) There is concentration of supplier instead of framented source.

B) The ‘switching cost ‘ from one supplier to another is very high.

C) The brand of supplier is powerful.

The bargaining power of suppliers determine the cost of rawmaterial and other inputs , industry attractiveness and profitability.

4) RIVALRY AMONG CURRENT PLAYERS ;

The rivalry among existing players means competition. It will influences prices as well as costs of competitors in the industry , in production facilities , product development , advertising , sales forces etc…

5) THREATS FROM SUBSTITUTES ;

Substitute products are a latent source of competition in the industry . Substitute products offering a price advantage and / or Performance improvement to the consumer can drastically alter the competitive character of an industry.and they can bring it about all of a sudden.