Porter's five forces model
Summary
TLDRThe video explains Porter's Five Forces model, a strategic tool for assessing the competitive landscape of an industry. The model identifies five key forces: rivalry among existing firms, the threat of substitute products, the threat of new entrants, supplier power, and buyer power. Each force is detailed, showing how they influence a company’s competitive position. The script highlights how these factors shape industries like online grocery markets, discussing challenges such as high competition, buyer power, and potential barriers for new entrants. It's a useful guide for understanding business strategy and industry attractiveness.
Takeaways
- 🔍 Porter's Five Forces is a strategic tool for analyzing industry attractiveness and competitive power within a business situation.
- 🛡️ The Threat of Substitute Products is high when there are many alternatives available, easy switching, and better quality from competitors.
- 🚀 The Threat of New Entrants is influenced by industry entry and exit barriers; low capital requirements and low switching costs increase this threat.
- ⚔️ Industry Rivalry is intensified by a large number of competitors, low switching costs, and high fixed costs leading to price wars and differentiation efforts.
- 🛒 The Bargaining Power of Suppliers is high when they are few, concentrated, and offer unique or essential inputs with high switching costs.
- 💼 The Bargaining Power of Buyers is high when there are many suppliers, few buyers, and the product is undifferentiated with low switching costs.
- 🌐 In the online grocery market, high competition, high buyer power, and low supplier power are observed, making it a challenging yet lucrative industry.
- 💡 Entrepreneurs with innovative business models and strong operational management can succeed in the online grocery market despite the challenges.
- 🚧 The online grocery market's attractiveness for new entrants is significant due to its potential, but barriers like high initial capital and intense competition exist.
- ⏪ Low or no switching costs and the availability of offline stores as substitutes make brand loyalty a challenge in the online grocery sector.
Q & A
What is Porter's Five Forces Model?
-Porter's Five Forces Model is a business strategy tool developed by Michael Porter that helps companies understand the competitive power within a business situation by analyzing the attractiveness of an industry.
What are the five competitive forces identified by Michael Porter?
-The five competitive forces identified by Michael Porter are: rivalry among existing firms, threat of substitute products, threat of new entrants, bargaining power of suppliers, and bargaining power of buyers.
How does the threat of substitute products affect a company's competitiveness?
-A high threat of substitute products makes a company's products less attractive as customers can easily switch to competitors' products, especially if they are available at the same or lower price with better quality.
What factors indicate a high threat of new entrants in an industry?
-A high threat of new entrants is indicated by low capital requirements, low switching costs, non-differentiated products, and easy availability of required technology, which reduce entry and exit barriers.
Why is industry rivalry considered a significant force in the Five Forces Model?
-Industry rivalry is significant because it reflects the intensity of competition among existing players, which can lead to price wars, advertising wars, and differentiation, ultimately affecting profitability.
What situations lead to high bargaining power of suppliers?
-Suppliers have high bargaining power when they are concentrated, well-organized, and offer few substitute products, especially when the inputs are essential, unique, and have high switching costs.
How can a company reduce the bargaining power of buyers?
-A company can reduce the bargaining power of buyers by offering differentiated products, which create a unique value proposition and reduce the likelihood of buyers switching to competitors.
What is the current state of the online grocery market in terms of bargaining power of suppliers?
-In the online grocery market, supplier power is low because online grocers have many procurement options and engage in bulk procurement, which benefits suppliers by increasing their sales.
How does the threat of new entrants impact the online grocery market?
-The threat of new entrants in the online grocery market is medium due to high market potential attracting new players, but high initial capital requirements, low margins, and intense competition serve as barriers to entry.
What is the level of threat from substitute products in the online grocery market?
-The threat of substitute products in the online grocery market is medium to high, with offline stores being the main substitutes. Low or no switching costs allow customers to easily switch to offline stores or other online grocery platforms.
What conclusion can be drawn about the online grocery market from the Five Forces analysis?
-The online grocery market is lucrative for entrepreneurs with innovative business models and good operational management, offering considerable scope for success despite the competitive landscape.
Outlines
📈 Understanding Porter's Five Forces Model
This paragraph introduces Porter's Five Forces Model, a strategic tool used by companies to analyze industry attractiveness and competitive power. The model identifies five key forces: rivalry among existing firms, threat of substitute products, threat of new entrants, supplier power, and buyer power. Each force is explained with examples of situations where they are considered high or low. For instance, a high threat of substitute products occurs when many alternatives are available, and customers can easily switch to competitors' products with similar or lower prices and better quality. High threat of new entrants is seen when entry barriers are low, leading to more competition and reduced profitability. Intense industry rivalry leads to price wars and increased costs. High supplier power can occur when there are few suppliers with unique inputs, while high buyer power is present when buyers have many options and low switching costs. The paragraph also provides a specific example of the online grocery market in India, illustrating how these forces play out in a real-world context.
🛒 Online Grocery Market Analysis
The second paragraph focuses on the online grocery market, using Porter's Five Forces Model to analyze its competitive landscape. It discusses the high competition among existing players, including both new and established companies like Amazon Fresh, Flipkart, and Google Express. The bargaining power of buyers is also high due to the abundance of online grocery options, leading to intense competition for customer loyalty. On the other hand, supplier power is low because online grocers have many procurement options, and suppliers can increase sales by partnering with them. The threat of new entrants is medium due to the market's potential, but also due to significant barriers like high initial capital requirements and intense competition. The threat of substitute products is medium to high, as customers can easily switch to offline stores with low or no switching costs. The paragraph concludes by suggesting that the online grocery market is a promising industry for entrepreneurs with innovative business models and strong operational management skills.
Mindmap
Keywords
💡Porter's Five Forces Model
💡Threat of Substitute Products
💡Threat of New Entrants
💡Industry Rivalry
💡Bargaining Power of Suppliers
💡Bargaining Power of Buyers
💡Economies of Scale
💡Differentiation
💡Switching Costs
💡Market Attractiveness
💡Operational Management
Highlights
Porter's five forces model is a business strategy tool that helps analyze industry attractiveness.
The model identifies five forces that determine a company's competitive power in a business situation.
The threat of substitute products refers to the ease with which customers can switch to competitors' offerings.
A high threat of substitutes can make a company's products less attractive, necessitating close monitoring of price trends.
The threat of new entrants is determined by industry entry and exit barriers, impacting market share.
Low capital requirements and low switching costs increase the threat of new entrants in an industry.
Industry rivalry is the intensity of competition among existing players, influenced by factors like the number of competitors and switching costs.
High industry rivalry can lead to advertising wars and price wars, affecting profitability.
Bargaining power of suppliers is high when there are few substitutes and suppliers are concentrated.
Having multiple suppliers can mitigate the bargaining power of suppliers.
Bargaining power of buyers is high when there are many suppliers and few buyers, or when products are undifferentiated.
Differentiated products can reduce the bargaining power of buyers.
The online grocery market in India exemplifies high buyer power and low supplier power.
The threat of new entrants in the online grocery market is medium due to high initial capital requirements and intense competition.
The threat of substitute products in the online grocery market is medium to high, with offline stores being the main substitutes.
Online grocery is a lucrative industry for entrepreneurs with innovative business models and good operational management.
Stay tuned for more videos on marketing for further insights.
Transcripts
hello and welcome to marketing 91 comm
Porter's five forces model helps
companies understand where the power
lies in a business situation it is a
business strategy tool that helps
analyze the attractiveness of an
industry the model assumes that there
are five forces that determine the
competitive power of a company in a
business situation the five competitive
forces identified by Michael Porter are
as followers rivalry among existing
firms threat of substitute products
threat of new entrant bio power and
supplier power let's understand each of
these forces in detail the threat of
substitute products it refers to how
easily a company's customers can switch
to its competitors products rated on a
scale from high to low the threat of
substitute products is high in the
following situations many substitute
products are available in the market
customers can easily find the product or
service at the same or lower price
compared to the company's product or
service the quality of competitors
product is better than that of the
company if the threat of substitute
products is high products offered by a
company become less attractive and the
company needs to closely monitor price
trends to avoid any significant impact
on its revenue and profits threat of new
entrants it refers to the entry of new
players into the market reducing the
company's market share the threat of new
entrants primarily depends on the
industry's entry and exit barriers rated
on a scale from high to low the threat
of new entrants is high in the following
situations the capital requirement to
start a business in the industry is low
economies of scale products have a low
switching cost products are non
differentiated and there is easy
availability of the required technology
in the market when both entry and exit
barriers are high the profit margin is
also high however companies face more
risk because poorly performing companies
stay in the industry and try to improve
performance when these barriers are low
firms easily enter and exit the industry
and profitability is low industry
rivalry it refers to the intensity of
competition
among the existing players in an
industry rated on a scale of high to low
industry rivalry is high on the
following situations there are large
number of competitors switching costs
are low the industry is growing exit
barriers are high and industry rivals
stay in the industry and compete fixed
costs are high resulting in higher
production to achieve economies of scale
and reduce prices high industry rivalry
results in advertising Wars price wars
and differentiation which ultimately
increases costs and makes it difficult
to sustain profits bargaining power of
suppliers it refers to the degree of
power suppliers have over rising the
price of inputs rated on a scale from
high to low the bargaining power of
suppliers is high in the following
situations suppliers are concentrated
and well-organized few substitute
products inputs are available the
existing product input is effective or
unique and switching cost is high when
suppliers have more control over inputs
and their prices the market segment
becomes less attractive it is best to
have a mutually beneficial relationship
with suppliers and also have multiple
suppliers bargaining power of buyers it
refers to the degree of power buyers
have to bring down the prices of
products rated on a scale of high to low
bargaining power of buyers is high in
the following situations too many
suppliers offer the same product at
similar prices there are few buyers
seeking to purchase a large number of
goods bulk purchases are involved the
product is not differentiated and
switching cost is low the bargaining
power of buyers can be brought down by
offering differentiated products example
online grocery market in India Porter's
five forces model competitive rivalry
high high competition in the industry
with both new smaller players and big
companies such as Amazon fresh Flipkart
Google Express etc vying for a larger
share of the market bargaining power of
buyers high customers have a large
number of online grocers to choose from
all companies in the industry are trying
to give the best value and shopping
experience to customers
bargaining power of suppliers Oh
supplier power is low because online
grocers have a large number of
procurement options and involve bulk
procurement providing suppliers with
extra business by taking them online
vendors can increase their sales by
simply partnering with online grocers
threat of new entrants medium the online
grocery market is becoming highly
attractive for new entrants owing to its
huge market potential investors are
bullish about the hyper local segment
however high initial capital requirement
low margin and intense competition are
the main barriers to entry threat of
substitute products medium to high only
substitution available is offline stores
and their delivery systems low or no
switching costs as customers can easily
switch to offline stores and other
online grocery stores there is no brand
loyalty for any particular player
conclusion online grocery is a lucrative
industry to enter if one is an
enthusiastic entrepreneur with an
innovative business model and good
operational management there is
considerable scope for success in the
industry stay tuned for more videos on
marketing thank you
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