Five Forces Analaysis

five forces analysis

Any industry that is growing up today has to maintain some rules and regulations. There is a popular concept as well, which defines an organization’s competition - five forces analysis. Michael E porter discovered it in 1979 at Harvard business school. This concept describes the competitiveness of any organization in the industry. Now before that, one should know about the idea of an industry and a firm. When an organization created, it is known as a firm singly and it comes under business studies.

However, the collaboration of many firms is known as an industry. Now there is a fact one industry can have different firms. But there are a lot of industries. In it is a common fact that on a particular perspective and particular project, there are a lot of firms. 

Porter’s Five Forces Analysis in Marketing Strategy

Now, the concept of Porter’s theory comes to introduce competitive marketing strategies because the same product manufacturing companies can have tough competition in themselves. By knowing Porter’s five forces analysis, it is easy to handle the competition in the market. Now, it is necessary to know the five forces that Porter has described.

Competitive rivalry:

Competitive rivalry is the first barricade that a firm is going to have when it started its business in the targeted market. It represents the number of the opponent. This means when an organization is starting in the industry or already situated that, should know about its rivals. What are the strategies others are using, and what are the concepts they are applying for marketing? So these all are generalized in one category that is the competitive rivalry. If competitors are very much in the industry, then the organization has to provide more discount on the products. 

The firm should do more advertising for the products they have to maintain the profit comparatively with others and if there are the competitors are low in the industry, then it is better to have the money invested over the product more to develop it to a range where new competitors have to think to launch the same product a hundred times. It will create a beneficial point to have more profit as well as to build up a strong root in the industry.

Bargaining power of suppliers:

Any firm needs raw materials to have its product to be sale-ready. However, there are suppliers for that. But the question mark comes here that how much suppliers are available and what is the availability of the raw material itself. If the raw material is not available very much, so it is necessary to import these materials from outside. So their suppliers who are supplying the product they can demand easily more money according to their necessity. Therefore, a major barrier can be created. 

But if the raw material is readily available, so there is also the availability of the suppliers’ increases. Here the organization or firm has the option to shift from one supplier to another supplier if some cost is changing cases happen. Because any organization’s ultimate motive is to gain more and more profit. So these all case study comes under the bargaining power of the suppliers.

Bargaining power of buyers:

Now there is one more point, which is the benefits area for any organization is buyers. Now every product that a company is creating has a specification. There are the salespeople who have to sell the product to the customers. But in this portion, the question mark again comes. That is what is the availability of the stock. And what is the volume of users in the market? 

So here if the number of buyers of the product is more, then the cost will automatically go down. Because any organization will not want to lose its popularity by thinking of profit. So their company will maintain the balance by following the theory. The same approach also applies to the opposite reaction of the situation. This means if the number of buyers is less than the cost of the product goes high. Also, there is one more point to concentrate that the product should be different from other products. If a similar facility is having products available in the market, then if the product’s price is high compared to the other, the product will not be going to generate profit much more.

The Threat of new entrants:

In any industry, as mentioned above, there will be one competitor, at least. But the most crucial point is the latest entries in the industry. For the new entries, there are some barricades like the cost of entry means the price of a startup, government policies, having a patent or know how to make, etc. 

But there is still a threat of new entrants if they are giving more discounts than the available one or not. The product that they are providing is better than the available product or not. These threats can be covered with this category.

Threats of substitutes:

Threats of substitute mainly defines that an available product has any alternative or not in its targeted market. If the number of replacements of the product is more than the price of the product will go low and if this becomes a unique product, then the product price will be higher. It is one of the essential points of the 5 forces analysis.

Effectiveness of Five Forces in business analysis:

  • Companies can get an overview of other competitors.

  • Product quality improves due to competitions.

  • A collaboration with other organizations happens due to improving support for the after-sale service.

  • The share market has improved and gains stability.

  • The relationship between a customer and the company becomes good.

The Final Decision of the Five Forces Analysis:

In a particular industry, there can be a lot of organizations. It is common to have a competition between them. Competitions make the companies aggressive to make their products better where the customers get benefitted. So, in between the war of companies, organizations as well as the customers are benefited. The five forces analysis is the ultimate decision-making process for any industry about a company’s competitors.

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