Table of Contents
3.Bargaining power of customers
4.Bargaining power of suppliers
6.Usefulness of the Five forces
7.Limitations of the five forces Model
8.Porter in the airline industry/Ryanair
The model of the Five Competitive Forces was developed by Michael Porter in his book Competitive Strategy: "Techniques for Analyzing Industries and Competitors" in 1980. Since that time it has become an important instrument for analyzing an organisations industry structure in the strategic processes. Porter's model is based on the idea that a business strategy should meet the opportunities and threats in the organisations external environment. Porter came up with a set of five factors/forces that includes substitute products, bargaining power of customers, bargaining power of suppliers, entrance barriers and rivalry among existing firms in the industry. Michael Porter's Five Forces have become a measuring tool for evaluating a industrys profitability.
These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to revise these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to take advantage of particular characteristics in their industry.
In economics the threat of a substitute exists when a products demand is affected by a price change in a substitute product. A threat from substitutes exists if there are alternative products with lower prices. They could potentially attract a significant share of market volume and therefore reduce the potential sales volume for existing players. The treat of substitutes is determined by factors such as brand loyalty and the...