Organizations use different strategies and analyses to run their businesses successfully. Potter’s “five forces analysis” can be introduced as an analysis that studies the industry in which each business belongs. This analysis identifies five competitive forces that shape each industry and helps determine an industry’s opportunities and threats. Five-force analysis is frequently used by any business to identify the structure of their industry when determining corporate strategies. According to Porter, there are five forces in this model.
Competitive Rivalry
The first force in Porter’s five forces analysis is competitive rivalry. Here, attention is paid to the competitors in the market. That is, if there are competing businesses, who are those businesses and what are the strategies they use to attract customers? If an industry is highly competitive, companies in that industry use different strategies to differentiate themselves from each other. for example, they tend to attract customers by doing more marketing promotion programs. Also, if the competition in the industry is low or if there are no other competing companies, you can maintain a good market share in the market and maintain a high level of profit.
Bargaining power of suppliers
The parties that supply the raw materials needed to provide the products or services of the business are called suppliers. If there are a limited number of suppliers in the industry or if they supply a particular raw material, their bargaining power is high. When your business decides to switch suppliers, it is essential to consider the cost of doing so. If there are a large number of suppliers in the industry, the business can switch to the most profitable options.
Bargaining power of customers
The ability of consumers to bargain for a product or service. It refers to the pressure that buyers can put on businesses to get them to provide lower prices, higher quality products or services.
Buyers have more bargaining power when;
Businesses use some strategies to reduce the bargaining power of buyers ;
Threat of new entrants
It examines how the entry of potential competitors into the market will affect your business. Factors like startup cost, entry barriers, government regulations, and product differentiation affect entering a new market. If it takes little money and effort to enter an industry and compete effectively, and if government regulations are not too complex, rivals can quickly enter your market and weaken your position. On the other hand, if there are very complex government regulations, high start-up costs, and difficulty finding suppliers, it will be difficult for rivals to enter your industry.
Threat of substitute products and services
The threat of substitutes in Porter’s Five Forces analysis is the threat of consumers switching to alternative products or services. Price, performance, or other factors influence consumers to switch to more attractive substitutes.
