Porter’s Model of Competition
Contents
Porter’s five forces – Competitor analysis
Porter’s generic competitive strategies
Porter’s model of competition – Risks and Threats
Assessing the balance of power in a business situation
Porter’s competitive advantage
Porter’s five forces
New entrants
Suppliers
Industry
competitors
and extent of
rivalry &
advantage
Substitutes
Buyers
Threat of new entrants
The easier it is for new companies to enter the market, greater are the chances of a fierce cut-throat
competition. Factors that can limit the threat of new entrants are known as barriers to entry
Existing loyalty to major brands
Brand equity
Incentives for using a particular buyer
(such as frequent shopper programs)
Switching costs or sunk costs
High fixed costs
Capital requirements
Scarcity of resources
Access to distribution
Government restrictions or legislation
Absolute cost advantages
Entry protection (patents, rights, etc.)
Learning curve advantages
Economies of product differences
Expected retaliation by incumbents
Competitive rivalry
Competitive rivalry amongst companies sometimes extends to non-price
dimensions as well like innovation and marketing amongst others
Number of
competitors
Fixed cost
allocation
per value
added
Rate of
industry
growth
Level of
advertising
expense
Diversity of
competitors
Exit Barriers
Intermittent
industry
overcapacity
Informational
complexity and
asymmetry
Influencing the power of five forces
•
Reducing the
Bargaining
Power
of Suppliers
•
•
Reducing the Reducing the
Treat of New Competitive
Entrants
Rivalry between
Existing Players
•
Reducing the
Bargaining
Power of
Customers
Reducing the
Threat of
Substitutes
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