Question

What are five competitive forces by Michael Porter. Give an example such as airline industry or retail?

Answer 1

Five competitive forces by Michael Porter are described below:

1. Competitive rivalry: This force helps to determine what type of competition is in the marketplace, which is determined by the existing competitors and what is capabilities of them. Rivalry is high when there are some of the competitors are available in the market who sells the same product or services, but when the same industries is growing then the consumer can easily switch to a competitor’s offering for little cost. For examples in retail there are lot of retail shops available in the market, but the customer is going to that places where the price is low. So make sure if your competition is high in the market than you have to spent lot of money on the advertisement.

2.Bargaining power of suppliers: This force analyses that the power of the suppliers and how much control it has over the potential to raise its price, which in turn, would lower his business profitability. So make sure you have a lot of supplier because if the less number of supplier than they can increase the price at any time. For examples in retail shop you have only two suppliers where you can get the material but there are some situations where your supplier increases the price because they know you have bought the material from them at any cost. So in that case if you have more suppliers.

3.Bargaining power of customers: This force analyse the power of the customer who has use the product and services. Customer have power to switch the from one business product to another if they get lower price. For example in retail shop you have some items of X brand and customer wants Y brand because both have the same specification but Y brand is cheaper than X. So in that case customer goes to another retail shop.

4.Threat of new entrants: This force examines how the new competitors enter into the same industry. There are some barriers to entry economics of scale, product differentiation, switching cost etc.

5.Threat of substitute products: This force studies how easy it is for the customers to switch from an X product to Y product to that of a competitor. This force is determine the intensity of competition in an industry.