Topic 7 – Porters Five Forces
Porters Five Forces is a model designed to help us quickly and effectively analyse the market in which our business operates.
It provides a framework for us to conduct our market research and ensure that we have considered the key competitive factors that may impact on our business.
By ensuring that we are aware of these 5 factors it will help to identify what we need to consider when building a business / marketing plan and help with developing key strategies in which to grow.
For a quick explanation of Porters five forces watch the 2 minute video from Harvard business school which focuses on the airline industry
https://hbr.org/video/3590615226001/the-explainer-porters-five-forces
Porters 5 Forces Explained
Barriers to Entry – how difficult, expensive and time consuming is it to enter the market you have defined?Industry Rivalry – How many people are in the market and how fiercely competitive is it in this market?
Buyer Power – The buyer power is strong if they can move to one of your competitors quickly an easily at little cost either time or financial.
Supplier Power – The supplier is strong if they do not have many competitors or if you are a small percentage of their business.
Substitutes – What else could the consumer spend their money on to get what they want?
Porters Five Forces – evolved
Explanation
However in the real world not all of Porter's Five Forces are not the same for every business
For example if the market you are entering has many substitutes i.e. if you run a bowling alley then substitutes may be all other entertainment venues within the area i.e. cinemas, pool halls, golf ranges, restaurants, theatres – then this box maybe big.
However if there are many suppliers of bowling balls and pins i.e. more than 10 companies then the supplier power maybe weak and you have many places where you can buy your product supply from, this would mean the supplier power box will be small. As a result more of your resources should be focused on competing with substitutes i.e. marketing plan.
The smaller the box, the weaker the forces, thus the less resources required to work on it, thus the larger the box, the stronger the force and the more resources / focus should be dedicated to considering it.
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Activity
Draw your own Porters 5 Forces ensuring that you draw the boxes to the size relative to your business.
Question: What does this tell you, where do you need to focus your energy? Is there fierce competiton? How powerful are your buyers, how many substitutes are there?
Remember the bigger the box the more challaning this force will be.