Question Tag: Industry competition

Components of Porter’s Five Force Model

• Rivalry among competing firms This is based on the assumption that there are many competing firms dealing in the same line of product with similar characteristics such as quality, prices, and attractions. When the rival firms are homogenous in terms of products and prices it reduces their competitiveness.
• Threat of new entrants New entrants are firms entering an existing market. New entrants may come with new products that have advanced features which are preferred by buyers. New entrants may also enter the market with reduced prices. When such situations are not handled effectively new entrants can take the market share belonging to existing competing firms.
• Availability of substitute products Substitute products are products provided by competing firms. These products offer similar services and satisfaction. Customers can easily switch to new products if the existing products are not meeting customer expectations.
• Bargaining power of suppliers Suppliers provide the company with materials and components needed for manufacturing the company’s products. Suppliers can be powerful if they supply major components of the company’s products. Again fewer suppliers means limited choices and therefore they have the power to raise prices.
• Bargaining power of customers Customers are the individuals and organisations that patronise the goods and services offered by the company. Customers can be powerful if they have alternatives to choose from. Powerful buyers can drive down the prices of products and services offered.