1. Porter’s Five Forces Model of Competition

2. Porter’s Five Forces
(Industry Rivalry)
• Rivalry Among Existing
Firms is High due to:
– Low Brand Recognition
– Low Product Differentiation
– Large Number of Firms
– Major Firms in the Industry
are Similarly Sized
– Industry Growth is High
– Barriers to Exit / Fixed
Costs are High
– Variable Costs are Low
– Buyer Switching Costs are
Low
Porter Force 2 - Barriers to Entry - NEXT >>
Home - Product Strategy - Strategy Portal - Economy Portal - Terms of Service
© Franteractive Inc. All rights reserved.

3. Porter’s Five Forces
(Barriers to Entry)
• Threat of New Entrants is
Low / Barriers to Entry are
High due to:
– Large Economies of Scale
– High Brand Recognition
– High Product Differentiation
– Patent Protected Products
– High Customer Switching
Costs
– Government Policy /
Regulations / Restrictions, etc.
– High Asset Specificity /
Superior Complementary
Assets such as Plant
Infrastructure, Distribution
Channels etc.
– High Fixed Costs / Cap Ex
Porter Force 3 - Buyer Power - NEXT >>
Home - Product Strategy - Strategy Portal - Economy Portal - Terms of Service
© Franteractive Inc. All rights reserved.

4. Porter’s Five Forces
(Buyer Power)
• Bargaining Power of Buyers
Increases with:
– Monopsony / Small Number of
Buyers
– Buyer Information
– Buyer’s Increased Ability to
Integrate Backwards
– Standardized Products / Low
Switching Costs for Buyers
– High Customer Switching Costs
– More Open Transactions Reduce
Buyers’ Costs of Searching for
Products, Increasing their
Bargaining Power
Porter Force 4 - Supplier Power - NEXT >>
Home - Product Strategy - Strategy Portal - Economy Portal - Terms of Service
© Franteractive Inc. All rights reserved.

5. Porter’s Five Forces
(Supplier Power)
• Bargaining Power of
Suppliers Increases with:
– Monopoly / Small Number of
Suppliers
– Supplier’s Threat to Integrate
Forward
– Differentiated Products / Low
Number of Product Substitutes
/ High Costs to Switch
Suppliers
– Closed Industry Information: if
Information is Open in the
Industry, Suppliers have less
Bargaining Power
Porter Force 5 - Threat of Substitutes - NEXT >>
Home - Product Strategy - Strategy Portal - Economy Portal - Terms of Service
© Franteractive Inc. All rights reserved.

6. Porter’s Five Forces
(Threat of Substitutes)
• Threat of substitutes results in
decreased overall industry profitability
(i.e., Wine is a substitute to Beer)
• The higher the cross-elasticity of
demand of a substitute product, the
higher is the threat of that substitute
product.
• Threat of substitutes is higher in an
industry with few competitors.
• Threat of substitutes is lower in an
industry with excess capacity.
• Threat of substitutes from a disruptive
technology can be very high (i.e., the
Internet has emerged as a disruptive
medium / product to traditional TV /
print media).
Application of Porter Five Forces - NEXT >>
Home - Product Strategy - Strategy Portal - Economy Portal - Terms of Service
© Franteractive Inc. All rights reserved.

7. SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats

8. In SWOT, strengths and weaknesses are internal factors
In SWOT, strengths and weaknesses are internal factors. For example:A strength could be:
Your specialist marketing expertise.
A new, innovative product or service.
Location of your business.
Quality processes and procedures.
Any other aspect of your business that adds value to your product or service.

9. A weakness could be:
Lack of marketing expertise.
Undifferentiated products or services (i.e. in relation to your competitors).
Location of your business.
Poor quality goods or services.
Damaged reputation.

10. In SWOT, opportunities and threats are external factors
In SWOT, opportunities and threats are external factors. For example: An opportunity could be:
A developing market such as the Internet.
Mergers, joint ventures or strategic alliances.
Moving into new market segments that offer improved profits.
A new international market.
A market vacated by an ineffective competitor.

11. A threat could be:
A new competitor in your home market.
Price wars with competitors.
A competitor has a new, innovative product or service.
Competitors have superior access to channels of distribution.
Taxation is introduced on your product or service.