PORTERs FIVE FORCEs MODEL

PREPARED BY:
KIRT RAJ PHAGNA RAHUL KUMAR CHANDAN JHA MANISH JHA

INTRODUCTION
The Five Forces model of Porter is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value...) of an industry structure. Michael Porter developed Five Forces model to know about different forces that impact on a companys ability to compete It captures the key elements of industry competition.

PORTERS FIVE FORCE MODEL

Threat of New Entrants

Barriers to Entry
Product Differentiation Capital Requirements

Access to Distribution Channels

Government Policy
Technology

Bargaining Power of Suppliers

Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers are likely to be powerful if:

Supplier industry is dominated by a few firms Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product Suppliers products are differentiated Suppliers products have high switching costs

Bargaining Power of Buyers

Buyer groups are likely to be powerful if:
Buyers are concentrated Purchase accounts for a significant fraction of suppliers sales Products are undifferentiated Buyers face few switching costs Buyer presents a credible threat of backward integration Buyer has full information Buyers compete with the supplying industry by:

* Bargaining down prices * Forcing higher quality * Playing firms off of each other

Threat of Substitute Products

Keys to evaluate substitute products:
Products with improving price/performance tradeoffs relative to present industry products

Products with similar function limit the prices firms can charge

Example:
Electronic security systems in place of security guards Fax machines in place of overnight mail delivery

Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:
Using price competition
Staging advertising battles Increasing consumer warranties or service Making new product introductions

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors

Strengths of five forces model:

The model is strong tool for competitive analysis at industry level. It provides useful input for performing a SWOT analysis.

Airline Industry

THREAT OF NEW ENTRANTS Saturated Market Brand Name& Recognition

THREAT OF SUBSTITUTES Time,Money Personal References & convenience

POWER OF SUPPLIERS DominatedBoeing&Airbus Not much of difference.

POWER OF BUYERS Low bargaining Consider Service of airline too.

RIVARLY AMONG EXISTING FIRMS WITHIN AN INDUSTRY High competition Cutthroat competition Low Profitability

Competitive Analysis of TATA Nano using Porter Five forces

Threat of new entrants is influenced by Factors Entry Deterring Price Tata NANO Advantages Yes, The Price is Rs 130,000. Threat of new entrants Low Overall Rating: LOW

Retaliation by TATA in case of competition

High Entry Costs

Yes, because of large resources.

Yes , TATA spent Rs 17oo* crore as initial investment + 4 years on research HIGH because of its parent experience(TATA Motor) Yes**

Low
Medium because of reverse engineering process and availability of resources. Low

Experience

Other Cost advantages

Low

Bargaining Power of Buyers is influenced by Factors Differentiation Tata NANO Advantages Price , Durability , Brand equity Buyer Power Low Overall Rating: LOW

Concentration

Large number of consumers

Easy Availability of loans Car has passed the full frontal crash and side impact crash Passed Govt. Test of emission,noise and vibration

Low

Profitability Quality

Low Low

Bargaining Power of Suppliers is influenced by -

Factors Concentration High

Supplier Power Low Overall Rating: LOW

Switching Costs

Low

Low

Organization/cartel Diversification of supplier products

No No

Low Low

Threat of Substitute product is influenced by Factors

Availability Other Category substitutes Same category NO Yes, but, minimal extent e,g. High end bikes and other car models like Reva,Alto

Threat of substitute
low Medium Overall Rating: LOW

Time Lag in High availability of same category product Quality of substitute Quality influences the customer.

Low

Low in short term

Rivalry among Existing competitors is influenced by Factors Rivalry among existing competitors Brand equity influences the customer Negligible in short term Depends on Volume Medium as customers can switch to other products Low among same category low Low Medium

Brand Image

Overall Rating: Medium

No.of Competitos Size of payoff Switching costs

Origin of competitors

Diverse

High

THANK YOU

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